The countdown to the widespread legalization of recreational marijuana has begun in Canada and many of country’s top transactional lawyers are reaping some of the benefits.
In April 2017, the Canadian government introduced sweeping legislation that will make America’s northern neighbor the first industrialized nation to legalize recreational and medicinal marijuana when it does so a few months from now.
Over the last year, cannabis companies have been busy joining forces ahead of July 1, the approximate date by which most Canadian provinces will have in place laws governing the substance. With summer looming on the horizon, some large law firms are advising cannabis industry clients on a flurry of deals designed to capture market share.
On Jan. 24, Aurora Cannabis Inc., the second-largest Canadian marijuana producer, agreed to purchase its smaller rival CanniMed Therapeutics Inc. in an $852 million deal. Toronto-based McMillan, which expanded via a merger seven years ago, has taken the lead for Aurora on the transaction, the largest-ever in the marijuana space in Canada.
Borden Ladner Gervais and Stikeman Elliott, two other large Canadian firms, are advising Saskatoon, Saskatchewan-based CanniMed on the deal, which Reuters reports will creates the world’s largest marijuana producer by market value. The two companies had been caught up in an acrimonious takeover battle before recently coming to terms.
Vancouver-based Aurora hired Jillian Swainson, a business law partner at Brownlee in Edmonton, last month to serve as its new general counsel. Adam Szweras, a securities law partner at Fogler, Rubinoff in Toronto, is a member of the board of directors at Aurora.
Aphria Inc., a Leamington, Ontario-based provider of medical marijuana, also turned to Stikeman to handle its $670 million cash-and-stock purchase of cannabis processing and extraction company Nuuvera Inc. on Jan. 29. The deal, expected to close in April, saw Norton Rose Fulbright take the lead for Brampton, Ontario-based Nuuvera, whose COO and general counsel is former Baker Botts associate Josh Epstein.
Robert Kozlov, a senior partner at Norton Rose Fulbright in Toronto, serves as a member of the board at Aphria. He did not immediately return a request for comment about the transaction involving the company and his firm. Norton Rose Fulbright, which operates under the Swiss verein structure, handled the work for Nuuvera through its Canadian arm. The firm expanded up north in 2011 after absorbing Montreal-based Ogilvy Renault and subsequently combined with Calgary-based Macleod Dixon and Vancouver-based Bull, Housser & Tupper.
While Norton Rose Fulbright was mum about its marijuana-related work north of the border, Stikeman was eager to discuss the robust pace of toked up tie-ups.
“Obviously, with the advent of these two transactions, you’re starting to see a wave of consolidations in the industry,” said Curtis Cusinato, a senior capital markets and securities partner at Stikeman in Toronto advising Aphria on its acquisition of Nuuvera.
Consolidation among growers, distributors and other cannabis companies have become commonplace in Canada within the past few months as the country has become a hotbed for deals aimed at producing more opportunities to sell and produce cannabis. Companies such as Nuuvera, which works with partners in Germany, Israel and Italy, are also looking to expand their footprint nationally and internationally.
Nuuvera’s platform combined with Aphria’s arrangements in Australia will help the combined entity have a leading global footprint among Canada’s licensed pot producers. However, despite all this momentum in the dealmaking space, there are still many unanswered questions about distribution and regulation in Canada that have many investors puzzled.
“Legalization is six months away and there’s still, unfortunately, a bit of uncertainty as to what that means,” said Stikeman capital markets and securities partner Donald Belovich, who has been representing CanniMed on its proposed sale to Aurora Cannabis. (The deal is currently under regulatory scrutiny.)
And despite the insatiable demand in the marketplace, there’s still incredible volatility because of this uncertainty, added Belovich, noting that a lawyer may be working on a deal and one day their client is up 10 percent and the next day it could be down 10 percent. This throws the old rules around financing in M&A transactions completely out the window, Belovich said.
But such turmoil is not all bad.
“This uncertainty is fueling some of the speculation of volatility, but also lots of opportunities,” Belovich said.
As Canada moves toward making marijuana easily accessible, U.S. Attorney General Jeff Sessions III’s tough stance on the controlled substance and repeal of the U.S. Department of Justice’s Cole memo has had an impact in Canada, particularly with respect to investment activity on the Toronto Stock Exchange and other Canadian exchanges that have a nexus to activity in the United States, said Stikeman’s Cusinato.
It also affects the potential international expansion opportunities for Canadian cannabis companies.
“I would say issuers were looking at the U.S. as an obvious expansion strategy,” Belovich said. “That’s probably put on the shelf for another day, looking at the next attorney general, the next presidency.”