Aurora: Cannabis Plays Gets Attention from Coca-Cola

09/18/2018 5:00 am EST

Focus: CANNABIS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

Canada’s #2 cannabis stock just announced two new acquisitions. They are the 11th and 12th deals in the last two years, notes Ian Wyatt, growth stock expert, cannabis sector specialist and editor of Daily Profits.

Aurora Cannabis (ACBFF) is buying 100% of a small Eastern European hemp producer called Agropro and a processor and distributor called Borela.

Agropro has 4,000 acres under contract and plans to produce 1 million kilograms of organic hemp. Plus, the company has the option to double the production in Lithuania, Latvia, Estonia and Poland.

This gives Aurora ownership of the largest organic hemp company in the European Union. Industrial hemp is expected to grow to become a $10 billion industry by the year 2025. Aurora plans to use the hemp to create wellness products for the European market.

The two acquisitions cost Aurora $9.5 million in Canadian dollars. That’s a tiny acquisition for Aurora. Yet it’s another signal that the cannabis land grab is underway. The big players — funded with lots of cash — are buying up the smaller companies.

The strong players get stronger. And the smaller players know they can’t compete. Aurora shares have lagged some of the major players like Canopy Growth (CGC) and Tilray (TLRY). That underperformance seems unjustified, given the company’s dominant position.

Meanwhile, Coca-Cola (KO) plans to get into the cannabis market. It’s the latest proof that legal weed is going mainstream.

The world’s largest beverage company wants to develop drinks infused with cannabidiol or CBD; this is an ingredient from cannabis that treats pain — but doesn’t make you high. This could be used to reduce inflammation, pain and cramping.

Coca-Cola is reported to be in advanced discussions with Aurora Cannabis, which jumped 13% on Monday morning following the news.

Aurora would be an ideal partner for Coca-Cola. Why? Because it is a sizable producer with an international footprint in North America, Europe, and South America. Unlike Canopy Growth, Aurora doesn’t have an existing partnership with a beverage company.

Coca-Cola could buy up 10% of Aurora for around $1 billion. That’s a small investment for Coca-Cola, which has $20 billion in cash and short-term investments on its balance sheet.

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