Canopy Growth Corp. said Thursday it has reached an agreement to close Toronto-based Supreme Cannabis Co. Inc. to take over. in the latest M&A deal in a cannabis sector experiencing a burst of activity amid hopes of reforms to strict US laws.
said the stock-and-cash deal is valued at approximately C $ 435 million ($ 345.6 million). Supreme Cannabis
Shareholders will receive 0.01165872 in Canopy Shares for each share held, plus C $ 0.0001 in cash. That equates to a premium of about 66% for Supreme Cannabis shareholders based on the closing prices of both stocks on the Toronto Stock Exchange on Wednesday.
Supreme shares skyrocketed more than 50% in the news.
The deal gives Canopy access to the premium Canadian brand 7Acres, along with consumer insights and R&D capabilities. The combined pro forma market share is estimated at 23.3% of the premium flour segment in Ontario and 21.4% in British Columbia, the companies said in a joint statement.
Canopy expects the deal to generate synergies of approximately C $ 30 million within two years. The deal is expected to be completed by the end of June.
It comes a week after Canopy, the largest Canadian cannabis company by market cap thanks to a $ 4 billion investment by Corona beer distributor Constellation Brands Inc.
closed the acquisition of AV Cannabis Inc., an Ontario brand with a focus on ready-to-eat products – vapes, pre-rolls and gummies. AV products are popular with the Millennium and Gen-Z generations.
Rahul Sarugaser, an analyst at Raymond James, said the move is a positive as Canadian companies are moving quickly to develop brands that resonate with consumers.
"The premium and super premium cannabis segment is one of the fastest growing in the Canadian cannabis market and is clearly valued at a premium – in this case 66% – by the biggest players in the industry," Sarugaser wrote in a note to customers.
The major licensed producers are waking up to the power of brands with loyal followers, and Canopy's two latest deals illustrate that trend, he wrote.
The industry is in the midst of a wave of consolidation, he said, noting that the merger of Aphria Inc.
and Tilray Inc.
expected to close on April 14.
See now: Buy Aphria to take advantage of the planned Tilray and Aphria merger, says this analyst
Raymond James doesn't cover Canopy of Supreme, but said Rubicon Organics Inc.
is the best choice in the premium / super premium segment, has awarded a strong purchase rating and considers it & # 39; the very best idea for a micro-cap & # 39 ;.
At Jefferies, analyst Owen Bennett also welcomed news of the deal, but described it as "barely transformational in terms of impact."
The positives include no thinning, given Canopy & # 39; s multiples over Supreme, he said.
Two, it addresses major weaknesses in Canopy's portfolio in Canada. Three: probable cost savings mean it is better able to meet its positive EBITDA target for 2H22 than before, ”said Bennett, who views Canopy as below par.
Canopy applauded investors in February when it reported its third-quarter fiscal results, saying it expected to achieve positively adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in the second half.
Other recent findings in the cannabis sector include Organigram Holdings Inc.'s
acquisition of The Edibles & Infusions Corp. on Tuesday for C $ 22 million in stock, plus another C $ 13 million in stock. It was the company's first deal since a C $ 221 million ($ 176 million) investment from British American Tobacco PLC.
In February, Hexo Corp.
said Zenabis Global Inc. took over.
in an all-stock deal worth approximately C $ 235 million.
Read now: Buy Aphria to take advantage of the planned Tilray-Aphria merger, says this analyst
Also in February, GW Pharmaceuticals Ltd.
developer of Epidiolex, the drug that received U.S. Food and Drug Administration approval in 2018 as a treatment for severe childhood epilepsy, announced it was acquired by Jazz Pharmaceuticals PLC
specializing in sleep medications, in a $ 7 billion deal.
The cannabis industry will be on the rise for much of 2021, in hopes of cannabis reforms under President Joe Biden's rule, and as more U.S. states legalize for adult recreational use, including New York, which has long been considered a major market.
Canopy is expected to be a great asset in a US legal market as it has an option to acquire a multi-state operator that will be activated upon a change in US law.
Read now: The US, not Canada, should be the value of Canopy Growth stock, analyst says
The latest deal sent cannabis stocks higher on Thursday, with the Cannabis ETF
Canopy was down 3.6% but remains 17% higher than the S&P 500 to date
which 9% has won.
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