Aurora Cannabis (NYSE:ACB) and ACB stock just took a body blow.
Tilray (NASDAQ:TLRY) announced Feb. 25 that it bought Manitoba Harvest, the world’s largest hemp foods manufacturer, for $317 million. Canopy Growth (NYSE:CGC) plans to spend as much as $500 million on the U.S. Hemp industry.
What’s Aurora up to?
Although it acquired Agropro UAB last September, Europe’s largest organic hemp grower, a company that can process more than a million kilograms of organic hemp, it wasn’t a huge deal financially.
Aurora paid CAD$12.6 million, including debt, a pittance compared to the investments of both Tilray and Canopy Growth. It can and ought to do better.
What Is Manitoba Harvest?
Based in Winnipeg, Manitoba, the hemp food manufacturer has its products on the shelves of Walmart (NYSE:WMT), Costco (NASDAQ:COST) and Whole Foods in both the U.S. and Canada. Consumers might be familiar with Hemp Hearts, the company’s line of seeds often used for cereal and yogurt.
This summer, Manitoba Harvest plans to launch a line of branded tinctures, sprays and soft-gels containing CBDs in the states where the sale of CBD products is legal.
Manitoba Harvest’s products are on 16,000 shelves in the U.S. and Canada. Tilray gains access to the hemp-derived CBD market in the U.S., which is estimated to hit $22 billion by 2022. The tricky part is jumping through all of the various state-level rules regarding hemp-derived CBD and CBD-infused foods. It will, however, get sorted, and when it does, Manitoba Harvest will be a leading U.S. supplier of hemp-derived CBD-infused foods.
A Focus on Medical
Right now, Aurora Cannabis CEO Terry Booth isn’t ready to let go of its stronghold in the medical marijuana market because it’s too darn profitable. Booth rightfully believes that it makes little sense to go after other markets when it can make more selling into the higher-margin medical market.
“We’re not that ready to give them more than what our contract requires when we are getting double in other locations,” Booth told analysts on the company’s second-quarter earnings call. “It is not something that we have top of the priority list in providing cannabis for a lesser price if we don’t have to.”
That’s business 101. I get it.
In the second quarter, Tilray had CAD$47.6 million in net revenue, 55% from medical cannabis and 45% from recreational cannabis. It’s not avoiding selling recreational pot; it’s just not rushing out of the medical side of its business to meet the shortages of recreational pot in Canada. Nor should it.
“If I lose sleep over anything, I lose sleep over our ability to supply this global cannabis market. It is coming at us very fast,” Booth said. “I see this world expansion in the cannabis space not even close to being fed properly. It’s at least five years before we have an oversupply situation for companies that can export under EU GMP compliant facilities.”
So, if you own ACB stock, I’d look at Booth’s concerns as opportunities dressed up as hard work. To meet the global demand for cannabis will be financially rewarding for all.
Missed a Big Chance
I believe that Tilray’s purchase of Manitoba Harvest was brilliant. While the dried leaf business is going to be big, CBD-infused food and beverages are going to be bigger. That’s why I recently recommended New Age Beverages (NASDAQ:NBEV) as a speculative buy.
I have no way of knowing how widely its current owner, Compass Diversified Holdings (NYSE:CODI), shopped Manitoba Harvest, but if it crossed Terry Booth’s desk, he should have taken a more serious look.
As time passes, owners of ACB stock will learn if Aurora Cannabis is on the path to riches or rags. Missing out on Manitoba Harvest might not hurt its future, but it sure would have helped it.
If you own Tilray stock, you ought to be smiling at the company’s latest acquisition. It’s a winner.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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