Beyond the Bong
Canopy to Acquire Acreage in Biggest Cannabis M&A Deal Ever
As 4/20 neared, American cannabis took center stage.
Now, I told investors 2019 would be rife with marijuana mergers and acquisitions (M&A).
And already this year, the weed world has been rocked by a series of record-breaking deals.
In fact, in the past month we had back-to-back $850 million acquisitions: Harvest Health & Recreation (OTC: HRVSF) buying Verano Holdings and Cresco Labs (OTC: CRLBF) buying Origin House.
These were records… albeit short-lived ones.
Because those two deals combined were no match for the merging of two whales.
Canada’s – and the world’s – largest cannabis company, Canopy Growth Corp. (NYSE: CGC), announced it would be acquiring the U.S.’s largest multistate operator (MSO), Acreage Holdings (OTC: ACRGF).
The deal is valued at a whopping $3.4 billion!
And it represents a more than 40% premium on Acreage’s shares.
But there’s one stipulation…
The U.S. federal legalization of cannabis.
Canopy has long stated that it won’t do business in markets where marijuana is illegal at the federal level. It believes this puts undue risk on investors. And this is one of the reasons Canopy has been my No. 1 Canadian pot stock to own since 2017.
But this move shows that not only is the U.S. race heating up but it’s at a tipping point.
This means federal legalization isn’t going to happen some far-off day down the road… but rather someday soon.
As Canopy CEO Bruce Linton stated, “Today, we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally permissible pathway exists.”
Meanwhile, Acreage Holdings Chairman, CEO and President Kevin Murphy pointed out, “A confluence of factors are making it much more difficult for a multistate operator to achieve its full potential, including the enormous amount of cash required to scale.”
In the past, Linton said he thought only a handful of cannabis companies would survive, that M&A would consolidate the industry. And Canopy is doing its part to gobble up as many competitors as possible.
It already has substantial backing on the infused products side from Constellation Brands (NYSE: STZ). It has celebrity partnerships with Martha Stewart, Snoop Dogg and Seth Rogen. And now it has secured the right to snatch up the largest MSO in the U.S.
Deep pockets and unparalleled reach are what make Canopy the industry’s blue chip.
The announcement also triggered a needed wake-up in cannabis stocks…
Of course, this wasn’t the only headline-grabbing story last week.
In other acquisition news, Green Growth Brands (OTC: GGBXF) is ditching its hostile takeover bid of Aphria (NYSE: APHA). It’s moved up its expiry time from May 9 to April 25.
And it agreed to repurchase 27.3 million of its common shares from GA Opportunities Corp. at CA$3.26. This caused a spike in share price.
Next, for all those investors who don’t want to pick and choose which individual U.S. cannabis stocks to buy, there’s finally a solution – the Horizons U.S. Marijuana Index ETF (NEO: HMUS).
I wrote a few weeks ago that this was likely coming from Horizons. Shares began trading on Thursday.
Beyond the Bong readers are well-acquainted with the exchange-traded fund’s (ETF) largest holdings…
Some of them are in this week’s High Five, where – each Monday – I cover the five pot stocks I believe will make major moves – up or down – in the week ahead.
The High Five
1) Greenlane Holdings (Nasdaq: GNLN) just IPO’d on the Nasdaq last week. Shares of the vape and accessories company ended Thursday’s trading up 24%. And that was after they surged more than 39% in intraday trading to $29.
That was well above the original $17 price.
So it goes to show not everyone was plowing into Pinterest (NYSE: PINS) or Zoom Video (Nasdaq: ZM)… or, mistakenly, Zoom Technologies (OTC: ZOOM).
Just note that I’m not in favor of buying into a company until at least six months after its IPO.
2) MedMen Enterprises (OTC: MMNFF) released third quarter preliminary results last week. Revenue topped expectations at 36.6%. Shares got a jolt from that, as well as from the huge Canopy acquisition.
At the same time, the California-based dispensary operator announced a couple of executives have left the company – COO Ben Cook and General Counsel Lisa Sergi.
In light of the Acreage deal, the 4/20 holiday and the management shake-up, MedMen is worth keeping an eye on.
3) TerrAscend Corp. (OTC: TRSSF) is stepping into a brave new world. It’s announcing revenue guidance for the first time ever. The biopharmaceutical expects 2019 revenue to be CA$135 million.
On April 24, the company will release full-year 2018 results. Last month, it released preliminary 2018 results of CA$6.6 million. So we can see 2019 will be a big step up.
TerrAscend also plans to open new Apothecarium locations in California and New Jersey this year. Though those won’t be included in the guidance.
4) Tilt Holdings (OTC: SVVTF) also offered a sneak peek at fourth quarter results last week. The company announced preliminary revenue of $31 million, showing that it is one of the larger revenue producers in the industry.
5) DionyMed Brands (CSE: DYME) is expected to see its revenue suffer from its split with delivery service software company Eaze. The breakup was because DionyMed couldn’t confirm the processing procedures used by Eaze meet regulatory requirements in California.
The biggest issue was that DionyMed’s deliveries through Eaze apparently cost $2.9 million per month in San Francisco and Oakland.
Now, over the past month, it’s been tough sledding for the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF)…
But we have the tailwind of the 4/20 holiday at our backs.
DionyMed and Tilt have lagged the ETF’s performance. But Tilt is looking like it’s in good shape to start making a move higher.
Meanwhile, MedMen and TerrAscend are way out in front of the Canadian cannabis ETF.
Once again, it was another big week of major headlines.
It goes to show that no industry is changing as rapidly as cannabis. And that means a lot of excitement – and big-time gains – for investors ahead.
If you have a pot stock in mind that you’d like me to discuss here, leave the ticker symbol in the comments section.
Here’s to high returns,
North American Marijuana Markets Suffer From Growing Pains
November 11, 2019
Hart-Scott-Rodino Waiting Periods Sabotage Marijuana M&A
October 28, 2019
Aphria Earnings Set Cannabis World Ablaze
October 21, 2019