What Another Acquisition by Canopy Growth Corp. Means

Canopy Growth Corp. (TSX:CGC) continues to strengthen itself in the industry by announcing yet another acquisition.

| More on:

The whirlwind surrounding Canopy Growth Corp. (TSX:CGC) is set to continue, at least for the time being.

Canopy’s roller-coaster month has seen the small Smith Falls, Ontario, company propel its market cap to over $2 billion in a little over a month. Favourable outcomes to legalize marijuana in several U.S states in last month’s U.S. presidential election also helped push the stock further up, signifying a growing market and huge demand.

There was also Canopy’s purchase of German distributor Medcann earlier this month, which essentially opened the German market to Canopy products well ahead of the competition.

And then finally, earlier this month, Canopy announced the acquisition of Toronto-based Mettrum Health Corp. in a deal reportedly worth $430 million.

Under the terms of the deal, Mettrum shareholders will receive 0.7132 shares of Canopy for each of their existing Mettrum shares. While the deal is still subject to shareholder approval at a meeting to be held early next year, the ramifications of the deal could be huge for Canopy as well as the market.

What does this latest deal mean for Canopy?

Canopy noted that the acquisition will reduce costs, add additional growing area, and add Mettrum’s line of products into Canopy’s existing mix.

In terms of additional growing space, Mettrum has approximately 80,000 square feet currently, which will bring the total to an impressive 655,000 square feet once added to Canopy’s existing growing space.

Canopy is already the most well-known and largest marijuana stock on the market. The company’s immense growth in market cap over the past month has attracted a lot of attention, but it has also served as fuel for Canopy to go on the offensive.

Some industry experts argue that the acquisition may have more to do with eliminating the competition rather than growth.

Health Canada has only issued 36 licenses to grow marijuana, and now Canopy owns two of those licenses. As the nation moves toward legalizing marijuana for recreational use in 2017, the value of those licenses is set to soar.

Furthermore, that impending timeline for legalization may act as a catalyst for the other licensees to merge or do an acquisition of their own. Canopy just fired the preemptive salvo in what will likely become the first of several mergers and acquisitions in this growing industry.

Is Canopy a good investment?

Canopy is emerging at the forefront of a new industry that has potentially billions in revenue. By some accounts, that revenue could be as high as $6 billion within the next few years. Canada is also the first of the G7 countries to make a move towards legalization, which could spur even more potential over the long term.

That’s the glass-half-full take on Canopy.

Year-to-date, Canopy is up over 200% and now has a market cap of over $1.2 billion, while, in the most recent quarter, Canopy reported revenue of $8.5 million.

While there is no doubt that Canopy could be a great long-term performer with lots of potential, the truth of the matter is that, at this point, the stock is far too volatile for most investors, and the results don’t match up with the inflated market value.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

More on Investing

top TSX stocks to buy
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

This dividend stock has been absolutely crushing the TSX 60 and looks like it will continue to do so while…

Read more »

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »