Tilray Inc. has inked a deal to buy Natura Naturals Holdings Inc. for up to $70 million, a move which roughly doubles the licensed cannabis producer’s domestic cultivation capacity.
Under the agreement announced Tuesday, the Nanaimo, B.C.-based company will acquire Natura’s 61,500-square-metre greenhouse cultivation facility, of which 14,400 square metres is licensed.
Tilray chief executive Brendan Kennedy said Natura, a licensed cultivator under the Cannabis Act through a wholly-owned subsidiary in Leamington, Ont., was selected after an ”extensive and thorough search for the right supply partner.”
“We’re very pleased to have an agreement in place that allows us to expand our capacity to supply high-quality branded cannabis products to the Canadian market,” Kennedy said in a statement.
The Nanaimo, B.C.-based company will pay $35 million upon closing of the transaction, consisting of $15 million in cash and $20 million stock when the transaction closes.
The total purchase price may reach $70 million upon Natura hitting certain quarterly production milestones during the subsequent 12-month period, payable in up to $35 million worth of Tilray shares.
Tilray’s move comes as recreational cannabis retailers, both private and government-run, continue to face a supply crunch more than three months after Canada legalized pot for adult use on Oct. 17.
The shortages, which some government entities warned may last for months, has prompted Alberta to stop issuing new cannabis retail licences and Ontario to limit the initial number of private pot stores to 25.
In November, Kennedy said the company explored buying wholesale to bridge the supply gap but found there was “far less” pot available than expected. He added at the time that despite companies touting large production capacities, upon inspection there was less available and a lack of high quality cannabis on offer.
The acquisition of Natura, if completed, would approximately double Tilray’s cannabis cultivation capacity in Canada, said Vivien Azer, an analyst at investment firm Cowen.
“Tilray continues to see under-supply throughout the adult use market,” she said in a note to clients. “In particular, the company’s supply agreements with third-party farmers continue to disappoint on product quality. The Natura transaction will allow Tilray to significantly expand its capacity.”