By Steve Gelsi
Cannabis stocks posted big gains Monday amid optimism about M&A and federal legalization in a rare burst of energy in the sector that’s been trading mostly lower this year.
On the M&A front, tobacco giant Altria (NYS:MO) may buy the 55% of Cronos Group (NAS:CRON) that is doesn’t already own, according to speculation from New Cannabis Ventures. The deal would come about three years after Altria paid C$2.4 billion ($1.9 billion) for a 45% stake in Cronos, with an option to buy a controlling stake.
Meanwhile, cannabis received a couple of positive developments on the federal front. Marijuana Moment reported that Rep. Nancy Mace (R-S.C.) is circulating the States Reform Act as a measure to legalize and tax cannabis on a federal level from the Republican side of the aisle.
Cantor Fitzgerald analyst Pablo Zuanic said late Friday the measure “significantly increases the probability of federal level marijuana reform” during the current term.
Cannabis also got a boost from the passage of the Congressional Infrastructure bill, which includes a proposal allowing cannabis scientists to buy research cannabis from local dispensaries instead of government-produced facilities.
Shares of U.S.-based cannabis companies jumped. The cannabis ETF THCX rose 7.4%, and the AdvisorShares Pure US Cannabis ETF (PSE:MSOS) jumped 10%.
Curaleaf (CNQ:CA:CURA) (OTC:CURLF) jumped 7.9% and Trulieve (OTC:TCNNF) advanced by 6.8%. Green Thumb Industries (OTC:GTBIF) rallied 11%, and Verano Holdings (USA:VRNOF) jumped 8.1%. and Cresco Labs (OTC:CRLBF) rose by nearly 7%.
Among Canadian cannabis companies, Cronos Group (NAS:CRON) jumped 22.5%, Canopy Growth (NAS:CGC) (TSE:CA:WEED) rose 9%, Aurora Cannabis (NAS:ACB) (TSE:CA:ACB) rallied nearly 10% and Tilray Inc. (NAS:TLRY) ran up by 14%.
Most of these stocks remain in negative territory for the year, however, amid talk of oversupply in Canada and other market challenges. Any major moves on legalization on the federal level remained on the back burner, most Washington observers had said.
Altria deal talk
In a note to clients on Sunday, New Cannabis Ventures analyst Alan Brochstein flagged a missing earnings call announcement from Cronos Group as a potential signal of a material announcement from the company.
“Cronos Group is a large accelerated filer with the SEC, which means its Q3 financials are due on Tues., Nov. 9,” Brochstein said. “Historically, the company has provided investors with at least a week’s advance notice of its conference call, but there has been no call announced yet.”
Brochstein said it’s possible that the lack of notification could mean a deal is brewing, but then went on to say it was just an educated guess.
Either way, shares of Cronos Group remained near a 52-week lows even with Monday’s rally.
Cronos Group did not reply to an email from MarketWatch.
Canopy Growth gets downgrades With the eye on U.S. developments, attention ebbed on Canadian producer Canopy Growth after its earnings miss on Friday. But the company still faced downgrades from analysts after its latest quarterly results missed projections .
Cowen analyst Vivien Azer cut her rating on Canopy Growth to market perform from outperform and said the company’s turnaround in the Canadian market is taking longer than expected.
CIBC analyst John Zamparo downgraded Canopy Growth to underperform from neutral.
“The primary factors that have supported Canopy’s premium valuation are strong revenue growth, an assumption of eventual market dominance, access to U.S. markets pending legalization, and a robust balance sheet,” he said. “We believe questions exist on all fronts.”
Even with Monday’s gains, shares of Canopy Growth are down 48% this year.