Canopy Growth Corp (NYSE: CGC) is surging after underscoring its credentials as the largest cannabis company. A deal to acquire Acreage Holdings Inc (OTCMKTS: ACRGF) is the latest catalyst fuelling the upward momentum, given its potential impact and the fact that it is the first major cross-border deal.
Canopy Growth Price Analysis
The acquisition of Acreage comes just days after the company completed an all-cash deal of Spain based cannabis producer Cáñamo y Fibras Naturales S.L. (Cafina). The acquisition paves the way for the company to strengthen its cannabis production footprint in Europe. A flurry of positive developments has seen Canopy growth evoke a ‘buy’ rating from GMP analyst Martin Landry.
After a minor correction in the first quarter, the stock has once again started rallying in what appears to be a continuation of an uptrend that began early in the year.
Canopy Growth is already up by more than 60% for the year, it’s market sentiments have improved a great deal in recent weeks. The upside action now faces resistance at the $51 mark.
A rally followed by a close above the critical technical level should pave the way for the stock to make a run for 52-week highs.
On the downside, support on any pullback from current highs is seen at the $40 mark, from where the stock commenced the current leg higher. Above the $40mark, Canopy Growth remains well supported for further upside action.
Conversely, a violation of the support level at the $40 a share mark would leave the stock susceptible to further drops.
About Canopy Growth
Canopy is a Canadian company engaged in the cultivation, production, and sales of medical cannabis. Its product line includes dried flower, oils as well as concentrates and soft gel capsules. The company also offers medically approved vaporizers through its subsidiary Storz & Bickel.
Shares of Canopy Growth have started flying high after a period of consolidation. The trigger behind an uptick in share price and market activity has to be an aggressive acquisition drive as Canopy Growth looks to strengthen its empire abroad.
A deal to acquire 100% of the shares of Acreage opens the door for the company to expand its footprint into the U.S Cannabis market, estimated to be worth $10 billion. Acreage would provide Canopy with access to 20 States where it is currently operational as well as 87 dispensaries and 22 cultivation and processing sites.
Under the terms of the deal, the company is willing to pay $300 million to Acreage. Should the U.S make cannabis legal at the federal level within a specified time, then the value of the deal will skyrocket to $3.4 billion on Acreage shareholders receiving an additional 0.5818 shares of the canopy.
“By combining Acreage’s management team, licenses and assets with Canopy Growth’s intellectual property and brands, there will be tremendous value creation for both companies’ shareholders,” explained CEO Bruce Linton.
Even as Canopy Growth continues to eye opportunities in the U.S cannabis market, it also remains fixated on the European market opportunity. With the acquisition of Cafina, the company should be able to address strong demand across Europe for medical cannabis.
Canopy Growth has also collaborated a second licensed producer in Spain as it moves to enhance its supply for cannabis flower. In Denmark, the company operates a 430,000 square foot licensed production site, as well as an ISO, certified cannabis production facility in Tutlingen Germany.
“Operating multiple production assets within Europe will allow us to increase revenue in the EU free of supply constraints. This strategic acquisition in a scalable, low-cost production environment diversifies our owned production capabilities in Europe,” Canopy President and Co-CEO Mark Zekulin said in a statement.
Canopy Growth remains well positioned to continue registering impressive gains in the market in view of recent developments that continue to strengthen market sentiments. An aggressive acquisition drive allows the company to expand its footprint into some of the biggest cannabis markets with vast opportunities for growth.
The stock eliciting a Buy rating from GMP analysts also underscores the growing optimism about the stock’s 2019 prospects as the company continues to ramp up cannabis production and sales.
After a minor correction in the first quarter, Canopy Growth is likely to continue edging higher as the upward momentum continues to gather pace.
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Disclosure: We have no position in CGC or ACRGF and have not been compensated for this article.