CanniMed Therapeutics, a Saskatchewan-based licensed cannabis producer has rejected a hostile takeover bid from Aurora Cannabis, setting up the first in a series of potential showdowns between Big Weed and smaller producers they are attempting to acquire ahead of legalization.If the hostile bid does end up being successful, Aurora’s market capitalization could grow to more than $3 billion, putting it on par with the biggest weed producer in the world, Canopy Growth Corporation.On Thursday, CanniMed invoked a “poison pill”, which is a tactic that companies use to discourage hostile takeovers — Aurora will be prevented from signing any new lock-up agreements with CanniMed shareholders, effectively barring them from selling their own stock to Aurora.“We remind shareholders to take no action with respect to the Hostile Bid, until such time as the Board can make a recommendation,” CanniMed said in a statement.Aurora claims it has already signed lock-up agreements with CanniMed shareholders representing 38 percent of the company’s stock. Aurora would have to acquire a majority stake in CanniMed in order to successfully buy the company.“It looks to us like they’re scrambling,” Cam Battley, Aurora’s executive vice-president told the Financial Post. “We don’t see this as an obstacle. We remain confident that we’re going to be able to make this go through and bring the CanniMed shareholders into the Aurora story.”“This hostile bid could spark a wave of consolidation with larger players gobbling up the smaller ones,” said Beacon Securities’ Vahan Ajamian in a research note.There are currently 76 licensed cannabis producers in Canada, but only a few of them, specifically Canopy Growth, Aurora, Aphria Inc. and Medreleaf, dominate the supply chain. What has the potential to exacerbate the oligopolistic scenario is the Ontario government’s distribution plan, which puts a vast amount of power in the hands of one buyer — the LCBO.A recent report released by Ernst and Young suggested that 87 percent of cannabis companies believe that consolidation is “inevitable” over the next three years.In fact, survey respondents were convinced that it would be big alcohol, tobacco and pharmaceutical companies that would start consolidation trend — indeed, just last month alcohol giant Constellation Brands swooped in to buy up a 10 percent stake of Canopy Growth.Last week, Aurora announced the purchase of Larssen Ltd., a firm that has designed greenhouses for the last three decades. The Vancouver-based company also bought up H2 Biopharma Inc., a Quebec-based cannabis company on the waitlist to receive its Health Canada license.But all this industry movement could actually bode well for shareholders of smaller producers. “In anticipation of accelerated consolidation, names with smaller market caps may outperform,” Ajamian wrote.CanniMed’s shares have seen a substantial rise since Aurora announced its takeover bid two weeks ago. As of Thursday afternoon, they were trading at CAD$19, from a mid-November price of $14.30.Follow Vanmala on Twitter
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