By Ciara Linnane, MarketWatch
Cannabis stocks mostly climbed Thursday afternoon, as investors cheered the shareholder approval of Canopy Growth Corp. and Acreage Holdings Inc.’s planned $3.4 billion megadeal, which is expected to spark further deals in the sector.
Canopy’s shares zigzagged through the session as analysts weighed the benefits of the deal, which gives the Canadian company, and biggest cannabis player by market value, a foothold in what is expected to become the largest cannabis market in the world. U.S. sales of medical and adult-use cannabis is expected to grow to $20 billion by 2024, up from $1.9 billion in 2018, according to the State of the Legal Cannabis Markets, Seventh Edition, published Thursday by BDS Analytics and Arcview Market Research.
Canopy /zigman2/quotes/200603886/composite CGC +2.90% /zigman2/quotes/202205609/delayed CA:WEED +2.43% has acquired the right to buy Acreage as soon as cannabis laws in the U.S. have been relaxed, with the two companies now in an acquisition interim period, during which Acreage will continue to run independently, but will have full access to Canopy’s IP, brands, product formulation and patents.
“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,” Stifel analysts led by Andrew Carter wrote in a Thursday note to clients.
Canopy is armed with a strong balance sheet, thanks to a $4 billion investment from Corona beer distributor Constellation Brands Inc. /zigman2/quotes/207737284/composite STZ +0.76% , and it owns warrants in other U.S. companies. The stock has gained 59% in 2019 to date, outperforming the major indexes.
“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 /zigman2/quotes/205165963/delayed ACRGF +3.82% that are building their position in the highly fragmented U.S. market without facing competition from well capitalized and deeply entrenched global consumer companies,” said the Stifel note. Stifel rates Canopy stock a buy and has a C$64 price target, that is 12% above its current trading level.
Canopy will report fiscal fourth-quarter earnings after the bell.
Canada’s federal health regulator is proposing the creation of a whole new cannabis category that would treat minor ailments in humans and animals, as Marijuana Business Daily reported. Health Canada is seeking comment from the public before moving to draw up rules. But the proposal, if successful, would allow consumers use cannabis-based products to treat their own and their pets’ less serious maladies.
In company news, The Green Organic Dutchman Holdings Inc. /zigman2/quotes/206870535/delayed CA:TGOD +2.18% /zigman2/quotes/206870535/delayed CA:TGOD +2.18% climbed 3.7%, has launched a global hemp division to support its international partners with genetics, training on organic methods and regulatory advice and other support.
“With the global CBD market expected to hit $22 billion in less than 3 years, it is clear that the segment is drawing substantial consumer demand,” commented Brian Athaide, CEO of TGOD.
Greenlane Holdings Inc. shares /zigman2/quotes/211319667/composite GNLN +3.23% rose 9.9% to recover some of the 17% losses suffered on Wednesday, on news of a potential e-cigarette ban in San Francisco. Cowen analyst Vivien Azer said the selloff appears overdone and reiterated a bullish view of the company.