Cannabis shares rallied on Thursday, bolstered by the news that the largest company in the industry by market capitalization has acquired the rights to acquire a US multistate operator once the federal ban on cannabis has been lifted.
Canada's Canopy Growth Corp. with a $ 4 billion treasure chest thanks to an investment by Corona Beer Distributor Constellation Brands Inc.
STZ, + 3.71%
She said she had acquired the rights to acquire New York-based Acreage Holdings as soon as cannabis was fully legalized in the US in a predominantly equity business.
"Today we announce a complex transaction with a simple goal," said Canopy CEO Bruce Linton. "Our right to acquire Acreage secures our entry strategy into the United States as soon as a permissible route exists throughout the country."
Canopy shares rose more than 8% after confirming the deal, MarketWatch reported late Wednesday. Once the rights are exercised, the deal is estimated at $ 3.4 billion, a premium of 41.7% over the CSE's volume-weighted 30-day average price of subordinated Acreage shares, which ended on April 16 Canopy in a statement.
The companies will also enter into a licensing agreement that will give Acreage access to some of Canopy's well-known brands, including Tweed and Tokyo Smoke, as well as other intellectual property.
CGC, + 6.49%
GRASS, + 7,34%
is the highest rated company in the cannabis sector with a market capitalization of more than $ 15 billion. For the time being, the company can not buy a US firm as this would limit the rules for the Toronto Stock Exchange where its stock is listed. The TSX does not allow companies to own holdings in companies engaged in illegal operations, which is made technical by Acreage of New York, as marijuana is still prohibited by law in the United States.
Canopy would also have to abandon its US listing, which was listed on the TSX, and instead consider the Canadian Securities Exchange and OTC trading in the US, as is the case with listed US companies.
Jefferies analyst Owen Bennett said the move was a positive one for Canopy and would probably have secured a far better price than waiting for the federal ban to be lifted.
"The US is by far the largest market in the world," Bennett wrote in a statement. "Our current (cautious) estimates for a 10-year discounted cash flow (DCF) give the US an enterprise value of $ 60 billion compared to an international $ 30 billion opportunity. As we wrote in our introduction, our LPs (licensed players) who want to switch to large-cap status need a presence in the US. "
The deal also shows that Canopy is driving the real value of its investment in Constellation, which is crucial given the difficulties cannabis companies face in unlocking capital markets, he wrote. Bennett has a rating of the Canopy stock.
Michael Lavery, an analyst at Piper Jaffray, agreed. "We continue to believe that differentiated branded products are the key to long-term success, and this seems to be a much greater opportunity in the US than in Canada." Lavery has overweighted the stock.
Cowen analysts said Canopy gains access to a company with one of the largest geographic footprints in the US, earning only $ 300 million in cash from its war chest.
"The company is also one of the most networked companies, and the board includes former House President John Boehner and a recent nominee for the Republican nomination as President of the United States," she said in a statement. This candidate is William Weld, former Republican Governor of Massachusetts, who has reaffirmed his plan to challenge President Donald Trump in the 2020 election.
See now: John Boehner joins a marijuana company
"These relationships are likely to be helpful in advancing an amendment to US laws on cannabis, and marijuana in particular, which remains a Schedule I controlled substance," Cowen said.
Acreage has already released its own deal, a $ 120 million acquisition of Deep Roots Medical LLC, a Nevada-based vertically integrated cannabis operator. Deep Roots has 18,000 square meters of indoor flower cover for high-quality flour, a production facility that can produce distillates and food, and four brands. It holds licenses to operate seven retail stores in Nevada and California. The acreage increased by 8.8%.
Greenlane Holdings Inc.
GNLN, + 36.54%
The manufacturer of hardware and accessories for cannabis vape achieved strong growth in his trade debut. The stock rose 40% in early trading. Greenlane set its IPO above its price range late Wednesday and increased the size of the deal. The company sold six million shares for $ 17 a barrel to raise $ 102 million. The shares are traded on Nasdaq under the ticker symbol "GNLN".
For more you can see now: Greenlane IPO: 5 Things to Know What's Next for a US Cannabis Company to Publish on the Nasdaq
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In other areas of the industry, Cronos Group Inc.
CRON, + 0.99%
CRON, + 1.08%
rose 3.5%, Aurora Cannabis Inc.
ACB, + 0.51%
ACB, + 1.17%
rose 1.0% and Tilray Inc.
fell by 1.0%.
HEXO, + 1,95%
rose by 2.5%, Green Organic Dutchman Holdings Ltd.
TGOD, + 0.00%
gained 0.3%. CannTrust Holdings Inc.
was flat and GW Pharmaceuticals PLC
fell by 0.8%.
Aphria Inc. share
fell 1.2% and Aleafia Health Inc.
ALEF, + 6.67%
ALEF, + 6.67%
rose by 3.7%. Organigram Holdings Inc.
OGRMF, + 0.75%
OGI, + 0.79%
had risen by 0.7%.
Read: Tilray shares are rising after the company has shown that they can sell recovery potential
The Horizons Marijuana Life Sciences ETF
HMMJ, + 1.04%
rose 1.6% and the ETFM Alternative Harvest ETFMG
MJ, + 0.10%
had risen by 0.9%.
Meanwhile, the Dow Jones Industrial Average
DJIA, + 0.44%
rose 0.2%, while the S & P 500 Index
SPX, + 0.14%
declined by 0.1%.
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Cannabis Watch: The entire market coverage of MarketWatch for cannabis companies
Additional coverage by Tomi Kilgore, Max Cherney and Jeremy Owen