Analyst assesses consequences after trading in companies was temporarily halted
The MedReleaf-Aurora deal rumours swirling around the TSX are “mere fluff”, according to an investment analyst.
Chris Damas, who is also editor of the BCMI Cannabis Report, said his initial skepticism over the prospect of the companies joining forces is bearing out.
Shares in both firms were halted “pending news” yesterday before trading resumed after both parties confirmed talks but said that no transaction had been agreed.
Damas said that while a “merger of equals” between MedReleaf and a company offering cost and marketing synergies had merit, he didn’t see what Aurora could bring to the table.
He said: “In our view, a merger with Cronos Group was the most likely scenario for MedReleaf, as both companies are focused on medical cannabis exports and share interests in Israel.
“The deal rumours with Aurora to us were mere fluff and that seems to be proving out. Aurora does not have any excess cash in the bank, and a paper deal would be difficult given Aurora has already floated shares in a previous deal for CanniMed.
“They could not offer any great premium to MedReleaf shareholders in our view.”
Damas, who has previously flagged up concerns that consolidation in the sector will be bruising amid bloated revenue predictions and the probability of oversupply (see first link below), said MedReleaf’s major shareholders could become jittery over further government delays.
He said: “As doubts emerge over the viability of recreational cannabis and the start date for adult use sales in Canada, we believe overvalued stocks will come down during the next several months.
“MedReleaf is controlled by a 50% share block owned by six major shareholders - Tikum Olum, MENA Investments, Zola Finance, Baronford Heights, AJA Holdings and RayRay Investments - who could become impatient and concerned with the rollout of Canadian cannabis legalization.”
