Thursdays trading session was great for cannabis companies as the majority of the cannabis sector enjoyed a steady climb. Investors in Canopy Growth are more than happy after a majority shareholder approval for the companies planned mega deal with Acreage Holding Inc. The partnership between the two companies is valued at $3.4 billion and is expected to be the beginning of many more large scale deals in the future.
Canopy Growth saw their share price bounce up and down through the session as analysts who monitor the sector weighed in on the positives and negatives of the mega deal, which would give Canopy growth who is already the largest Canadian cannabis company a huge platform on what is set to become the main stage for the cannabis market in the world. In the United States the sales of both medical and recreational cannabis are expected to see a huge growth upwards of $20 billion annually over the next 3-5 years. Currently the cannabis sector based on 2018 sales figures is valued at $1.9 billion.
Canopy growth in what could be the deal of the year in the cannabis sector have acquired the rights to buy out Acreage Holding’s as soon as the federal law in the US has been relaxed enough to allow it. Both companies are currently in an acquisition interim period which means that Acreage will continue to operate independently, however they will gain access to Canopy’s IP product formulation, patents and branding.
Andrew Carter analyst for Stifel wrote in a note to investors on Thursday “This arrangement supplements and amplifies Canopy’s ability to attack the U.S., the largest global cannabis market ($100 billion opportunity by our estimate) providing a significant competitive advantage for Canopy in relation to its Canadian peers.”
As it stands Canopy is looking very strong in the sector with a balance sheet that is more than in the green, after receiving a $4 billion investment from Constellation Brands, not only that but the share price reflects the moves the company are making, seeing a 59% gain in 2019 to date, which has outperformed many of the major indexes.
Carter further explained in their note “We believe a change in federal law in the U.S. is at best a 2021 possibility and until that time the environment favors U.S. Multi-State Operators (MSO) like Acreage Holdings that are building their position in the highly fragmented U.S. market without facing competition from well capitalized and deeply entrenched global consumer companies,” Stifel currently rates Canopy a Buy with a $64 Cad price target, a target that is 12% above its current trading level.
Christopher Stewart – AMT Associates