From Canadian Licensed Producers (LPs) to cannabinoid focused biotech companies, the legal cannabis industry has recorded impressive advancements so far this year.
Although several United States (US) multi-state operators and Canadian LPs are valued at more than $1 billion (from a market capitalization standpoint), we believe the industry is still in the early innings of a global growth cycle.
During the first half of 2021, several cannabis industry leaders announced major developments and we are bullish on how the sector has evolved so far this year. In the back half of 2021, we expect the industry to record additional milestones and will continue to closely follow the sector’s performance.
Today, we want to highlight what we consider to be the 3 most important developments of the year. These developments help explain how much the industry has evolved and provide content on what to expect in the back half of the year.
GW Pharmaceuticals is Acquired for $7+ Billion
Earlier this year, Jazz Pharmaceuticals (Nasdaq: JAZZ) acquired GW Pharmaceuticals in a transaction that was valued at more than $7 billion. GW is a proven cannabis biotech firm and has successfully commercialized US Food and Drug Administration (FDA) approved cannabinoid-based prescription medicines.
Following the completion of the transaction, Jazz’s management team is focused on executing on a strategy to become an innovative global biopharma leader that has a global footprint. The acquisitions of GW further diversifies Jazz’s commercial portfolio pipeline with therapies that are complementary to its existing business.
For Jazz, the most attractive asset from GW is Epidiolex, a high-growth commercial product that has near-term blockbuster potential. Both companies have a proven track record of developing differentiated therapies for patients who are suffering from diseases that are often-overlooked and we are bullish on the growth prospects that is associated with the business.
Tilray is Positioned to be a Global Cannabis Leader
Earlier this year, Tilray, Inc. (TSX: TLRY) (Nasdaq: TLRY) completed a mega-merger with Aphria and we consider the combined company to be one of the most attractive plays on the global cannabis market.
Following the completion of the merger, Tilray will have a leadership position in several burgeoning international markets and we consider this to be one of the most exciting aspects of the story. Although Tilray and Aphria are both Canadian LPs, the businesses are focused on different aspects of the cannabis value chain and consider this to be an important aspect of the transaction.
So far this year, Tilray has reported significant developments that are related to the cannabis opportunity in the European Union (EU). We believe the EU cannabis market is attractive due to the size of it and the economics that are associated with it. When compared to North America, the cost of medical cannabis is much higher in the EU and we attribute this to the market being much less saturated.
Tilray also has attractive leverage to the US via Aphria’s acquisition of SweetWater Brewing Company. We expect the asset to provide the infrastructure that is required to capitalize on the US cannabis industry once it is legalized at the federal level. We believe that Tilray has substantial potential growth catalysts and is an opportunity we are excited about.
How Does HEXO Benefit From Its Bolt-On Acquisition Strategy
Last month, HEXO Corp. (TSX: HEXO) (NYSE: HEXO) traded lower after it reported weaker-than-expected third quarter financial results. After the earnings miss, several broker-dealers slashed price targets on the Canadian LP and we continue to closely follow the operator.
So far this year, HEXO has reported a series of acquisitions and have purchased smaller Canadian LPs. We believe the management team is executing on a bolt on acquisition strategy and this is a trend that we are closely following.
From leverage to cannabis 2.0 products to the EU, the acquisitions are strategic in nature and we will monitor how the management is able to integrate the businesses. We believe the name of the game for HEXO on a going forward basis is execution. Following the earnings miss, we believe the market has become less bullish on HEXO and will monitor how the story advances in the back half of the year.
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