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Cannabis Stock Trends and Opportunities: From a Major Acquisition to a NYSE IPO

Dec 5, 2016 • 12:30 PM EST
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3 MIN READ  •  By Michael Berger
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Although the cannabis sector has been highlighted by lower trading volume, weakening momentum and lower stock prices since the November election, some positive trends have emerged.

We have been expecting to see industry consolidation, especially within the Canadian licensed producer sub-sector for the last year.

Expect M&A Activity to Increase Over the Next Year

Although we have been late on our call, we expect to see M&A activity to increase following Canopy Growth’s (CGC.TO) (TWMJF) announced acquisition of Mettrum Health (MT.V) (MQTRF) last week. The combined company will be a globally diversified cannabis producer with six licensed facilities and a licensed production footprint of approximately 665,000 sq. ft. with significant room for expansion.

We are favorable on Canopy’s acquisition of Mettrum for a number of reasons. We believe that the deal will immediately prove to be accretive as the combined company will bring together the Mettrum Spectrum brand with the medically-focused brand of Bedrocan Canada and the lifestyle-focused brand of Tweed.

Although this announcement stole most of the headlines last week, a number of Canadian medical cannabis producers reported important developments as well. From Aurora Cannabis’ (ACB.V) (ACBFF) commencing construction on its planned 800,000 square foot facility to Aphira (APH.V) (APHQF)closing its oversubscribed bough deal financing deal, we recommend keeping a close eye on this sector of the cannabis industry.

Cannabis-REIT Starts Trading on the NYSE

Another positive theme to emerge last week was Industrial Innovative Properties (IIPR) initial public offering (IPO) on the New York Stock Exchange (NYSE).

The company is a Real Estate Investment Trust (REIT) and this is a milestone for the cannabis industry as it is the first cannabis-focused REIT to trade on the NYSE. IIPR plans to acquire cannabis cultivation and production facilities and charge its tenants rent.

Industrial Innovative Properties faced unexpected headwinds after it first announced plans to conduct its IPO during Thanksgiving week. The offering was twice delayed and the company slashed the amount of capital it planned to raise to $100 million from $175 million. IIPR originally planned to sell 8.75 million shares, but that got cut to 5 million shares and then again to 4 million shares. On the day of the IPO, the share count was once again cut to 3.75 million shares.

Although interest in IIPR was initially very high, the market seems to be less enamored than we expected following the company’s reduction in shares available to trade and the market’s mixed response to the offering. While we are favorable on IIPR’s opportunity within the cannabis real estate industry, we are slightly cautious with the shares following the market’s mixed reaction last week.

OTC Biotech Stock Rallies on FDA Meeting

PharmaCyte Biotech, Inc. (PMCB) rallied more than 40% last week after the FDA granted the company a Pre-Investigational New Drug (Pre-IND) meeting with the Center for Biologics Evaluation and Research (CBER) of the FDA.

During the meeting, the CBER will respond to PMCB’s previously submitted questions to the FDA as part of a Pre-IND information package related to its clinical trial in locally advanced, inoperable pancreatic cancer.

Pharmacyte Biotech describes itself as a clinical stage biotechnology company that focuses on developing and commercializing treatments for cancer and diabetes based upon a proprietary cellulose-based live cell encapsulation technology, known as Cell-in-a-Box. The company is developing therapies for pancreatic and other solid cancerous tumors. Pharmacyte is also developing a therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes.

The company was formerly known as Nuvilex, Inc. and changed its name to PharmaCyte Biotech, Inc. in January 2015. PharmaCyte seems to be at a breakthrough point after a long journey and although we are favorable on this update, we think the market’s reaction was overdone.

PharmaCyte will simply be having a meeting about its application. The application was not approved by the FDA and we are on the sidelines with PMCB because we think the market overreacted to this development.  The shares are currently trading in overbought territory and we will continue to monitor trading.

 

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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