Late last year, Aphria Inc. (APHA.TO) (APHA) and Tilray Inc. (TLRY) sent shockwaves through the cannabis sector after the companies announced a merger agreement that would create one of the world’s largest cannabis companies.

The potential synergies that can be found between Aphria and Tilray are substantial and we are curious to see how the transaction changes the landscape of the Canadian cannabis industry. During the last year, we have published several articles that highlighted our view on consolidation and believe that this is a trend that is in the early innings.

Going forward, we expect to see additional consolidation of North American cannabis companies and this is a trend that we are bullish on. The combination of Aphria and Tilray creates a company that has the scale and the resources to compete with Canopy Growth Corporation (WEED.TO) (CGC) and we expect to see additional mega-mergers in 2021.

Today, we have highlighted 5 cannabis companies that could be acquired in 2021 and have provided a rationale as to why we believe this is a possibility for each operator. This is the first article of a two-part series and we believe that our readers need to be aware of the current trend. The next article will highlight the potential acquirers or companies that are expected to acquire strategic cannabis assets in 2021.

One of the companies that we believe could be acquired in 2021 by a leading Canadian Licensed Producer (LP) is Indiva Limited (NDVA.V) (NDVAF). We consider the Canadian LP to be one of the most surprising performers in 2020 and attribute its success to the leverage that it has to Canada’s cannabis 2.0 market.

Through strategic agreements with leading US cannabis edible brands, Indiva has positioned itself as a leader in the Canadian cannabis 2.0 market. We are most excited about the relationship that Indiva has with Wana Brands and consider it to be a key growth driver for it. Wana Brands is a leading US edible brand, and we are favorable on how Indiva has executed on this relationship.

During the last quarter, Indiva has expanded the number of provinces that it is selling Wana Brands products through and we find this to be an attractive aspect of the story. Indiva is selling Wana Brands products in several Canadian provinces (British Columbia. Alberta, Saskatchewan, and the Yukon Territory) and we are monitoring how the brand continues to support the growth of Indiva business. We believe the relationship makes Indiva an attractive acquisition candidate and will monitor how the story evolves in 2021.

We consider Aleafia Health Inc. (AH.TO) (ALEAF) to be one of the most undervalued Canadian cannabis companies and believe that it represents an attractive acquisition target. From the international cannabis market to the Canadian cannabis 2.0 market, Aleafia Heath owns attractive growth assets and is an operator that we are excited about.

At current levels, Aleafia Health is trading at a considerable discount when compared to its peers and find the risk-reward profile to be favorable. We believe that any large-scale Canadian LP would find substantial synergy opportunities if it was to acquire Aleafia Health and would not be surprised if the busines was acquired in 2021.

From the European Union (EU) to Australia, Aleafia Health has strategic leverage to burgeoning international cannabis markets. During the last year, the company has reported a large increase in the number of registered medical cannabis patients and has been capitalizing on the Canadian recreational market.

We believe that Aleafia Health owns attractive growth assets and find the valuation to be attractive at current levels. We expect 2021 to be a banner year for Aleafia Health and will monitor how the management team is able to drive the story forward.

Namaste Technologies (N.V) (NXTTF) is another Canadian LP that we consider to be an acquisition target. 2020 has been a challenging year for the Canadian cannabis company and we will be closely following how the story evolves in 2021.

Although Namaste has reported several significant developments in 2020, the market has not responded favorably to the announcements. The stock has fallen more than 65% from its 2020 highs and this is a trend that we are following. At current levels, Namaste has a $66 million (CAD) market capitalization.

We believe the recent trend makes Namaste a prime target for acquisition. At current levels, the company is trading near its 2020 lows and we find the valuation to be compelling at these levels. We believe that Namaste owns attractive assets and consider this to be an important part of the story. The assets that are owned by the business are strategic in nature and expect to see an offer made for the company in 2021. Going forward, we will take a cautiously optimistic approach on Namaste and will continue to closely monitor the story.

Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.