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You could call it "Coming to America, Part II".
Bloomberg and CNBC reported Wednesday that Canada's top marijuana producer Cover growth (NYSE: CGC) is in talks to acquire a cannabis operator based in the United States Surface Fund (NASDAQOTH: ACRGF). Both news agencies said that sources "familiar with the case" believe Canopy is about to enter into an agreement to buy Acreage. At the close of the market on Wednesday, the market capitalization of Acreage Holdings rose to nearly $ 2.5 billion.
Canopy Growth announced in January its intention to invest between $ 100 and $ 150 million to build a large hemp production plant in the state of New York. But the possibility that the company could soon acquire Acreage Holdings means that Canopy could be on the verge of making a huge bet on the legalization of marijuana in the United States.
Source of the image: Getty Images.
What Canopy would get
Not surprisingly, Canopy Growth is interested in Acreage Holdings. The company ranks as the largest owner of vertically integrated cannabis and multi-state licenses and licenses in the United States, based on the number of states in which it holds licenses.
This total number of states is currently rising to 19, including acquisitions pending from Acreage. And these states include many of the largest cannabis markets in the United States. According to Arcview's market research, the total addressable market in the states where Acreage holds licenses will reach $ 14 billion by 2022.
Acreage announced the addition of a major asset in December with the acquisition of Form Factor, a multi-state manufacturer and distributor of edible products and cannabis-based beverages. Kevin Murphy, CEO of Acreage, said at the time that this agreement put his company on the road to Procter & Gamble cannabis. "
If Canopy Growth actually buys Acreage Holdings, impressive political connections would also be successful. Former US House Speaker John Boehner and former Canadian Prime Minister Brian Mulroney sit on the Acreage Board of Directors.
Why this is a big bet on the legalization of marijuana
The potential acquisition of Acreage Holdings by Canopy Growth presents a major problem. As long as marijuana remains federally illegal in the United States, Canopy can not operate in the US Marijuana market and maintain listings on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). ).
Canopy Growth's decision to build a hemp plant in New York was not a problem. The adoption of the 2018 Farm Bill in December legalized hemp (which, like marijuana, comes from the cannabis plant but, unlike marijuana, contains low levels of THC, a psychoactive chemical).
However, if Canopy Growth purchased Acreage Holdings and actively managed the company, it would contravene the listing requirements of the NYSE and the TSX. So, how can Canopy acquire an acreage? One of the scenarios is that the company could buy acreage so that its ownership rights become active only when the United States legalizes marijuana at the federal level.
Adopting this approach would probably make no sense if changes to US marijuana laws were not likely in the not-too-distant future. However, bipartite legislation is being reviewed by the US Congress to revise federal marijuana laws. It is very likely that the legalization of marijuana in the United States is about to be put in place soon. A multi-million dollar acquisition of Acreage by Canopy would be a big dice roll that could happen.
And after
CNBC sources said Canopy Growth and Acreage Holdings were discussing Wednesday night to finalize an agreement. Bloomberg has announced that an agreement "could be announced as early as this week".
With respect to the bill to amend federal marijuana laws in the United States, the prospects for adoption are very promising in the democratically controlled House of Representatives. There are more obstacles in the Senate, but there could be political pressure to put the bill to the vote. If this happens, Senator Cory Gardner (R. Colo.), Sponsor of the bill, thinks that there will be enough votes to pass and that President Trump will sign the bill.
We should know soon if Canopy Growth is actually making a big bet on the legalization of marijuana in the United States, but it may take several months to find out if this bet will yield quickly.
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