The Canadian cannabis king will buy one of the largest multi-state cannabis operators in the U.S. This is huge news for the industry, and it will mean incredible gains for anyone who knows how to play this situation…
The significance of this deal cannot be understated: The largest Canadian cannabis company is uniting with one of the largest U.S. multi-state cannabis operators.
The deal can’t and won’t fully close until cannabis is fully legal on a federal level in the United States. But basically, Canopy will pay Acreage shareholders some cash now and will issue Canopy shares for Acreage shares when the deal closes.
This deal is great for the cannabis industry.
At the Institute, we’ve long been talking about the wave of mergers among the industry’s biggest players as companies position themselves for the global growth of legal cannabis. In fact, we wrote about it just this week. We’ve also written that Canopy wouldn’t sit on the $4 billion war chest it gained from its deal with Constellation Brands (NYSE: STZ) for long.
And of course this deal is also good for cannabis investors – very good.
Let me explain just what this news means for your bottom line…
An All-Out Frenzy
This deal is the global equivalent of the Cresco Labs Inc. (CSE: CL, OTC: CRLBF)–Origin House (CSE: OH, OTC: ORHOF) merger and turns the industry’s merger mania into an all-out frenzy. Every large cannabis company in the world is now under pressure to grow larger or risk being beaten by the Canopy-Acreage combo in market after market.
Look for the pace of deals to increase.
Canopy will probably buy (or agree to buy when the time is right) more U.S. assets, since Acreage has an enormous license footprint but lacks a critical mass of dispensaries in most of those states.
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The move also places more urgency on other large multi-state operators. These companies were already compelled by the Cresco-Origin House merger to build critical mass now rather than waiting for more licenses to become available in various states.
What’s more, the deal creates an interesting problem for other Canada-U.S. deals. The other large licensed Canadian producers will now feel pressure to gain access to the U.S. markets as they try to keep up with Canopy’s global reach.
But as we’ve discussed, only Canopy has $4 billion of cash to spend on this kind of deal. Now, Cronos (Nasdaq: CRON) has nearly $2 billion – but this acquisition instantly makes Canopy a Canadian kingmaker. No one else is even close. How does Aurora (NYSE: ACB) or Aphria (NYSE: APHA) keep up with this pace of investment?
The most likely answer is more large-company investments in the big Canadian producers. We know that other companies have been interested in investments of the sort Constellation and Altria (NYSE: MO) have made in Canopy and Cronos. Companies like Aurora, Aphria, and Tilray Inc. (NASDAQ: TLRY) will need to agree to deals with those outside investors if they want to keep up with Canopy.
Smaller producers like Hexo Corp. (NYSEMKT: HEXO), OrganiGram Holdings (TSXV: OGI, OTC: OGRMF), and The Green Organic Dutchman (TSX: TGOD, OTC: TGODF) will need to merge with each other and take outside investors if they want to become important players. Alternatively, those companies can pick a niche and seek to dominate it, as The Green Organic Dutchman and OrganiGram aim to do with organic cannabis.
A Bullish Outlook on U.S. Legalization
Another interesting aspect of this deal is its timing. It came more quickly than I thought it would, and that’s bullish for the pace of legalization in the United States.
Canopy would not have agreed to acquire Acreage in the future if it felt that future was several years away. Similarly, Acreage would not have agreed to sell if it thought that future was very far off. Such a deal would entail too much risk for Canopy and give away too much opportunity for Acreage.
Acreage Board Member and American Cannabis Summit Spokesperson John Boehner, former Speaker of the U.S. House of Representatives, has recently agreed to lead an industry lobbying group to gain that federal legalization. It could be that he’s hearing good things back from his extensive contact list.
And of course federal legalization would be even better news for cannabis investors, ushering in an even bigger wave of mergers.
For anyone thinking of investing, the big message is get in now and hold on tight! There’s going to be a lot of activity in the cannabis industry over the next few months, and investors with the right positioning stand to make a lot of money and end up with shares of companies destined to dominate the coming $100 billion industry.
Executive Director, National Institute for Cannabis Investors
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21 responses to “This Merger Is a Watershed Moment for Cannabis”
April 19 2019