Yesterday, Canopy Growth Corporation (WEED.TO) (CGC) entered into a definitive agreement to acquire The Supreme Cannabis (FIRE.TO) (SPRWF).
The acquisition is not cheap and the development sent shares of Supreme Cannabis almost 50% higher. In regards to Canopy Growth, the market was not too pleased with the development and the shares traded more than 5% lower. Both price movements took place on heavy trading volume and this is a metric that we will be closely following on a going forward basis.
After the market closed on Thursday, broker-dealer Cowen and Company slashed its price target on Canopy Growth to $44 from $75 (CAD). With a $44 price target, the broker-dealer implies that there is more than 20% of upside to Canopy Growth’s current price.
Although the broker-dealer believes there is still upside to current levels, the size of the price target decrease was substantial. The market seems to be less bullish on Canopy Growth after it filed the agreement to acquire Supreme and we will monitor the trend from here.
Going forward, we expect to see additional changes in ratings and price targets on Canopy Growth. In the near future, we expect to see the company make additional acquisitions and will monitor how the story advances from here.
During the last six months, we have seen a substantial increase in the amount of merger and acquisition (M&A) activity in cannabis sector. Prior to the Supreme Cannabis acquisition, Canopy Growth has been relatively quiet on the M&A front. With approx. $2.5 billion of cash on the balance sheet, the company is well positioned to acquire strategic assets and we expect to see the management team focus on gaining market share in strategic international markets.
We expect Canopy Growth to one of the greatest beneficiaries of the increased amount of M&A activity in the cannabis industry. Although the company does not have the best track record of making acquisitions, Canopy Growth is allowed to make mistakes due to the strength of the balance sheet. We find this to be an important aspect of the story and will monitor how other broker-dealers responds to the transaction.
Going forward, we will be closely following how the acquisition of Supreme Cannabis benefits Canopy Growth, please send an email to firstname.lastname@example.org with the subject “Canopy Growth’s Acquisition of Supreme Cannabis” to be added to our distribution list.
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