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Canopy Growth Makes Another Strategic Move As It Awaits U.S. Cannabis Legalization

By Investing.com (Brenda O'Farrell/Investing.com)Stock MarketsOct 19, 2021 07:41
ca.investing.com/analysis/canopy-growth-makes-another-strategic-move-as-it-awaits-us-cannabis-legalization-200490946
Canopy Growth Makes Another Strategic Move As It Awaits U.S. Cannabis Legalization
By Investing.com (Brenda O'Farrell/Investing.com)   |  Oct 19, 2021 07:41
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Canopy Growth (NASDAQ:CGC) (TSX:WEED) is planning to buy Wana Brands, the Number One cannabis edible brand in North America. That was the big news in the cannabis sector last week, as the announcement was made last Thursday.

But just how big a deal it will be has yet to be seen.

Canopy Daily
Canopy Daily

Canopy Growth stock immediately reacted to the news, gaining about $1, or about 8%, in intraday trade last Friday, hitting $14.36 on the NASDAQ. But the cannabis producer closed the week at $13.35 almost exactly where it was the day before the announcement.

That doesn’t mean the deal won't hold huge potential upside in the future for the Canadian-based pot company. Wana Brands is a leading player in the US edibles market, which is one of the fastest-growing sectors in the cannabis space. By market share, Wana is the biggest brand in the US. And according to Canopy’s research, edibles are—and will continue to be—the most popular entry point for new customers in the cannabis market.

The announced deal gives Canopy the right to buy Wana upon federal legalization of marijuana.

The delayed acquisition is structured on three separate option agreements. First, Canopy will make an upfront payment of US$297.5 million (C$366 million) in cash. The options agreements position Canopy with a call option to buy all of the interests in three of Wana’s subsidiaries—Mountain High Products, Wana Wellness and The Cima Group.

When the deal is triggered, Canopy will own and operate Wana’s facility in Colorado and hold its operating licences in 11 states. But the company is rapidly expanding. By the end of 2022, Wana is expected to be operating in more than 20 states.

Said Canopy CEO David Klein in a statement:

“As we establish Canopy Growth as the world’s leading cannabis company, acquiring the #1 cannabis edibles brand in North America will serve to strengthen our market position in both Canada and the United States. The right to acquire Wana secures another major, direct pathway into the US. THC market upon federal permissibility, and in Canada we’ll be adding the top-ranked cannabinoid gummies to our industry-leading house of brands. We’re confident in the future growth of the edibles category and the tremendous opportunities with Wana.”

But the real size of this move for Canopy has to be viewed through the lens of its other strategic deal to not only enter the US market upon legalization of marijuana in the States, but immediately be a dominant player in the largest pot market in the world. That other deal is namely its agreement to acquire another major name in the US market—Acreage Holdings (OTC:ACRGF), a multi-state operator.

These two deals will allow Canopy to move quickly in establishing itself in the US market, not only in the recreational pot market, but in the two major expansion lanes—edibles and infused beverages.

Reflecting on Canadian legalization

Sunday marked the third anniversary of the legalization of marijuana in Canada. The occasion is giving regulators the incentive to reflect on what has gone right and what has gone wrong.

To that end, the Canadian government has announced an 18-month review of its legislation that legalized the substance, which many in the industry hope will bring about changes to reduce the regulatory hurdles that include packaging restrictions and potency limits.

But here are two take-aways of note: Since legalization, about half the illicit pot market has been eliminated in Canada. And, according to government statistics, C$1.068.9 billion (US$867.55 million) in federal and provincial taxes have been generated from the legal sale of cannabis since October 2018, when legalization was enacted. That offers two big societal gains.

Canopy Growth Makes Another Strategic Move As It Awaits U.S. Cannabis Legalization
 

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Canopy Growth Makes Another Strategic Move As It Awaits U.S. Cannabis Legalization

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