Newstrike Resources Opens Up on Fallout of CanniMed Deal

CEO Jay Wilgar tells INN about Newstrike’s focus on branding and how significant that will be to investors


After one of the most publicly heated transactions in the young history of the public cannabis industry, Newstrike Resources (TSXV:HIP) was left to its own devices despite having arranged a deal on paper that could have boosted its reach across the entire cannabis market.

In the aftermath of the fallout, the Investing News Network (INN) caught up with Jay Wilgar, CEO of Newstrike, to discuss the direct focus of the company after getting its acquisition deal from CanniMed Therapeutics (TSX:CMED) tossed aside in favour for Aurora Cannabis’ (TSX:ACB; OTCQB:ACBFF) takeover of CanniMed.

Aurora made its intentions public to acquire it’s fellow Toronto Stock Exchange (TSX) listed licensed producer (LP), but after CanniMed resisted the deal at first, the public affair aggravated. Aurora questioned the decisions from CanniMed’s management team.

After months of back and forth since Aurora’s original offer to CanniMed’s board of directors, on November 13, 2017, and with a fast approaching January 25 deadline for a crucial CanniMed shareholders vote session, the two companies turned friendly.

The two agreed to a new deal in which Aurora would pay approximately $1.1 billion as a total consideration.

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Newstrike was left behind after its own shareholders had expressed confidence in the buyout from CanniMed, with investors holding 99.4 percent of the stock voting in favor of the deal.

Wilgar told INN the idea of the deal with CanniMed not taking place hit him directly on the Sunday before the official announcement by Aurora was made.

“I started to realize Aurora [was] hell-bent on getting this done at any price and… there was no way they were backing down and I think at that point we kind of realized with the team ‘ok let’s go to plan b here,’” Wilgar said.

Immediately after the friendly deal was made public between Aurora and CanniMed, shares of Newstrike plunged. That day (January 24), Newstrike closed with a 19.23 percent drop, a $0.35 loss per share. The decline continued throughout that week.

As part of the termination, Newstrike was awarded a $9.5 million break fee, which kicked off a search of capital for the company with deals totaling a now $100 million cash war chest, according to Wilgar.

Entire experience emotional ‘roller coaster’ for Newstrike

Wilgar told INN one of the most frustrating parts of the fallout was the amount of time needed to get the deal in place, only for it to get tossed aside in the end.

“[Co-founder, president, CEO and director of CanniMed Brent] Zettl and I thought we had a great deal going there and we certainly were not expecting to have happened what did, so there is a certain level of anger as well,” Wilgar said.

He described the entire experience as an emotional roller coaster for him and his company. However, he added the company is in high spirits after completing its various financing deals.

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Was Newstrike ever an option for Aurora during negotiations with CanniMed?

At the height of tension during the negotiation for the Aurora deal, and with the looming deadline of shareholder special voting sessions, Reuters reported sources familiar with the case said Aurora was eyeing the inclusion of Newstrike in the whole deal.

In a video interview after announcing the completion of the CanniMed buyout, Cam Battley, the chief corporate officer for Aurora Cannabis, said he took issue with the report.

“It’s just that we indicated from the very beginning that our primary interest was in CanniMed,” Battley said. He added investors could get hurt, financially, from this kind of speculation from an, as he called it, “agenda-driven rumor passed by anonymous sources.”

When asked if at any point during negotiations Newstrike was on the table to join CanniMed as part of the Aurora acquisition, or if it was all just a rumor, Wilgar told INN there was truth in there.

“That was certainly an option on the table at one point,” Wilgar said. “No question.”

Battley told INN in response to Wilgar’s comment that he questioned the way Newstrike obtained that information and warned casual investors about using leaks as investment advice.

“What I would like to know is how do they know?… We were in negotiation with CanniMed. Period,” Battley said.

The day Aurora and CanniMed confirmed their new friendly terms for a peaceful acquisition, Terry Booth, CEO of Aurora, gave a room of investors an update on the way the deal eventually went down.

At the Canaccord Genuity cannabis day conference in January, Booth said the company did not want to continue pursuing an aggressive takeover and deal with “the Newstrike boys,” which he said he liked but added, “there’s lots of Newstrike’s out there.”

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Investor Takeaway

Newstrike’s focus has been strictly on the recreational market of cannabis. Their Up Cannabis brand is designed to appeal consumers on the lifestyle aspect of consuming marijuana. Wilgar said, as the industry looks for the key methods to differentiate all these companies, branding will have an “enormous” value to investors.

“The vast majority of Canadians, sure, they are looking for safe products they are looking for a controlled market that they are going into, but a lot of people are also going to look for a brand, just like they do with any other consumer good,” Wilgar said.

Newstrike’s share price has been on a tear this year. So far in 2018, the company has seen a 91.07 percent increase to its stock value. While speculation regarding the CanniMed deal affected its stock, the company reached a year-high price of $2.95 beforehand on January 9.

The company went on to complete a variety of deals to strengthen its cash position and–despite a market correction affecting the majority of the cannabis industry–Newstrike has remained stable in the market.

Despite the setback from the CanniMed deal falling apart, Wilgar hopes the focus on branding for Newstrike will prove key once the much coveted recreational market opens in Canada later this year.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Editor’s Note: This story was updated to correct the ticker symbols for Aurora Cannabis.

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

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