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Aurora Cannabis Inc
Symbol ACB
Shares Issued 332,015,691
Close 2017-06-08 C$ 2.17
Recent Sedar Documents

Aurora Cannabis to acquire 50.1% stake in Hempco Food

2017-06-08 07:47 ET - News Release

Also News Release (C-HEMP) Hempco Food and Fiber Inc

Mr. Terry Booth of Aurora Cannabis reports

AURORA TO MAKE STRATEGIC INVESTMENT IN HEMPCO

Aurora Cannabis Inc. will be making a strategic investment in Hempco Food and Fiber Inc. for an ownership stake of up to 19.9 per cent on a fully diluted basis, subject to regulatory and board approvals, as well as satisfactory completion of due diligence. Additionally, subject to customary conditions, Aurora will obtain an option to acquire shares from the majority owners of Hempco that, upon exercise of the option, will bring Aurora's total ownership interest in Hempco to 50.1 per cent on a fully diluted basis.

Hempco is one of the world's largest industrial producers of hemp and hemp products, and currently offers three primary product lines: (1) bulk and packaged food products (such as hemp protein powder, hemp seeds or hearts, hemp oil); (2) hemp fibre; and (3) nutraceuticals. Hempco's line of packaged foods is sold under the brand Planet Hemp and is distributed globally in seven countries.

The target market for these products includes, but is not limited to, health-conscious consumers, including vegetarians seeking to supplement protein and reduce or eliminate animal product intake, as well as an increasing number of consumers focused on managing and preventing a variety of health issues through a healthy diet, known as LOHAS, lifestyles of health and sustainability, and millenials looking for clean and green products.

Hempco, a rapidly growing company

For the six-month period ending Feb. 28, 2017, Hempco recorded revenues of approximately $4.5-million, a 136-per-cent increase over the comparable period in the prior year.

In order to meet growing global demand for its hemp-based products, Hempco currently is completing the construction of a facility in Leduc county, less than five kilometres from the Aurora Sky production facility now under construction at Edmonton International Airport. Upon completion, Hempco's new facility will double its current capacity to a total of approximately 225,000 kilograms per month of hulled hemp seed. Additionally, the Alberta facility is easily scalable and can be expanded to approximately 600,000 kg per month.

Strategic rationale

Industrial hemp grown under contract to Hempco contains efficient extractable quantities of cannabidiol (CBD), a compound shown through a growing body of anecdotal and scientific evidence to have considerable medical benefits in symptom management.

Aurora anticipates, based on recommendation by the federal task force on cannabis legalization, that the regulations preventing industrial hemp producers from harvesting leaves, flowers and buds, which contain CBDs, will be revised to allow for the processing of CBDs. Cannabidiol does not have any intoxicating effects such as those caused by tetrahydrocannabinol (THC).

The market for CBDs in the form of capsules, oils and topicals is expected to show significant growth, and Aurora considers the proposed transaction with Hempco to be a strategic initiative to enable market share dominance in this attractive segment.

Through its relationship with Radient Technologies Inc., the company has access to an efficient, cost-effective, high-throughput methodology of producing CBD-based products at large scale, thus providing the company with a considerable competitive advantage in addressing this growing market when CBD extraction from hemp is allowed.

Additionally, FFNHP (functional foods and natural health products) is a rapidly developing segment of the nutritional industry, with global demand for these products growing at a substantially higher rate than the traditional processed food market. Hempco's strong position within the hemp-based nutrition space makes the company an attractive synergistic partner, irrespective of potential changes in legislation that would allow the harvest of CBD-containing plant materials.

Management commentary

"Hempco is a rapidly expanding company with a strong and broadly diversified product offering, across a variety of health-related markets," said Terry Booth, chief executive officer. "Leveraging our relationship with extraction leaders, the potential to develop a high-volume, low-cost source for CBD-based products creates significant upside potential, making this transaction particularly attractive. The proposed transaction would further strengthen the foundation on which we are building our high-margin concentrates business, as well as bring further diversification to our expanding product offering."

Charles Holmes, CEO of Hempco, added: "The transaction with Aurora provides us with the resources to accelerate our commercial development. Additionally, it provides us with a very highly visible partner, whose strong brand recognition we can leverage to grow our market share. The strategic location of both our new facilities by the Edmonton International Airport, and within close proximity of world-class extraction processing facilities, provides further important logistical advantages as we expand our international reach. Hempco is delighted to be working with the world-class Aurora team who share our vision and intentions to play a leading role in shaping the future of the global hemp industry."

The investment

Aurora's investment in Hempco, subject to aforementioned conditions, will take place in two stages:

  • Aurora will loan Hempco $750,000 at an 8-per-cent interest rate. The loan is repayable upon the earliest of: June 8, 2019, a demand by Aurora for repayment, such demand which can only be made on or after Dec. 21, 2017, or the completion of all or any portion of Hempco's non-brokered private placement of units, as announced by Hempco on June 7, 2017;
  • Upon satisfactory completion of due diligence by Aurora as well as the satisfaction of a number of other conditions, Aurora as the sole investor, will participate in a private placement with Hempco to acquire a total of 10,558,676 units, priced at 30.75 cents per unit, for total gross proceeds of $3.2-million. Upon completion of the private placement, Aurora shall hold 19.9 per cent of the share capital in Hempco on a fully diluted basis. Each unit shall consist of one share and one full warrant. Each warrant gives Aurora the right to purchase, for a period of two years following the closing date, one common share of Hempco for a price of 41 cents.

Additionally, as one of Aurora's conditions to participate in Hempco's private placement, Aurora will obtain a call option, agreed upon with the two majority owners of Hempco, to purchase additional shares of Hempco from the majority owners, such that upon exercising the call option, Aurora will own 50.1 per cent of the shares of Hempco.

About Aurora Cannabis Inc.

Aurora's wholly owned subsidiary, Aurora Cannabis Enterprises Inc., is a licensed producer of medical cannabis pursuant to Health Canada's access to cannabis for medical purposes regulations (ACMPR). The company operates a 55,200-square-foot, state-of-the-art production facility in Mountain View county, Alberta, and is currently constructing a second 800,000-square-foot production facility, known as Aurora Sky, at the Edmonton International Airport. Also, it has acquired and is undertaking completion of a third 40,000-square-foot production facility in Pointe-Claire, Que., on Montreal's West Island.

About Hempco Food and Fiber Inc.

Hempco is a trusted and respected pioneer, innovator and provider of premier hemp seed foods for more than 15 years. Hempco is committed to a triple bottom line: people, planet and profits and to capitalizing on the Hempco mandate of whole crop utilization and developing hemp foods, hemp fibre and hemp nutraceuticals, a tricrop opportunity for producers and processors. Hempco has expanded its business significantly and is generating value and profits for shareholders.

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