One of Canada’s “Big Five” producers has balked at yesterday’s surprising takeover bid from a Nevada cannabis company with just two stores in operation. It shows just how fast the consolidation trend is developing in the industry.
Our young cannabis market is growing up fast.
That’s the main message I have in the wake of the shock Green Growth Brands (CSE:GGB) hostile takeover bid for Aphria Inc. (NYSE:APHA) on Thursday. At Cannabis Profits Daily and throughout the National Institute for Cannabis Investors, we’ve talked often about the developing trend of rapid consolidation in the cannabis industry.
One part of that rapid consolidation even we didn’t mention was the good-old-fashioned, 1980’s-style hostile takeover. But of course, that’s part of the consolidation.
At this point, it would be impossible for anyone to tell you how the Green Growth Brands bid will end. So far, Aphria has called the bid “highly conditional” and far too low in any event. Aphria has a point – the stock was higher than the value Green Growth is putting on the company before a short seller attack a few weeks ago that we analyzed and found unconvincing.
Aphria also is right that the valuation of Nevada-based Green Growth Brands is placing on itself depends on that stock appreciating by 40% to a record price.
On the other hand, Green Growth Brands is run by some of the most experienced retailing executives in the world, people who have seen a takeover or two during their careers. These are the folks who built L Brands Inc., which owns Victoria’s Secret and Bath & Body Works, into a retail giant.
Regardless, it means several things for the cannabis industry:
- At least one company agrees with us at the Institute that the short seller’s attack on Aphria was unconvincing, if not misguided. Green Growth Brands has reserved for itself the right to back out of any transaction if the short seller’s most damaging allegations turn out to be true. Still, it surely would not have initiated the bid if it expected to find bad news of any significance. It’s worth noting that, after investors rushed to sell Aphria stock in the immediate wake of the short seller’s allegations, Green Growth Brands bought 3 million shares.
- U.S.-Canadian consolidated cannabis companies are coming. They will be large, and they will form sooner than most people previously thought. Canadian companies have been shedding U.S. assets over the past year because owning them prevents the companies from being listed on the most prestigious stock exchanges, particularly the Toronto Stock Exchange, the NASDAQ, and the New York Stock Exchange. But a growing number of companies are concluding that the growth and capital opportunities from operating on both sides of the border may outweigh the additional liquidity of being listed on one of those exchanges. Green Growth Brands’ announced intentions, whether a deal ever happens or not, is a huge win for the Canadian Securities Exchange, the primary home for U.S. and multi-national cannabis companies.
- The smart money continues to buy, not sell the cannabis industry. I’ve been hitting this topic pretty hard during the recent market downturn because it is so important. As the cannabis market has been selling off, smart investors like Canadian pacesetter Canopy Growth Corp. and Green Growth have been buying shares and/or trying to buy cannabis companies outright. Meanwhile, tobacco giant Altria Inc. spent billions of dollars for a 45% stake in Cronos Group, with an option to take majority control in the near future. But even in selling, Cronos insisted on an above-market price – and the company got it. And Canopy has been buying private companies at valuations which reflect the true growth prospects of the industry. Of course, Aphria is saying that Green Growth’s bid is far too low. This all shows that sellers have resisted selling at the lower valuations public investors have temporarily put on cannabis stocks. Still, the smart money is still rushing to cannabis.
This consolidation we’ve been predicting for the cannabis market is going to happen more quickly than nearly anyone would have predicted even as recently as a few months ago. The advantage small companies and small investors have over the corporate and investing giants in the cannabis market is not going to live forever. Those small investors who know how important it is to be in front of those elephants rather than behind them should be accumulating a portfolio of cannabis stocks now.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
16 responses to “What Thursday’s Hostile Takeover Attempt on Aphria Means for Cannabis Investors”
December 29 2018