Marijuana Stock Mergers
Acquisitions have long been a driver of value in the marijuana industry. Some of the largest investment gains in the sector have come from one pot stock being engulfed by another.
With federal U.S. marijuana legalization closer than ever, one major area of excitement in the market is marijuana stock acquisitions—namely, acquisitions involving Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF).
Now, this will be more of a speculative article. There’s no news regarding Curaleaf stock and a potential buyout. Instead, this is meant as a forward-looking piece that examines what I believe is the single greatest opportunity in the marijuana market right now: a Canadian-American acquisition deal.
To understand why I’m so bullish on the idea, let’s look at two marijuana partnerships that have led to huge results.
The first one that comes to mind is the one between Canopy Growth Corp (NYSE:CGC) and Constellation Brands, Inc. (NYSE:STZ).
Canopy Growth stock surged in value when alcohol producer Constellation Brands infused the company with billions of dollars in capital, acquiring a large chunk of Canopy Growth Corp.
Not only did the infusion of liquidity help Canopy Growth expand into the now-largest marijuana company in the world by market cap, but it also opened the door for marijuana-infused beverages to gain notoriety.
Marijuana-infused beverages were, and continue to be, an exciting prospect that promises future growth beyond the initial legalization boom that occurred in Canada (and is likely to occur in the U.S. sometime soon).
Chart courtesy of StockCharts.com
But mergers aren’t only a thing of the past; the most recent partnership in the pot industry is similarly making waves.
I’ve been bullish on Aphria Inc (NASDAQ:APHA) for several years now (though my position has fluctuated) and bearish on Tilray Inc (NASDAQ:TLRY).
In retrospect, I was dead-on when it came to Tilray stock, while Aphria stock has had its ups and downs.
Chart courtesy of StockCharts.com
But now, both marijuana stocks are up big-time due to their announced merger. Aphria and Tilray are set to join together as the largest marijuana company in the world, based on sales. (Source: “Canadian Pot Producers Aphria, Tilray Unveil Merger Plan to Create Global Leader,” CBC, December 16, 2020.)
This speaks to the market’s feeling as a whole, which is to say that many analysts and investors want to see a pot company that shows large revenue and has access to the capital needed to make growth-oriented acquisitions and other deals.
So the appetite for acquisitions in the marijuana market is still there.
But what we’ve never seen—and what I believe holds the most promise for exponential gains in the pot market—involves CURLF stock and a possible acquisition deal.
Partnership Between Curaleaf & a Canadian Marijuana Company?
The two mergers mentioned above are just a smattering of the many deals and acquisitions I’ve seen in my five years or so reporting on the pot industry.
But none of the deals have involved a U.S. marijuana stock.
MedMen Enterprises Inc (CSNX:MMEN, OTCMKTS:MMNFF) did a reverse takeover in order to gain a listing on a Canadian stock exchange, but that deal was simply to get listed on an exchange other than over-the-counter markets—and I’ve never been a fan of MedMen’s financials.
Curaleaf Holdings Inc, by contrast, has long been a company I’ve favored. Its financials are solid and it continues to grow across the U.S. But what makes it most enticing, dear reader, is that it looks to be in a prime position to partner with a Canadian marijuana company.
You see, being able to serve the pot demands of the U.S. is going to take access to capital in order to expand to the parts of the country that currently have no (legal) infrastructure to support pot production.
Banks and institutional lenders continue to remain skittish when it comes to financing the marijuana industry, due to the drug’s legal status in the U.S.
Because of the federal prohibition of the drug, banks are unwilling to lend money to marijuana-related companies, as this could lead them to have a run-in with federal law enforcement. In the minds of bank executives, it isn’t worth the risk (even if that risk is especially limited under the Joe Biden administration).
Canadian marijuana companies, however, have plenty of access to capital not just from lenders, but from investors. Many of the major Canadian pot stocks are listed on U.S. stock exchanges.
That, in my mind, presents a perfect opportunity for CURLF stock—or any other major U.S. marijuana stock—to partner with a Canadian marijuana stock in order to gain access to capital.
What’s more, many Canadian pot companies have produced marijuana in high quantities. In order to meet a potential surge in demand when America federally legalizes pot, having a big producer in Canada able to supply resources, expertise, and—if needed—capacity would be very beneficial.
With a merger, Curaleaf Holdings Inc (or another well-sized U.S. marijuana company) could gain an immediate presence on a U.S. stock exchange, receive an influx of capital, gain the knowledge and expertise that Canadian pot companies have developed, and be in the strongest possible position when federal U.S. marijuana legalization lands.
As I’ve written before, the future of the marijuana industry lies in the U.S.
That’s hardly news. But figuring out what to be on the lookout for when federal U.S. legalization eventually arrives will separate the moderate winners from those who double, triple, or quadruple their money.
In other words, the pot industry is rising generally, but within that general rise, investors can greatly profit from specific moves and deals.
In this instance, the first major U.S. pot stock to partner in a meaningful way with a major Canadian pot stock is the most likely to be able to fully exploit the opportunities in the growing U.S. marijuana market.