This Latest Acquisition Gives a Glimpse into the Future for Canopy Stock

Will Ashworth - finance.yahoo.com Posted 5 years ago
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As far as acquisitions go, Canopy Growth’s (NYSE:CGC) May 22 announcement that it would pay $55 million for This Works, a London-based company that sells high-quality natural skincare and sleep-solution products, had minimal effect on Canopy stock.

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It’s not the size of the deal that matters, but what it implies about the future of cannabis.

The flower that you smoke might be the product that gets most of the focus, but it is the ancillary stuff that is going to drive the cannabis industry for years to come.

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People Don’t Get Quality Sleep

Buying This Works gives Canopy Growth a platform into the skincare and sleep-solution markets in the UK and other parts of the world. However, it is the sleep-solution products that drive this acquisition.

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In a November discussion with CNBC’s Jim Cramer, Canopy Growth Co-CEO Bruce Linton discussed the sleep-aid market, one of four areas the company is looking to disrupt: the others are opioids, sports recovery drinks, and pot for pets.

Linton believes that cannabis can replace Ambien as the primary go-to for people who have trouble sleeping. It’s said that THC helps you sleep better with less time spent in the REM stage which is known to cause nightmares.

“We believe CBD has the potential to disrupt the cosmetic and sleep solution industries and have been working for years to build and establish the right entry point into this opportunity,” Linton said in Canopy Growth’s press release announcing the deal. “As soon as we met with Dr. Persaud and her team, we knew they were the right partner to embark with on this journey.”

Sleep Apnea and Canopy Stock

If you’ve ever considered buying ResMed (NYSE:RMD) stock, you’re likely familiar with how big the sleep market is. In Resmed’s most recent 10-K, the company spells out the demand for its sleep apnea products:  

“A long-term epidemiology study published in 2013 estimated that 26% of adults age 30-70 have some form of obstructive sleep apnea. In the United States alone, this represents approximately 46 million people… Another study published in 2018 estimated that mild to severe sleep apnea impacts more than 936 million people worldwide, of which, it was estimated that more than 424 million would have moderate to severe sleep apnea.”

In a high tech world where our brains are running 24/7, people aren’t getting a good night’s sleep and that directly affects their productivity at work the next day.

Linton knows that if Canopy Growth can demonstrate the effectiveness of CBD-infused sleep products for improving the quality of sleep, he’s sitting on a gold mine. While there’s going to be competition in this area, acquiring This Works gets the ball rolling that much sooner.

The Bottom Line on Canopy Stock

I’ve always liked Canopy Growth’s tie-up with Constellation Brands (NYSE:STZ) because it gives Linton and the rest of his management team the confidence to think bigger.

Canopy Growth is no longer just a company that produces cannabis; it’s an industry disruptor. Its focus on four specific areas for its disruption provides tremendous opportunities for the company and its shareholders.

Buying This Works demonstrates that Linton understands that it’s not about where the puck is right now — the sale of cannabis flower and concentrates — but rather where the puck is going — cannabis-infused drinks, edibles, sleep solutions, CBD for pets, reduction in opioid use, etc. — in the future.

This latest deal pales in comparison to its tentative acquisition of Acreage Holdings (OTCMKTS:ACRGF). That being said, if you own CGC stock, you ought to be very happy about the direction of the company.

Not content to just sell pot itself, Bruce Linton’s tossing a wider net, and someday that’s going to translate into significant profits. Forget about the production numbers of the latest quarter and focus on where Canopy Growth is heading.

That’s what’s truly exciting.

At the time of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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