Article content continued

Photo by Jonathan Hayward/The Canadian Press

“Given where they are in their funded build-outs, 5,000 kilograms is not going to make or break their ability to supply,” said Matt Bottomley, an analyst at Canaccord Genuity Corp.

“I don’t think every single medium-sized player is going to be able to find a buyer, because if you’re a licensed producer like Canopy or Aurora or Tilray, at this point you don’t need to buy anyone for their capacity, so there has to be a differentiation or a strategic rationale,” Bottomley said.

He believes that apart from Whistler and Broken Coast Cannabis, another licensed producer from B.C. supplying the recreational and medical markets that was purchased by Aphria last year, there are no known brands that have been thriving in the medical market. On that basis, Bottomley characterizes the deal as “not material” but a “tack-on acquisition for Aurora that could not hurt.”

Licensed producer Cronos Group owns a 21.5 per cent equity stake in Whistler, after helping finance the expansion of its second facility in mid-2017.

The deal is subject to certain milestone payments, which essentially means Whistler will have to achieve certain financial goals or targets by a specific point in time in order for Aurora to complete the purchase.

“It’s hard to know if the deal is expensive because they did not disclose how much of it is a milestone payment,” said Bottomley. “But if you assume the whole purchase price of $175 million is the base purchase price, it’s still less expensive than their stock. So I like it, but I still won’t call it cheap.”

Aurora’s share price has dropped dramatically since legalization, losing more than 40 per cent of its value since a mid-October peak of approximately $15. The shares were up slightly at $8.68 in midday trading in Toronto.

• Email: vsubramaniam@nationalpost.com | Twitter: VanmalaS