Aurora's acquisition of TerraFarma deepens its boutique cannabis strategy

On Thursday, alberta-based Cannabis company Aurora Cannabis Inc (TSX: ACB)(NASDAQ: ACB) agreed to acquire TerraFarma, the parent company of artisanal Cannabis maker Thrive Cannabis, the acquisition is aimed at reinforcing the cannabis company's premium and premium cannabis strategy, as well as its goal of 2023 into the black. The deal is expected to close in the fourth quarter.

Under the agreement, Aurora Cannabis will pay at least C $38 million ($30 million) in cash and stock for all outstanding and outstanding shares of TerraFarma. In addition to this initial consideration, the agreement also provides for two additional consideration. Specifically, Thrive will receive up to C $10 million in cash or stock or cash plus stock if it meets its short-term revenue target within two years of closing the deal, a maximum of $20 million is available if long-term goals are met.

In recent days, bigger cannabis companies have been buying up smaller, more sophisticated producers, such as:

Village Farms International Inc (TSX: VFF)(NASDAQ: VFF) , a cannabis company based in Columbia, bought Rose Lifescience, a Richmond licensed cannabis producer and distributor, for up to C $46.7 m.

Canadian New Brunswick cannabis company Organigram Holdings Inc. . (TSX: Ogi)(NASDAQ: OGI) acquired Laurentian Organic, a marijuana producer in Richmond, in a deal worth at least C $36 million.

Thrive Cannabis is based in Simcoe, Ontario, Canada, and specializes in high-quality, small-batch handmade Cannabis and concentrate, with Greybeard and Being Cannabis. The company opened its first farm marijuana store in Ontario, in Jarvis' indoor and outdoor production facilities.

Since taking over as CEO in September 2020, Miguel Martin has been actively adjusting Aurora's business model to move away from the highly competitive, rapidly compressing prices and margins of low-priced marijuana, instead, it is focusing more on higher margins and more loyal customers for medical marijuana and high-end adult marijuana products. The company has sold, or is selling, its largest growing facilities.

During an analyst conference call a year ago, martin elaborated on Aurora's boutique cannabis strategy: “Achieving this will require collaboration on the production side, where we will concentrate resources to stabilize the cultivation of high-potency, high-terpene quality varieties and deliver products to consumers who are willing to pay a premium for quality products.”

Analysts were neutral on Aurora's deal to buy Thrive. Frederico Gomes, an analyst at ATB Capital Markets, said Thrive's strengths are positive EBITDA and a boutique marijuana strategy, but its focus on segments makes it a relatively small market share and difficult to expand in the future, there are also concerns about the price ACB is paying. Aurora's renewed focus on the entertainment marijuana market, supported by Thrive's leadership team, will help improve its cultivation and product development.