'The stakes can be very, very big': Saskatchewan's marijuana market getting serious

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Pot, suddenly, is big business — the signs are everywhere. But nothing signals big business like an attempted hostile takeover. Saskatoon-based CanniMed Therapeutics Inc. is urging its shareholders to reject a hostile takeover bid by competitor Aurora Cannabis Inc.

The details of that attempted takeover are complex and there's reason to belive it may or may not happen. But what is clear is that big money is at stake with the pending legalization of marijuana. 

Legal pot market could be worth $250M in Sask.

"The stakes can be very, very big," said University of Regina economist Jason Childs. "If we do see the consolidation I'm expecting in this industry, there are going to be three or four players that are going to [be] exceptionally profitable."

In Saskatchewan alone, Childs says, the legal marijuana market could be worth $250 million a year. Deloitte recently pegged the national market at $23 billion. While CanniMed is now focused on the medical market — and fending off the hostile takeover — the company is moving into the recreational market, according to president and CEO Brent Zettl.

"This consolidation is all about getting positioned to enter the recreational market immediately with enough inertia that you can get some shelf space," Zettl said. 

'We already have over 200 people working here now. I can expect we will be triple within the next three to four years —triple that comfortably.' - Brent Zettl, CEO, CanniMed Therapeutics Inc.

Zettl is hoping to fend off the takeover by Aurora partially by a proposition to acquire The Tragically Hip-backed Newstrike Resources Ltd. — a move Zettl believes will make them a force in Canada's legal pot market. 

He says that proposal, along with a move to continue producing medical cannabis for Canada and overseas, means good things for Saskatchewan. 

"We already have over 200 people working here now. I can expect we will be triple within the next three to four years —triple that comfortably. Our revenue stream, we are on track to be well into $3 billion within seven years," he said. 

Success related to regulations: economist 

Childs says this jockeying by companies is to be expected, but there are a lot of questions about what legal pot will look like — especially in Saskatchewan. He says Saskatchewan is well positioned to be a player in the business, especially if the regulations are business friendly. 

"We've got a couple of things going for us: relatively cheap land, relatively cheap electricity and a very positive corporate environment in terms of taxation and regulation," Childs said.

"How successful we are in translating that into the cannabis market will depend a lot on what the specific regulations look like."

Craft cannabis system could emerge

Childs says the new national market will likely be dominated by big players — in the beer world, think of Labatt and Coors. However, depending on how the regulations shake out, there will be room for more small-scale craft producers. 

"I expect this market to look an awful lot like the beer market, where we have a relatively small number of national players and very large number of small players — so you end up with a craft cannabis system," Childs said.

CanniMed says its share prices would be even higher if wasn't for the attempted hostile takeover. 

In a letter to shareholders released Wednesday, the Saskatoon-based medical marijuana producer said its shares are trading above Aurora's offer of $24 and would likely be higher if it were not for the all-stock hostile bid.

Aurora takes issue with 'misleading' information

Aurora formally launched its hostile takeover bid for CanniMed in late November on the condition that CanniMed cancel its own planned acquisition and said its offer will remain on the table until March 9.

Cam Battley, executive vice-president of Aurora, said in an emailed statement that he took issue with what he called "misleading" information attributed to him in the shareholder letter that he said was taken out of context.

He later said in a telephone interview that CanniMed's letter "just reeks of desperation."

Stock commentary website Citron Research said Wednesday that Aurora is "the weakest player in the space," arguing that the company's hostile bid for CanniMed shows that the company irresponsibly allocates capital. Citron said Aurora "is spending $600 million on the deal when the barriers to entry are deteriorating."

Shares of CanniMed (TSX:CMED) and Aurora (TSX:ACB) were at $26.00 and $13.88, respectively, in early afternoon trading.

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