CASE STUDY – 2020 AND BEYOND
By: Louis Kyron, CPA, CGA
Those touting this theory as though their own either do not understand Economics 101 or just want to be able to say “called it first” about something as obvious as the sun rising and setting each day.
As an investor, perhaps short listing Aurora’s targets and going from there would be an ideal strategy. One could watch the sector news daily as well and pounce on announcement. The target company’s shares are usually at a premium in any takeover target and it often takes time for the spread to close to the offer. At time of completion, the shares of the consolidation company tend to fall so one would then rethink their strategy based on share price trending at that time. Or perhaps we will see another Constellation Brands type move where Aurora becomes the effective target by a large American company looking to enter the space. With the Canadian dollar trading around USD$0.75 … there are some discounts to be found. The second largest cannabis company, by revenue, is currently Aphria Inc which is trading at only around 8 times projected annualized earnings. Identifying targets domestically and abroad during the ramp up to US rescheduling is a strategy that cannot be dismissed. You could also short list the target companies in M&A because it is those companies that a premium is being paid for. But remember, in any new industry there will be countless failures because does California really need thousands of growers? That is why M&A will be internally focused for the most part but there will always be exceptions.
If my article’s hypothesis proves true and cannabis/hemp become “crops” then that is another factor to take into consideration because the whole plant view and usage just may open many new possibilities and opportunities.