The deal comes two months before cannabis is expected to be legalized for recreational use in Canada, and is the latest in a wave of mergers in the industry as marijuana makers — emboldened by similar moves in Europe and a number of U.S. states — seek to cut costs and gain scale.
Canada's relaxed regulations, a mature industry, and free-flowing capital have offered firms a unique opportunity to advance research without the legal and political risks that bog down growers in the United States and elsewhere.
"The combination strengthens our capacity to service the rapidly expanding global medical cannabis markets, and amplifies our early-mover advantage," Aurora Chief Executive Officer Terry Booth said in a statement.
The acquisition is Aurora's second large deal this year, coming just months after it bought CanniMed Therapeutics for C$1.1 billion.
Aurora and MedReleaf together expect to produce over 570,000 kilograms per year of cannabis through nine facilities in Canada and two in Denmark, the companies said.
Markham, Ontario-based MedReleaf sells dried cannabis and pot-based oils and capsules in Canada.
Aurora shareholders will own about 61 percent of the newly combined company, following the all-stock deal. Aurora offered to buy each MedReleaf share for C$29.44, representing an 18.2 percent premium to MedReleaf's Friday closing price.
BMO Capital Markets was Aurora's financial adviser, while Canaccord Genuity advised MedReleaf.
Separately on Monday, Aurora's chief rival Canopy Growth said it would buy out a stake in a British Columbia joint venture and also announced a plan to list its shares on the New York Stock Exchange.