Canopy Growth Corp (WEED.TO) (CGC) reported a major divesture over the weekend and announced that it would be selling its position in Auscann Group Holdings Ltd (ASX: AC8) (ACNNF: OTC). This represents a major development for the Canadian cannabis producer, and we believe that this could be the start of something much more significant.
During the last year, the Canadian Licensed Producer has made a series of investments and acquisitions to enhance its leverage to the international cannabis market. By selling the 42.08 million shares that it owned in Auscann Group Holdings for $0.15 cents each, Canopy seems to be telling the market that it will start to focus on specific cannabis markets.
Canopy Growth has been a trailblazer when it comes to the international cannabis market and has been making acquisitions for several years. We believe that the company is in the middle of a major transition and believe that the catalyst for the changes was the firing of Bruce Linton as CEO and Chairman.
Sold for a More than a 50% Discount to the Current Price
On Friday, the Canadian cannabis producer sold its 13% stake in Auscann to Perth-based asset manager Merchant Funds (according to Yahoo Finance). As of the close of trading on Friday, Auscann was trading at $0.31 and we were surprised to see Canopy Growth sell the stock for more than a 50% haircut to the current price.
Although the Australian cannabis market has been slow to evolve, we believe that the growth prospects associated with the emerging market are significant. We are of the opinion that Auscann was one of the better operators in the market and will monitor how the market responds to this development.
Auscann reported to have approx. $35 million of cash on hand as of June 30th and we will monitor how the team is able to use the capital to continue to drive the story forward. Going forward, we would not be surprised to see Canopy’s previously owned shares acquired up by a Canadian cannabis company that has leverage to the Australian market.
A Market to be Watching
The cannabis sector has had a rough couple of months and believe that the recent decline has put companies like Canopy Growth under considerable pressure. WE believe that a company cannot operate as effectively as possible when it is put under such conditions and do not fully agree with the divesture.
Canopy Growth has the capital (money and human capital) to execute on the Australian cannabis market and we are surprised by this decision. Going forward, we expect to see another Canadian cannabis producer benefit from this mistake and will closely follow this opportunity.
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