Canopy is using its Constellation bucks to become a European leader in cannabis…
Cannabis companies are wasting no time scaling up.
Spending about $1 billion on mergers by U.S. multi-state operators is now routine as they scramble to achieve a national footprint.
And this is all to keep up with Canopy Growth Corporation (NYSE: CGC), which spent $3.4 billion in its stock to establish its U.S. foothold through its acquisition of Acreage Holdings (CSE: ACRG, OTC: ACRGF).
This frenetic merger and acquisition spree got underway because these companies know that whoever gets the biggest the fastest will capture the lion’s share of the legalized marijuana market. That this market could easily grow at 80% per year means those that lead the pack through this highest growth phase of the cannabis market will deliver the highest returns of all cannabis stocks.
But this race to the top doesn’t just involve North America. Europe could prove to be an even bigger market, and the more beachheads a company can establish throughout the continent, the better its chance to lead the pack through the “Scaling” phase.
Two Big, Back-to-Back European Acquisitions
Canopy’s $4 billion war chest – courtesy of Constellation Brands (NYSE: STZ) – puts this cannabis titan in the best position to dominate the cannabis landscape.
And now the company is using its Constellation bucks to throw its weight around Europe – further cementing its position as the leader in the booming global cannabis market.
Late last week, Canopy announced an all-cash deal to acquire German-based herbal medicine manufacturer Cannabinoid Compound Company, or C³.
C³, the largest cannabinoid-based pharmaceuticals company in Europe has researched and manufactured natural and synthetic cannabinoids for twenty years. Canopy spent $263 million on the deal, or over seven times C³s 2018 revenues of $32 million. Most of those sales were for Dronabinol, a synthetic form of THC.
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This acquisition gives Canopy an extensive medical marijuana distribution network throughout Germany, Austria, Switzerland, and Denmark, with access to over 19,000 patients in Germany alone. C³ also comes with a strong sales and marketing team and the ability to manufacture pharmaceutical-grade natural and synthetic THC and CBD in two manufacturing facilities.
This acquisition was a quick follow-up from its acquisition in Spain a short two weeks earlier.
In another all-cash deal, Canopy bought Cáñamo y Fibras Naturales S.L., or Cafina. Though Cafina has a small grow facility, its primary asset was owning one of only three licenses to cultivate, distribute, and export cannabis in Spain. It also holds a license to cultivate hemp.
With this license, Canopy now has a foothold to build out production in Spain – one of the most prime growing regions in Europe – and export its product.
Canopy’s other European assets include a 430,000 square foot licensed cultivation site in Denmark and its Storz & Bickel vaporizer manufacturing site it acquired for about $162 million in cash this past December.
And it won’t take long for revenues from these European beachheads to start pouring in.
Primed for the German Market
By September, Canopy’s production facility in Denmark should start supplying Germany and other European markets with cannabis. Despite the interest within Germany to build local cultivation facilities, the projected capacity falls far short of demand. And since exports of marijuana are legal between many European countries, Canopy has put itself in a prime position to make full use of its existing grow facilities in Denmark and fully utilize its aggressive expansion in Spain.
That Canopy can spend cash rather than stock to acquire these prime European assets makes these deals easier to execute. Spending cash rather than stock also tends to favor existing Canopy stockholders.
And Canopy is just one of many Canadian licensed producers buying up European licenses. I’ll talk about that at a later date, but those cannabis companies that build the most substantial launch pad in Europe will generate life-changing wealth for their investors as they rush to dominate a market growing at 80% per year.
Before I go, I also want to share with those of you haven’t seen it yet my interview with Montel Williams. He’s an early cannabis pioneer, and you won’t want to miss what he has to say about the current state of the industry and where it is heading.
Executive Director, National Institute for Cannabis Investors
P.S. Registration for our First Annual National Institute for Cannabis Investor’s Retreat is live! Join fellow NICI members from across the globe October 2-5 in sunny Las Vegas for your chance to shake hands with the CEOs of some of the biggest cannabis firms. This event offers the kind of face-to-face networking that could be critical to your success as a cannabis investor – we’ll have some of the biggest names in the industry on site giving out actionable, tradeable recommendations. We have a limited number of tickets available, so the sooner you click here, the better your chances of securing your spot.
4 responses to “The Rush to Scale Cannabis Will Take Europe Along for the Ride”
May 09 2019