Aurora Cannabis to Acquire Mexico's Farmacias Magistrales S.A.

Published: December 10, 2018

Aurora Cannabis to Acquire Mexico's Farmacias Magistrales S.A.

Aurora Cannabis Inc.  has entered into a Letter of Intent to acquire all of the issued and outstanding shares of Farmacias Magistrales S.A., subject to customary due diligence provisions,  the completion of definitive agreements, and regulatory and government approval.

As previously announced, Farmacias recently became Mexico’s first and only federally licensed importer to date of raw materials containing THC, gaining the necessary licenses, facilities, and permissions to import raw THC material, and manufacture, store, and distribute medical cannabis products containing over 1% THC. This transaction firmly establishes Aurora’s first-mover advantage in one of the world’s most populous countries, where more than 130 million people will have federally legal access to a range of Aurora’s non-flower medical cannabis products containing THC.

Under the regulations governing the Mexican medical cannabis market, domestic cultivation, import or sale in Mexico of dried flower products is prohibited. Consequently, Farmacias is the only company to date with the ability to supply THC containing products, and the only THC-containing offerings available initially will be Aurora-sourced higher-margin derivative products.

Transaction Highlights:

  • Farmacias has been granted Mexico’s first and only license to date to import raw materials containing > 1% THC, a rigorous and exacting process which took over four years to successfully complete.
  • Farmacias owns and operates a high-quality 12,000 sq. ft. facility in Mexico City for the production of pharmaceuticals. The facility is licensed for the import of raw pharmaceutical ingredients, including cannabinoids (THC and CBD).
  • Products available for sale currently include:
    • Pharmaceuticals –  kidney disease, blood pressure, anesthetic medications.
    • Nutraceuticals –  protein powders and vitamin supplements.
    • Cosmetics – anti-aging creams, hair growth products, tanning lotions, etc.
  • Farmacias has developed a strong and well-established distribution network with an extensive potential reach across Mexico through approximately 80,000 retail points for the sale of CBD products, as well as 500 pharmacies and hospitals for the distribution of THC products.
  • Further licenses held by Farmacias enable the company to import CBD concentrate and produce medical and wellness products, and the transaction provides a powerful asset for Aurora in Latin America, complementing Aurora’s large CBD production footprint in Colombia and Uruguay, through MedColombia and ICC Labs, respectively.
  • Dried flower containing THC is currently prohibited for domestic cultivation, import or sale in Mexico, creating a large potential market with strong barriers to entry, permitting only the sale of higher-margin derivative products.

Farmacias intends to use the imported THC and CBD concentrates to produce various cannabis oil products for initial introduction to the medical market. It furthermore intends to rapidly broaden its portfolio of products to include capsules, topical solutions, and sprays and various other delivery formats. Farmacias is currently licensed to manufacture, among others, oral, nasal, and suppository products.

“This transaction positions Aurora with exclusive access to supply THC-containing medical cannabis to a large market of more than 130 million people, while also enabling us to capture the full margin of the medical cannabis we sell there,” said Terry Booth, CEO of Aurora. “Farmacias has a large distribution network of both retail outlets and pharmacies, which will enable us to quickly scale up our operations across Mexico. Integrating Farmacias with our operations in Canada and Latin America will not only accelerate growth, it will build substantial long-term shareholder value.”

Consideration to be paid for the acquisition of Farmacias will be in shares of Aurora and based on a valuation of the proforma distribution revenue projections of Farmacias. The consideration payable by Aurora also includes a contingent portion of up to 25% payable only upon the achievement of certain milestones over the next 12 months related to operational metrics, such as maintaining market share.

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