Newstrike Brands Ltd (OTCMKTS: NWKRF) has registered impressive gains ever since it emerged it is an acquisition target for Hexo Corp (OTCMKTS: HYYDF). The stock has since bottomed out and appears to be on its way out of a tight trading range awaiting the consummation of the merger.
Newstrike Price Analysis
The company announcing a strategic investment in Green Tank Technologies is the latest catalyst fuelling the upward momentum. The investment is poised to support the launch of a new line of cannabis vape products as Newstrike continues to strengthen its product pipeline.
The formation of a steep uptrend suggests that the stock could as well be on its way from all-time lows. A 30% rally since the start of the year has catapulted the stock close to a critical technical level.
A surge followed by a close above the $0.44 mark should reaffirm the emerging uptrend setting the stage for the stock to continue powering high.
Above the $0.44 technical level, the stock should be on its way to the $0.66 mark, the next resistance level. For Newstrike to turn bullish, be it in the short term, it needs to rally and stabilize above the $0.66 mark.
Conversely, below the $0.44 technical level, Newstrike remains susceptible to further drops given the underlying long-term bear trend. As it stands, Newstrike remains well positioned to continue climbing the cannabis ladder given the bullish momentum in the overall sector and the underlying fundamentals supporting further rallies.
Newstrike through its subsidiary, Up Cannabis, is a licensed producer of cannabis. The company produces and sells medical marijuana throughout Canada
Hexo Corp Takeover Bid
Shares of Newstrike have started bottoming out following the confirmation that it is a potential takeover play for Hexo Corp. The all-stock deal tabled by Hexo Corp values the company at $263 million. Once consummated Newstrike shareholders will receive 0.06332 shares for each share held. While both boards have approved the merger, shareholders must approve it as well.
The merger will result in a combined company capable of producing more than 150,000 kg of cannabis annually. The combined company will have licenses to operate in eight Canadian provinces with annual synergies of more than $10 million.
Under the terms of the agreement, Hexo Shareholders will own 86% of the combined company with Newstrike shareholders holding the remaining 14%.
“Our strength in Ontario and English Canada clearly complements HEXO’s strong position in Quebec and creates an industry leader. The combination will deliver meaningful synergies, a stronger financial position with increased flexibility, and will position the combined company to meet growing consumer demand on a national basis. I believe this transaction is beneficial to our shareholders, customers, and employees,” Newstrike CEO Jay Wilgar explained.
Green Tank Investment
Ahead of the potential merger, Newstrike Brands continues to strengthen its prospects in the cannabis sector. The company has completed a $4 million investment in Green Tank Technologies. The investment strengthens the two company’s partnership paving the way for a launch of new line vape products.
The investment is an important component of Newstrike innovation strategy as it gives it access to a leading cannabis specific vape hardware. The transaction should also complement the company’s other significant investments, geared towards advanced extraction technology and cannabis oil production capacity.
The investment also puts Newstrike in a strong position to become a preferred supplier of end-to-end vape solutions for the adult use recreational market.
“We expect vape products to be a significant part of our overall revenue profile. We are excited to be working closely with Green Tank to design and deliver industry-leading hardware that is specifically designed to work seamlessly with our unique cannabis extracts,” stated Chief Strategy Officer Mark E. Burton.
Ahead of a potential merger with Hexo Corp, Newstrike Brands has shown it has what it takes to succeed as a standalone cannabis company. An investment in Green Tank highlights the company’s willingness to spend big all in the effort of succeeding in the multi-billion-dollar sector.
Price action has picked up the pace in recent weeks signaling that the stock is likely to continue edging higher as a bounce-back play.
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Disclosure: We have no position in NWKRF or HYYDF and have not been compensated for this article.