When discussing the fastest-growing industries in the United States, legal marijuana is probably at or near the very top of the list. According to Marijuana Business Daily's newest report, "Marijuana Business Factbook 2017," U.S. weed sales are expected to grow 30% in 2017, 45% the following year, and jump by an aggregate of 300% between 2016 and 2021 to approximately $17 billion. This type of consistent growth isn't lost on investors, which is a big reason they've piled into marijuana stocks.

Canada has emerged as a pot powerhouse

Yet, there's a pretty clear bifurcation ongoing in the North American weed market. In the United States, despite nearly two out of three Americans favoring its legalization, per an October 2017 Gallup survey, it remains a Schedule I substance. As a wholly illegal substance, marijuana isn't recognized as having any medical benefits. In fact, tax laws and a lack of access to basic banking services make it really difficult to operate a pot business in the U.S.

A person holding a cannabis joint in front of Canada's red maple leaf.

Image source: Getty Images.

On the other hand, Canada has become a stomping ground for flourishing marijuana stocks. Medical cannabis has been legal there since 2001, and recently the number of eligible medical patients has soared. More importantly, its federal government is debating legislation that would legalize recreational cannabis by July 2018. Doing so would add an estimated $3.7 billion to $5 billion annually in revenue to an industry that's already seeing incredible demand.

Merger and acquisition activity begins to heat up in Canada's weed industry

As you might imagine, with the prospects of legalization looking good (Canadian progressives outnumber skeptical conservative party members in parliament), the bigger players are looking to expand their growing capacity.

Some of the larger players have mostly chosen to expand organically. Aphria (NASDAQOTH: APHQF), for instance, is building out a four-phase project that's costing in excess of $100 million. When complete by January 2019, Aphria will have about 1 million square feet of growing capacity and be capable of producing 100,000 kilograms of dried cannabis a year. As an added bonus, Aphria is also among a small handful of approved growers that can export dried cannabis to foreign markets where medical cannabis is legal. Therefore, it has three possible channels of revenue (domestic medical, domestic recreational, and export).

Others have looked to acquisitions to speed things along. Aurora Cannabis (ACB 0.95%) is working on a mammoth project of its own: Aurora Sky. Once complete in mid-2018, this high-tech, 800,000-square-foot facility will be producing an estimated 100,000 kilograms of dried cannabis annually. But that didn't stop Aurora in November from making a $425 million unsolicited bid to acquire CanniMed Therapeutics (NASDAQOTH: CMMDF).

A businessman putting his hands up as if to say no thanks.

Image source: Getty Images.

CanniMed Therapeutics digs in its heels

In many ways, an acquisition of CanniMed appears to make sense. CanniMed's stock has underperformed its peers in 2017, and the premium of 57% in the all-stock deal offered by Aurora Cannabis would make up for a good chunk of that underperformance. There would also be clear synergies from a combination, including a much larger medical patient pool of around 40,000 people, and the ability to boost production to somewhere in the neighborhood of 130,000 kilograms of dried cannabis a year. 

However, CanniMed wants nothing to do with Aurora Cannabis or its unsolicited bid. In fact, it's trying everything imaginable, short of throwing a kitchen sink at Aurora's board of directors, to remain an independent company.

In late November, CanniMed's board adopted a poison pill tactic that'll block Aurora from buying any CanniMed shares, other than those previously pledged to the hostile bid. The poison pill agreement also prevents Aurora from signing any new lock-up agreements to support its offer. It should be noted that shareholders controlling 38% of CanniMed have come out in favor of Aurora's bid. However, with these restrictions in place, it makes it veritably impossible for Aurora to acquire CanniMed at this point. 

But that's not all. This past week, CanniMed CEO Brent Zettl asked regulators in Saskatchewan and Ontario to dig more deeply into Aurora's bid. In particular, Zettl raised two concerns.

A judge's gavel next to a pile of cannabis buds.

Image source: Getty Images.

First, there are worries that an acquisition of CanniMed could cost Saskatchewan jobs. Zettl seems pretty convinced that Aurora would move most of the company's operations out of the region, while Aurora's management team has contended that one of the primary allures of its potential acquisition is exposure and investment in the Saskatchewan region. 

However, the bigger concern raised by Zettl is that there may have been a breach of securities laws that occurred as a result of Aurora's unsolicited offer. You see, prior to Aurora making an offer to buy CanniMed, the latter was in the process of completing its due diligence to potentially acquire Newstrike Resources in an all-stock deal. According to Zettl via Bloomberg, two CanniMed directors were apparently "shopping the company around as joint actors with Aurora" while the company was completing this due diligence. Zettl clearly has concerns about confidentiality breaches and securities violations. 

The escalating tension between these two companies over the past month is thick enough to cut with a knife. It's very likely going to slow down any chance Aurora had of acquiring CanniMed quickly, before Canada officially legalizes recreational marijuana. But don't count out the cash-rich Aurora just yet. Something tells me this back-and-forth drama isn't over.