Here is where Aurora is overpaying for Whistler
Aurora’s stock rose more than 6 percent (compared with the ETFMG at +1.7 percent) when the letter of intent was announced. So it is easy to conclude that investors are wholeheartedly behind the deal. But did Aurora overpay in order to make the deal happen? We aren’t condemning Terry Booth, but the evidence says yes indeed — with only one caveat.
Whistler Medical Marijuana Corp. is a private company, so there is not a lot of data available. The biggest question out there is what is Aurora gaining for their $132+ million that could not have been accomplished differently.
Let’s start by looking at production levels. Whistler is scheduled to open a second production facility in September at which time it will have 5,000 kilograms of annual capacity of the highest quality Certified Organic cannabis. That suggests Aurora is paying $26.4 per gram for Whistler production. As of the first quarter of 2019, Arora’s cash cost to produce per gram of dried cannabis sold was $1.45.
Why not contract to purchase all the production of Whistler and agree to finance their expanded production? Even if the price per gram were $9, this would be more cost-effective.
So what is Aurora gaining for what seems like an enormous premium?
To begin there is the value of Whistler being Certified Organic. Secondly is the brand name value and cache of Whistler. Then there are certain unknowns like the number and benefit of any patents Whistler holds. At the end of the first quarter of 2019, Aurora carried $67 million in active patents on their balance sheet and having the right technology is a no doubt a valuable asset. But could it be worth $100 million or even $50 million: very doubtful.
As for the value of the Whistler brand, it holds excellent value according to Rebecca Brown CEO of advertising firm Crowns Agency. As paraphrased in MarketWatch she said, “the words ‘organic’ and ‘Whistler’ are also a declarative, clear statement of the brand, — and Whistler, the British Columbia resort town, is associated with positive things and as a ‘place brand’ Canadians are very familiar with it.”
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With no disrespect to anyone, the transferability of the Whistler brand attributes and connection to cannabis outside of Canada are far more modest, thus far less valuable.
Just because Aurora is overpaying, at this point in its financial evolution one thing should be mentioned: they can afford to. After all, Whistler is being bought with Aurora equity that at $7.4 billion in public market value may be Terry Booth’s cheapest currency.
One thing can be stated with confidence. Neither Berkshire Hathaway or Warren Buffett would pay $132 million for 5,000 kilograms of even the best and purest Certified Organic cannabis.
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