Canopy Growth to Acquire Supreme Cannabis in Latest Alliance in Busy Marijuana Industry

Canopy Growth Corp. said Thursday it struck a deal to acquire Toronto-based Supreme Cannabis Co. Inc. in the latest M&A deal in a cannabis sector that is experiencing a burst of activity amid hopes. reforms to strict US laws. -4.34% WEED, -4.24% said the stock and cash deal is valued at approximately C $ 435 million ($ 345.6 million). Supreme Cannabis SPRWF, + 52.52% FIRE, + 50.94% shareholders will receive 0.01165872 of Canopy shares for each share they own, plus C $ 0.0001 in cash. That works out to a premium of around 66% to Supreme Cannabis shareholders based on the closing prices of both stocks on the Toronto Stock Exchange on Wednesday.

Supreme shares soared more than 50% on the news. The deal gives Canopy access to the Canadian premium brand 7Acres, along with consumer insights and R&D capabilities. Combined proforma market share is estimated to be 23.3% of the premium flower segment in Ontario and the 21.4% in British Columbia, the companies said in a joint statement. Canopy expects the agreement to generate synergies of around Cdn $ 30 million in two years. The deal is expected to close at the end of June. It comes a week after Canopy, Canada’s largest cannabis company measured by market capitalization thanks to a $ 4 billion investment by beer distributor Corona Constellation Brands Inc. STZ, -3.82%, closed its acquisition of AV Cannabis Inc., an Ontario brand with a focus on ready-to-enjoy products: vaporizers, pre-rolls, and gummies. AV products are popular with the millennial and Gen-Z generations. Rahul Sarugaser, an analyst at Raymond James, said the move is positive as Canadian companies move quickly to develop brands that will resonate with consumers. “The premium and super-premium cannabis segment is among the fastest growing in the Canadian cannabis market, and is clearly being valued at a premium (66%, in this case) by the major players in the industry,” he wrote. Sarugaser in a note to clients. Large licensed producers are waking up to the power of having brands with a loyal following, and Canopy’s last two deals illustrate that trend, he wrote.

media-object type-InsetMediaVideo header article__inset article__inset–type-InsetMediaVideo article__inset–header “>

Individual investors on Reddit’s popular WallStreetBets forum have been talking about marijuana stocks, sending stocks of some US-listed cannabis companies on a roller coaster ride. Photo: Annie Sakkab / Bloomberg

The sector is in the midst of a wave of consolidation, he said, noting that the merger of Aphria Inc. APHA, + 0.48% APHA, + 0.83% and Tilray Inc. TLRY, + 0.03% is expected to close on April 14. . Watch now: To benefit from the planned merger of Tilray and Aphria, buy Aphria, says this analyst Raymond James does not cover Canopy or Supreme, but said Rubicon Organics Inc. ROMJ, + 10.39% ROMJF, + 9.59% is his first choice in the premium / super premium segment, has assigned it a solid buy rating and considers it to be “the best microcap idea.” At Jefferies, analyst Owen Bennett also welcomed the news of the deal, but described it as “hardly transformative in terms of impact.” The positives include no dilution, given Canopy’s multiple relative to Supreme, he said. “Two, it addresses major weaknesses in Canopy’s portfolio in Canada. Three, the potential cost savings mean it is better positioned to meet its positive 2H22 EBITDA target than before, ”said Bennett, who rates Canopy as underperforming. Canopy applauded investors in February when it reported fiscal third quarter earnings and said it expected to achieve positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in the second half. Other recent partnerships in the cannabis industry include Organigram Holdings Inc.’s OGI, + 0.81% from the acquisition of The Edibles & Infusions Corp. on Tuesday for C $ 22 million in shares, plus up to an additional C $ 13 million in shares. . It was the company’s first deal since it received a Cdn $ 221 million ($ 176 million) investment from British American Tobacco PLC. BTI, + 2.78% BATS, + 3.01% In February, Hexo Corp. HEXO, + 3.23% HEXO, + 3.72% said it was acquiring Zenabis Global Inc. ZENA, + 4.55% ZBISF, + 1.62% in a stock deal. valued at around Cdn $ 235 million. Read now: To benefit from the planned merger of Tilray and Aphria, buy Aphria, says this analyst Also in February, GW Pharmaceuticals Ltd. GWPH, + 0.19%, developer of Epidiolex, the drug that obtained Food Administration approval and US Medications As a treatment for severe forms of childhood epilepsy in 2018, it announced that Jazz Pharmaceuticals PLC JAZZ would acquire it at -0.23%, which specializes in sleep medications, in a $ 7 billion deal. The cannabis sector has been in recovery mode for much of 2021 amid hopes for cannabis reforms under President Joe Biden, and as more US states legalize recreational use for adults, including New York, long considered a key market. Canopy is expected to be a big winner in the US legal market, as it has the option to acquire a multi-state operator that will be activated with a change in US law Read Now: USA, Not Canada, it should be the value engine in Canopy Growth stocks, says one analyst. The latest deal sent cannabis stocks up on Thursday, with the THCX Cannabis ETF, + 2.41% to 3%. Canopy is down 3.6% but is still up 17% year-to-date, outperforming the S&P 500 SPX, + 0.34%, which has gained 9%.