Just when a trend in the budding marijuana sector – in this case the heated pace of making deals – has become easy to predict, a new turn comes. And this is big, for 3.4 billion dollars. Sector observers, as well as investors, will keep a close eye on this specific alliance for various reasons.
Earlier this month, Canadian cannabis producer Canopy Growth (NYSE :), (TO 🙂 signed a deal to buy American marijuana producer Acreage Holdings (OTC :). It is the first deal between two cannabis producers on either side of the border. It could also be the basis for a North American cannabis superpower.
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Since the beginning of 2019, the Canopy shares have skyrocketed and gained nearly 73%, making them the largest cannabis stock due to market capitalization. The stock closed on Friday at US $ 49.10.
The current deal could push the value of the shares much higher … at some point. But at the moment it is wise to see this deal as an appointment without a precise date for the wedding. Champagne corks are only popped when the United States federal government legalizes marijuana, because that is the date this marriage can actually take place.
This contingency is necessary because, according to Canadian regulations, companies listed on the Toronto Stock Exchange cannot own assets in locations where marijuana is not legal. And in the United States, this refers to federal laws, although certain individual national laws have already legalized cannabis.
Nevertheless, it is interesting to note that observers only speak about & # 39; when & # 39; instead of & # 39; if & # 39; the US government formally recognizes the state-by-state movement toward marijuana legalization.
Under the terms of the agreement, Canopy Growth will make a first payment of US $ 300 million once the Area Holding shareholders agree to the deal. Then, when Canopy Growth continues with the acquisition, Area shareholders receive slightly more than half the value of a Canopy share – 0.5818 of a share to be exact – for each Area share that they own.
Canopy Growth Chairman and CEO Bruce Linton summarize the meaning of the deal:
"Our right to acquire acreage secures our access strategy to the United States as soon as a federally allowed route exists."
Reaching that road to & # 39; the world's largest marijuana market is a colossal step for Canopy. Other cannabis companies that want to get a foothold in the US have so far only sought cooperation with companies that operate in states that have legalized the product. Canopy will be able to utilize its growing effect not only in growing marijuana space, but also in the research and development of pharmaceutical cannabis and oils and edible products.
"When the right is exercised, access to Canopy Growth & # 39; s extensive resources will enable us to innovate, develop and distribute quality cannabis brands in the United States and further increase our footprint in the US, "Linton said. "At the same time, a combination of factors makes it much harder for a multi-state operator to reach its full potential, including the huge amount of money needed to scale."
With the Area Deal, Canopy is active in 20 states, a market estimated at more than US $ 17 billion.
Acreage & # 39; s other high-profile Canadian connection
The plan for Canopy Growth to acquire the New York-based Area holding is not the only Canadian connection for the American company. One of his controversial board members or directors is the former Canadian Prime Minister Brian Mulroney. Many have interpreted Mulroney's position on Acreage's board, including the former speaker of the American House of Representatives John Boehner, as a sign that legalization in the US is a bankable option.
For those investors who take it into account, though this is a big deal, Canopy Growth is not the biggest deal. Last November it signed a $ US4 billion deal with Constellation Brands (NYSE :), the US-based international beer and wine producer behind iconic brands including Corona and Robert Mondavi. This deal gave Constellation a 37 percent stake in the Smith Fall, Ont.-based company.
And the deals keep piling up. In March alone, Canopy announced three strategic agreements: the acquisition of US hemp producer AgriNextUSA, a multi-year agreement with British Columbia-based HollWeed North Cannabis and an expansion of its partnership with OG DNA Genetics.
The deal with AgriNextUSA was hit after the passage of the American farm bill, which legalized hemp. The deal asks Canopy to invest between US $ 100 million and US $ 150 million in New York hemp operations in AgriNextUSA
.
Canopy & # 39; s multi-year agreement with HollyWeed North Cannabis is to process dried cannabis in a facility in Victoria BC to be used for high-quality oil and resin. This will help Canopy better meet the demand for new edible CDB-infused products, which are expected to end up in Canadian markets later this year when legalized.
In March, Canopy also announced its partnership expansion with OG DNA Genetics, a globally recognized cannabis brand, to bring the company's renowned genetics technology to the European market. Details of the expansion plan have not been disclosed, but the partnership is now in force until 2024.
