Aurora Cannabis surges after hiring activist investor Peltz as advisor

Aurora Cannabis announced Wednesday that it has appointed longtime activist investor Nelson Peltz as a strategic advisor to the company.

Peltz will “work collaboratively and strategically to explore potential partnerships that would be the optimal strategic fit for successful entry into each of Aurora’s contemplated market segment,” Aurora said in a press release.

Aurora shares surged 11 percent in premarket trading following the release. The company added that it has granted Peltz options to purchase 19.96 million common Aurora shares at a price of CA$10.34.

“I believe Aurora has a solid execution track record, is strongly differentiated from its peers, has achieved integration throughout the value chain and is poised to go to the next level across a range of industry verticals,” Peltz said in the release.

“I also believe that Canadian licensed producers, and Aurora in particular, are well positioned to lead in the development of the international cannabis industry as regulations evolve, with a strong, globally replicable operating model,” Peltz added.

The addition of Peltz to the Aurora team represents one of the largest endorsements of the nascent cannabis industry.

Peltz, who founded and serves as CEO of New York-based Trian Partners, has over the decades commanded respect across Wall Street for his investing prowess and ability to reshape companies. As an activist investor, Peltz and Trian Partners take stakes in public companies they believe are undervalued and push management to make changes over several years.

But Peltz will also prove a valuable addition to Aurora for his deep knowledge of the consumer goods industry, where he’s tended to focus his investments over the years. Current investments for the multibillion-dollar fund include a $3.6 billion stake in Procter & Gamble, an $884 million stake in packaged foods giant Mondelez and a longtime, $471 million investment in Wendy’s.

Trian also held shares in PepsiCo until 2016, when the activist investor ultimately dissolved its $2 billion stake after three years of deliberations with management.

“We see a number of potential of growth areas, certainly consumer packaged goods,” Michael Singer, Aurora’s executive chairman, said from CNBC’s “Squawk Box” on Wednesday. “The beverage industry, cosmetics, wellness; we see pharmaceuticals now starting to show interest in our space. There are a number of what we call market segments that we expect to operate in with one or many of these potential partners.”

Founded in 2006 by CEO Terry Booth and headquartered in Edmonton, Alberta, Aurora is one of the largest cannabis producers in the world and one of just a handful of Canadian licensed producers to date. Second in market capitalization only to Ontario-based Canopy Growth, Aurora has grown both revenues and earnings at a dizzying pace in recent years as more jurisdictions approve the adult use of recreational marijuana.

Last month, the company said it grew net sales by 363 percent on a year-over-year basis and added that it increased kilograms sold in its second fiscal quarter to 6,999, up 162 percent from a year ago. But for Aurora and its peers, the addition of a renowned investor — or a celebrity like Martha Stewart — will help continue to normalize an industry long pursued by global law enforcement.

“Nelson also takes a long-term view of value creation to benefit all stakeholders,” Booth said Wednesday. “We look forward to working with Nelson to further extend our global cannabis industry leadership by aligning Aurora with each of the major market segments cannabis is set to impact.”

Aurora shares are up more than 60 percent in 2019 and up nearly 10 percent in the past month, buoyed after leading cannabis analyst Vivien Azer initiated coverage on the stock with the equivalent of a buy rating.

“Aurora is well positioned to benefit in the early innings of the Canadian adult use market, given its impressive 20 percent market share,” the Cowen analyst wrote earlier this month. “The company’s large cultivation footprint, capable of producing over 575,000 kilograms, provides Aurora with the necessary infrastructure to weather early storms in adult use.”

Canada became the first Group of Seven country to OK recreational use of pot on Oct. 17. Marijuana remains illegal on a federal level in the United States, but 10 states and the District of Columbia have allowed its use for recreational purposes.

Aurora stock trades under the ticker ACB on both the New York Stock Exchange and the Toronto Stock Exchange.