Aurora Cannabis Inc. is planning to spin off its Australis Capital subsidiary as a separate entity that would focus primarily on investing in the U.S. cannabis and real estate sectors.
The spin-off will be achieved by distributing shares and warrants of the new company – to be listed on the Canadian Security Exchange.
“The fragmented U.S. cannabis market has many innovative and successful operators that struggle to access growth capital,” said Aurora CEO Terry Booth in a statement. “This creates exciting and attractively priced opportunities for the well-connected and knowledgeable team at Australis to capitalize on… While regulatory requirements vary greatly from state to state, Australis are well prepared to navigate this landscape.”
Recreational and medicinal pot is legal in several U.S. states but remains an illegal Schedule 1 drug under federal law, resulting in a hazy legal environment that has complicated things for Canadian companies looking to expand their footprint south of the border.
Last fall, Canada’s biggest exchange operator TMX Group said that federal law takes precedence over state laws, and Canadian marijuana companies with exposure to the U.S. market could face delisting. Prior to this clarification, many pot companies had largely focused on markets outside of the U.S. or listed on the Canadian Securities Exchange, which is less risk-averse.
Since then, some Canadian pot companies have shifted to exchanges other than the Toronto Stock Exchange or reduced their U.S. exposure.
Licensed producer Aphria Inc. had aggressively pursued a U.S. expansion strategy, but earlier this year it was looking to reduce its direct investments in the U.S. The Leamington, Ont.-based company’s recent moves include a deal announced in February to sell part of its stake in U.S.-focused marijuana company Liberty Health Sciences, which is listed on the CSE.
Meanwhile, in January, U.S. Attorney General Jeff Sessions rescinded an Obama-era memo that suggested that the federal government would not intervene in states where marijuana is legal, though U.S. President Donald Trump later gave Colorado senator assurances that the recission would not impact its legal pot industry. Still, other American politicians are warming up to cannabis, with New York governor Andrew Cuomo creating a task force to consider whether or not to propose legalizing marijuana for recreational use.
Australis is applying to list its shares and warrants on the CSE, Aurora said Wednesday.
“Recent changes in U.S. federal positioning with respect to cannabis have positively impacted the perception of risk to invest in U.S. cannabis assets,” the Edmonton-based company said in a statement. “This has further incentivized capital market participants to seek opportunities to fund U.S. based operations.”
Aurora shareholders who reside in Canada will receive the shares at no cost to them while non-resident shareholders of Aurora will receive cash, net of withholding taxes, instead of equity in Australis.
Australis intends to issue 75 million shares at 20 cents each through a private placement for gross proceeds of $15 million.
Australis also receives $500,000 from Aurora, as advance payment for warrants to buy Australis stock for up to 10 years.