MedReleaf, Aurora Cannabis confirm discussions, but no deal reached

Shares in two of Canada's three largest cannabis companies were halted on the Toronto Stock Exchange on Thursday.

The Investment Industry Regulatory Organization of Canada halted trading in shares of MedReleaf Corp. and Aurora Cannabis Inc. on Thursday, "pending news."

Such halts are regularly ordered by the regulator when there is unusual trading in a company's shares. Prior to the halt, trading in MedReleaf shares had spiked above their normal level, after the Globe and Mail first reported that MedReleaf had been seeking a buyer.

The company put out a statement addressing the rumours, but it was non-committal.

"In response to a request by Investment Industry Regulatory Organization of Canada, MedReleaf confirms that it engages from time to time in discussions with other industry players, including Aurora Cannabis, regarding various alternatives," the company said Thursday afternoon.

"The company has not entered into an agreement to effect any particular transaction, and there can be no assurance that such discussions will result in any such agreement."

Aurora's statement said more of the same. "The company does confirm that it engages in discussions with industry participants from time to time, including MedReleaf," the company said. "At this time the company confirms there is no agreement, understanding or arrangement with respect to any transaction with MedReleaf."

Prior to the halt, Aurora was the second most valuable cannabis company in Canada, and MedReleaf was the third. Aurora was worth roughly $4.4 billion, and MedReleaf about half that.

Shares in both companies resumed trading at 1:45 p.m. Shares in both companies were higher on the day, prior to the halt. When the halt lifted, Aurora rose a little while MedReleaf fell.

Edmonton-based Aurora has grown rapidly this year, mainly by buying up other smaller companies. Just this week, the company finalized a deal to buy rival Cannimed, in a deal that was first proposed in January but was controversial at every turn.

Growth strategy

While he has no personal knowledge of the deal, Chris Damas, editor of investment newsletter the BCMI Cannabis Report, said in an interview Thursday that any tie-up between the two companies would be very much in keeping with Aurora's strategy of growing by acquisition.

"I think Aurora has this complex that they have to be bigger than Canopy," Damas said, referring to Canopy Growth, the biggest pot company in Canada. "And the only guy that can get them bigger than Canopy is MedReleaf."

MedReleaf may be an easier takeover than previous targets, Damas said, because only six people control more than 50 per cent of the company's 110 million shares. 

"The people at MedReleaf see the writing on the wall, the six big shareholders, they say 'Look, I'd like to get out,'" Damas said.

"If they can get a lockup, this deal can be done," he said. "It's not a slam dunk [but] that's what my guess is."