The Canadian cannabis sector is flailing so bad when it comes to rejuvenating their operations that they’ve begun recycling old ideas in an attempt to make them work again. Aurora Cannabis (TSX: ACB) this morning announced that it would be acquiring a controlling interest in Bevo Agtech, the propagated vegetable and ornamental plant operation previously owned by Zenabis Global, prior to their takeover by Hexo Corp (TSX: HEXO).
The transaction largely appears to be a form of the company finding a purpose for its Aurora Sky greenhouse facility in Edmonton, which was originally intended for the production of cannabis. The repurposed greenhouse will now be used for non-cannabis agriculture, with the facility expected to significantly expand production ability, enable access to new markets in the US and Canada, and allow Aurora to save on facility shutdown costs.
“This investment once again demonstrates our disciplined capital allocation approach and is consistent with both our short term needs and long-term vision to be the leading global cannabis company. Bevo’s track record in generating not only positive Adjusted EBITDA but free cash flow, world class propagation expertise, and established distribution networks in Canada and the United States makes them an ideal strategic partner,” commented Aurora CEO Miguel Martin.
The arrangement will see Aurora take a 50.1% interest in the company, which has been acquired by a subsidiary of Aurora for a figure of $45.0 million in cash, with a further $12 million to be paid over the next three years based on the performance of the company. $25 million may be returned to Aurora however based on the Aurora Sky transaction, and certain milestones being met at the facility.
The transaction is also expected to enable Aurora to financially consolidate Bevo, while also taking a controlling position on the firms board. The twelve months ended June 30, 2022, saw Bevo record $39 million in sales and adjusted EBITDA of $9.0 million, resulting in the deal expected to be immediately accretive to Aurora. Aurora is said to be on track for consolidated positive adjusted EBITDA for the first half of fiscal 2023.
Zenabis Global, which originally owned Bevo, sold off the subsidiary in 2021 as it looked to unload debt by any means possible. The firm was sold in exchange for the removal of $42.5 million in debt from the books and $10 million cash. The firm is said to currently have 63 acres of greenhouse production in British Columbia.
Aurora Cannabis last traded at $2.02 on the TSX.
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