Quantcast
Featured Image

Marijuana market is all about inorganic expansion of late. Loads of acquisitions and partnerships have been done in the past year. Talks are now making rounds that Canopy Growth CGC could purchase the rights to buyAcreage HoldingsACRGF when (or if) marijuana becomes federally legal in the United States at an agreed-upon price, as noted on markerwatch. This acquisition, if it happens, would mark the first key cross-border marijuana deal.

As per sources, the purchase deal could be announced as soon as this week, though nothing is finalized at the time of writing. Acreage shares gained 9.1% and Canopy Growth jumped 2.8% on Apr 17. Canopy shares added a further 6.8% after hours.

Acreage Holdings is one of the largest vertically integrated , multistate cannabis operators in the United States. Canopy is a big name in the space with a market cap of about $14.70 billion. Last August, U.S.-based  Constellation BrandsSTZ - a leading producer of alcoholic beverages - announced an expansion of its stake in Canopy. The investment was worth about $4 billion. The move corroborates the worth of Canopy Growth as a company (read: Follow Constellation Brands, Bet Big on Cannabis ETFs ).

Long-Term Potential of the Deal

Canada has been at the center in cannabis investing as recreational marijuana was legalized there is last October. The legal market for marijuana is way larger in the United States, where sales were about $10.4 billion last year while Canada's market was worth $1.6 billion. Overall, the North America market grew 30% last year. Another source had noted last April that the U.S. legal marijuana market is expected to witness a CAGR of 24.9% from 2017 to 2025.

Per industry experts , American multistate operators continue to stretch their U.S. market footprint, while the Canadian companies are looking to expand their territory internationally by purchasing foreign assets inexpensively. With the possible legalization of cannabis on the federal level some point down the line and the companies' increased access to the capital markets, the U.S. market is the new name of the game since Canada's growth story looks a bit priced-in.

Flurry of Deals Taking Place in the Industry

Aurora CannabisACB made some other big acquisitions last year, including the purchase of Saskatchewan-based CanniMed Therapeutics  in May  and Ontario-based MedReleaf in July. In late-2018, Aurora Cannabis announced expansion in Mexico with the acquisition of Farmacias Magistrales S.A. This expansion will allow Aurora to have access to the  newly legal Mexican medical marijuana market .

Moreover, there were deals like Aphria's APHA purchase of Nuuvera in March 2018 and Canopy Growth's acquisition announcement of U.S.-based Ebbu Hemp. In late-2018, Marlboro cigarette maker Altria GroupMO purchased a 45% stake in Canadian cannabis firm Cronos GroupCRON (read: 4 Reasons Why Marijuana Stocks & ETFs Could Be on a High in 2019 ).

In February 2019,   TilrayTLRY announced a deal to acquire the world's largest hemp food maker Manitoba Harvest for up to C$419 million ($318 million) (read:  Tilray's Deal to Buy Hemp Food Maker Bolsters Marijuana ETF ).

Against this backdrop, we expect more deals to pull off the industry in the coming days.

ETF in Focus

ETFMG Alternative Harvest ETF or MJ is a pureplay fund in the space. The fund is down 11.1% in the past month. But given the companies' euphoria for deals, investors can cash in on the beaten down price. However, the fund has added 36.7% this year.

The underlying Prime Alternative Harvest Index of the fund enables investors to take advantage of both event-driven news and long-term trends in the cannabis industry. Aurora (9.73%), GW Pharmaceuticals (9.0%) and Canopy Growth (6.7%) hold the top three spots in the fund, which charges 75 bps in fees.

Want key ETF info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.  Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Constellation Brands Inc (STZ): Free Stock Analysis Report

Altria Group, Inc. (MO): Free Stock Analysis Report

Canopy Growth Corporation (CGC): Free Stock Analysis Report

Aphria Inc. (APHA): Free Stock Analysis Report

Cronos Group Inc. (CRON): Free Stock Analysis Report

Tilray, Inc. (TLRY): Free Stock Analysis Report

Aurora Cannabis Inc. (ACB): Free Stock Analysis Report

ETFMG Alternative Harvest ETF (MJ): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.

Related Articles