The Big get Bigger…Canopy Growth to Acquire Mettrum

The Canadian medical cannabis leader just got larger…

Earlier this morning, Canopy Growth Corporation (CGC.TO) (TWMJF) and Mettrum Health (MT.V) (MQTRF) announced a definitive arrangement agreement pursuant to which Canopy Growth will acquire all of the issued and outstanding shares of Mettrum. 

The combination of the two businesses will create a globally diversified cannabis company that has six licensed facilities and a licensed production footprint of approximately 665,000 sq. ft. with significant acreage for expansion. The arrangement needs to be approved by the shareholders of both Canopy Growth and Mettrum, by the court, and by the TSX. The deal is expected to close in January 2017.

Following the completion of this acquisition, Canopy Growth will further increase its market share and fortify its position as the largest medical marijuana company in Canada and as a global leader. Mettrum will also become a wholly-owned subsidiary of Canopy Growth.

Favorable Deal for Mettrum Shareholders 

Under the terms of the agreement Mettrum shareholders will receive 0.7132 common shares of Canopy Growth for each common share of Mettrum, representing consideration of C$8.42 per Mettrum common share based on the closing price of CGC.TO on November 30th.  

The total transaction is valued at approximately 430 million CAD and it will be satisfied by the issuance of common shares in Canopy Growth. Once the agreement is completed, existing Canopy Growth and Mettrum shareholders are expected to own approximately 77.7% and 22.3%, respectively, of the pro forma company.

Acquisition to Prove to be Accretive 

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

On the hemp side of the business, the integration of Mettrum Originals with Canopy Growth’s recently acquired hemp.ca platform will solidify Canopy Growth’s position in the hemp market.

The company expects to realize significant synergies through improved supply chain management and back office efficiencies, cross-selling to customers due to the broader product offerings and combined research capabilities.

Well Positioned Post-Acquisition 

Following the completion of the acquisition, Canopy Growth will have a cash balance of approximately $68 million, will have one of the strongest balance sheets in the industry and will be well-funded for expansion and product development initiatives.

We are favorable on this transaction for both Canopy Growth and Mettrum. We expect to see MT and MQTRF open significantly higher.

MT.V is currently trading at $5.92 and this offers more than 40% upside to the acquisition price. In this situation, we prefer MT.V to MQTRF and will keep you updated on how the shares trade. 

A little over a year ago, Canopy Growth announced plans to acquire Bedrocan, which at the time was one of the largest licensed producers in Canada. We are favorable on the company’s new acquisition and will be buyers of TWMJF on weakness. 

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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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