Canopy Growth’s M&A Strategy Is a Good Bet

After a strong January performance, Canopy Growth (NYSE:CGC) has struggled to break materially higher over the past few months. This is in spite of a slew of announcements of new partnerships, new ventures and geographic expansion.

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It may well be that investors are waiting to see the CGC closer to profitability or are waiting on further favorable regulatory changes. In the meantime, it’s clear that Canopy Growth is putting that $4 billion investment from Constellation Brands (NYSE:STZ) to use.

That said, CGC stock has remained range bound — call it between $40 and $50 — since late January. After a strong first quarter and M&A activity on the rise, there is reason to believe CGC stock could break out in the second half of the year. April has been a busy M&A month, and progress in these tuck-in investments is one of many catalysts that could drive the stock higher.

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CGC Stock Bets on Therapeutic

Spectrum Therapeutics is CGC’s newly unveiled global brand that will consolidate all of the company’s ongoing commercial medical and clinical research operations. It will include the acquisition of C3 Cannabinoid Compound Company, which is Europe’s largest cannabinoid-based pharmaceuticals company.

The C3 acquisition will fuel CGC’s leadership in medical cannabis on a global scale. They get a stronger toehold via a strong R&D operation and distribution network in Europe. This integration is setting the stage for what could be a proper cannabis healthcare company in its own right. The scope of their services extends beyond research and treatment to education and overall wellness, a winning combination.

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Spectrum Therapeutics is already providing commercially available medical cannabis products on five continents, but there is still plenty of room to fill-in those markets.

CGC Takes Another Big Step Toward Entering the U.S. Market

Last month, CGC also acquired Acreage. Acreage is a leading multi-state operator in U.S. cannabis. It owns or has managed services agreements in place for cannabis-related licenses across 20 states (giving it the right to develop), including 87 dispensaries and 22 cultivation and processing sites.

The combined operations of the two companies would create the undisputed leader in U.S. cannabis. Recall that the U.S. is a market where CGC does not yet have a major presence.

As Bruce Linton, Chairman and co-CEO, commented,

“Our [CGC] right to acquire Acreage secures our [CGC] entrance strategy into the United States as soon as a federally-permissible pathway exists … 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.”

It doesn’t stop there. In mid-April, CGC also announced an all-cash acquisition of Spain-based licensed cannabis producer Cáñamo y Fibras Naturales, S.L. (Cafina).

While the regulatory situation in the U.S. remains uncertain still, CGC has charged ahead in other markets. The Cafina acquisition gives Canopy Growth access to an ideal growing region. Cafina is one of three companies in Spain authorized to cultivate, distribute and export cannabis containing more than 0.2% of THC for medicinal and research purposes.

This is a promising foundation for expansion in Spain and Europe broadly. It’s a smart move to diversify within the E.U. CGC already has a facility in Denmark and adding yet another in a different country will help CGC increase revenue in the E.U. free of supply constraints.

Mark my words, this will not be the last acquisition that CGC announces. The market may not be giving credit right now for this strategy, but as the numbers roll in, a re-rating on CGC stock will be in order.

As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.

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