S.A. Team

About the Author S.A. Team

Smarter Analyst was established to fill a gap in financial reporting for sell-side investors, where they can read exclusive reports in real time. Smarter Analyst provides coverage of equities research, unique analyst insights, and outstanding articles from knowledgeable contributors, in addition to the latest stock market news, all hand-picked by our editors.

Canopy Growth (CGC): Piper Jaffray Wishes Upon a Marijuana Star (But Will Its Dreams Come True?)


The marijuana market is booming.

Last week, Piper Jaffray analyst Michael Lavery opined that, in the near term, legal marijuana sales globally could range from $15 billion to $50 billion annually. (In the U.S. alone, legal marijuana sales topped $10 billion last year). Over time, Lavery predicts the global market could grow 10x in size, to a range of from $250 billion to $500 billion in annual sales.

Within this market, Lavery especially likes Canadian pot producer Canopy Growth (NYSE:CGC), which he says possesses a 10% market share in Canadian medical marijuana, and a 40% share in recreational pot, and calls “well-positioned relative to its peers.”

Ideally, Lavery would like to see Canopy grow its both its capacity and its scale of production, viewing low-cost production (which scale can facilitate) as equally as important to possessing a stable of premium-priced brands in order to be successful. To that end, the analyst mused that Canopy might deploy its war chest of $4 billion cash in order to “do a deal” to acquire a US subsidiary — albeit the analyst disclaimed knowledge of “what … Canopy might hope to acquire or who might be willing to sell.”

Well, now we know. Lavery may be getting his wish, and Canopy may be ready to do a deal.

On Wednesday, Bloomberg reported that Canopy is not only looking for an acquisition, but actually “nearing a deal” to acquire five-year-old Canadian Securities Exchange-listed Acreage Holdings Inc., “in what would be the first major cross-border cannabis merger” between Canada and the U.S.

Discussions at this time remain private, unconfirmed, ongoing — and “may still fall apart,” cautions Bloomberg. But if a deal is concluded, it could be a big deal for Canopy Growth.

The reason: Acreage Holdings is one of America’s largest marijuana companies, with production, processing, and dispensing licenses or agreements in place in 19 U.S. states, as well as a chain of “The Botanist” retail stores to operate out of — all factors that could help catapult Canopy to a leading position in the U.S. marijuana market once it becomes legal under federal law. Adding to the company’s attractiveness, both former U.S. Speaker of the House of Representatives John Boehner and former Canadian Prime Minister Brian Mulroney serve on Acreage Holdings’ board of directors, which could be helpful to the company’s future lobbying efforts.

For the time being, of course, marijuana remains il-legal under U.S. federal law, and Bloomberg points out that this legal quirk could complicate NYSE- and Toronto Stock Exchange-listed Canopy’s efforts to acquire Acreage, because both the NYSE and the TSE frown upon listing companies whose activities violate U.S. federal law. As a result, even if a deal between Canopy and Acreage does emerge, it may need to be a merger with caveats — such as a provision conditioning Canopy’s actual acquisition of control upon the U.S. legalizing marijuana, or one limiting Canopy’s ability to control Acreage’s activities until such time as legalization occurs.

Despite the caveats, and their implications for the merger’s likeliness of succeeding, investors bid up Canopy Growth shares by 9% in after-market trading Thursday, after news of the negotiations came out.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.

 

Read more on CGC:

 

Stay Ahead of Everyone Else

Get The Latest Stock News Alerts