Cannabis stocks mostly climbed Thursday afternoon, as investors cheered the shareholder approval of Canopy Growth Corp. and Acreage Holdings Inc.’s planned $3.4 billion megadeal, which is expected to spark further deals in the sector.
Canopy’s shares zigzagged through the session as analysts weighed the benefits of the deal, which gives the Canadian company, and biggest cannabis player by market value, a foothold in what is expected to become the largest cannabis market in the world. U.S. sales of medical and adult-use cannabis is expected to grow to $20 billion by 2024, up from $1.9 billion in 2018, according to the State of the Legal Cannabis Markets, Seventh Edition, published Thursday by BDS Analytics and Arcview Market Research.
Canopy CGC, +1.56% WEED, +0.46% has acquired the right to buy Acreage as soon as cannabis laws in the U.S. have been relaxed, with the two companies now in an acquisition interim period, during which Acreage will continue to run independently, but will have full access to Canopy’s IP, brands, product formulation and patents.
“This arrangement supplements and amplifies Canopy’s ability to attack the U.S., the largest global cannabis market ($100 billion opportunity by our estimate) providing a significant competitive advantage for Canopy in relation to its Canadian peers,” Stifel analysts led by Andrew Carter wrote in a Thursday note to clients.
Canopy is armed with a strong balance sheet, thanks to a $4 billion investment from Corona beer distributor Constellation Brands Inc. STZ, +0.97% and it owns warrants in other U.S. companies. The stock has gained 59% in 2019 to date, outperforming the major indexes.
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“We believe a change in federal law in the U.S. is at best a 2021 possibility and until that time the environment favors U.S. Multi-State Operators (MSO) like Acreage Holdings ACRGF, -0.15% that are building their position in the highly fragmented U.S. market without facing competition from well capitalized and deeply entrenched global consumer companies,” said the Stifel note. Stifel rates Canopy stock a buy and has a C$64 price target, that is 12% above its current trading level.
Canopy will report fiscal fourth-quarter earnings after the bell.
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Canada’s federal health regulator is proposing the creation of a whole new cannabis category that would treat minor ailments in humans and animals, as Marijuana Business Daily reported. Health Canada is seeking comment from the public before moving to draw up rules. But the proposal, if successful, would allow consumers use cannabis-based products to treat their own and their pets’ less serious maladies.
In company news, The Green Organic Dutchman Holdings Inc. TGOD, +1.83% TGOD, +1.83% climbed 3.7%, has launched a global hemp division to support its international partners with genetics, training on organic methods and regulatory advice and other support.
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“With the global CBD market expected to hit $22 billion in less than 3 years, it is clear that the segment is drawing substantial consumer demand,” commented Brian Athaide, CEO of TGOD.
Greenlane Holdings Inc. shares GNLN, +5.55% rose 9.9% to recover some of the 17% losses suffered on Wednesday, on news of a potential e-cigarette ban in San Francisco. Cowen analyst Vivien Azer said the selloff appears overdone and reiterated a bullish view of the company.
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“We remain confident in the company’s long-term fundamentals and believe that valuation remains attractive,” the analyst wrote in a note to clients. “We would continue to be buyers at these levels.” Cowen rates the stock as outperform.
The selloff came after San Francisco’s board of Supervisors unanimously voted to ban the sale of e-cigarettes within city limits if they are not approved by the Food and Drug Administration. The vote must be held a second time next week, but would likely represent only a small vapor market, said Azer.
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Valens GroWorks Corp. shares, after GMP analyst Ryan Macdonell said the company has the largest extraction capacity among Canadian licensed players, but continues to trade at one of the lowest multiples in the sector. In note to clients, Macdonnell reiterated his buy rating on the stock, after the company said it is adding 185 metric tons to bring total annual capacity to 425 metric tons. Valens has started work on a facility adjoining it existing one in Kelowna, British Columbia, that is expected to boost capacity to more than 1,000 metric tons in the first half of 2020.
“If Valens were to utilize the full 425 metric tons of capacity in FY20, we estimate this could support $180m-$190m of revenue from tolling, without including any white labeling services,” Macdonell wrote. The analyst has a $10 price target on the stock, which is more than triple its current trading level.
Lifeway Foods Inc. shares rocketed 35%, after the Illinois-based maker of probiotic, fermented beverages announced plans to enter the cannabis market with a CBD-infused drink, as soon as it is allowed by the Food and Drug Administration.
The company said it will enter the market through its Plantiful + CBD product, and is also planning to file a comment in support of the FDA developing a science-based structure for the sale of products that contain CBD. The FDA does not allow companies to sell CBD-infused food or beverages for now, because it views CBD as a drug.
For more on this, see: Cannabis stocks fall after FDA hearing on CBD finds conflicting views of substance
Related: An entire industry is being built around CBD, but we really don’t know that much about it
Elsewhere in the sector, Aurora Cannabis Inc. shares ACB, -0.44% ACB, -1.31% were up 0.1%, Tilray Inc. TLRY, +9.63% was up 3.7% and Cronos Group Inc. CRON, +3.66% was up 3%.
Aphria shares APHA, -0.21% APHA, -0.95% was trading 1.2% lower, Organigram Holdings Inc. OGI, +3.52% rose 1.6% and Aleafia Health Inc. ALEF, -4.07% ALEAF, -3.30% was down 2.4%.
Green Growth Brands Inc. GGBXF, -0.65% was down 1.3%.
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The ETFMG Alternative Harvest ETF MJ, +1.53% was up 1.1%. The Horizons Marijuana Life Sciences ETF HMMJ, +0.69% was off 0.1%.
The S&P 500 SPX, +0.84% and the Dow Jones Industrial Average DJIA, +0.83% were up by at least 0.4%.
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