Marijuana stocks rallied today in response to news that one of Canada’s largest cannabis companies will be acquiring a U.S. hemp research firm. Canopy Growth (TSE: WEED) (NYSE: CGC) shares rose over 8% as Canada prepares for the coming nationwide legalization of cannabis on Oct. 17.
The company announced that it was acquiring hemp research firm Ebbu, which would lower production costs for its cannabidiol (CBD) and help progress its cannabis-infused energy drink project.
The company told investors that the purchase of Colorado-based Ebbu would “complement and accelerate” it’s goals for this new product line. “Intellectual property and research and development advancements achieved by Ebbu’s team apply directly to canopy Growth’s hemp and THC-rich cannabis genetic breeding program and its cannabis-infused beverage capabilities,” said the company in a press release.
The advancements achieved by Ebbu’s team as well as their existing IP portfolio will contribute to existing operations on Canopy Growth, which owns a field-scale hemp facility in Saskatchewan. Through applying Ebbu’s IP’s, Canopy could see drastic cost reductions in it’s CBD production, which is heavily sought-after in the medical and wellness spaces.
Other cannabis stocks surged in response to the development. Aurora Cannabis Inc. ($ACBFF) and Tilray, Inc. ($TLRY) both shot up 7.5 and 7.1 percent respectively. Investors are convinced that cannabis companies will receive more demand then they can handle on October 17th, with analysts expecting share prices to continue to rise throughout the week.
In an interview with the Financial Post earlier in October, Canopy Growth CEO Bruce Linton said that there would be “no chance” that the Canadian cannabis industry would meet consumer demand on the first day, going so far as to speculate that supply and demand won’t equalize well until 2019 as companies struggle to increase production.
Canopy Growth will pay CDN $25 million along with 6,221,210 in common shares to Ebbu in exchange for acquiring their assets. Additionally, if certain scientific related milestones are achieved within two years of the acquisition, Canopy Growth agrees to pay an additional CDN $100 million in cash, shares, or some combination of the two.
“We think this transaction is an important milestone to Canopy as it marks its entry into U.S.-based operations,” said Cowen analyst Vivien Azer, according to CNBC. “We continue to believe that Canopy will have a first-mover advantage in expansion outside of Canada and today’s deal represents an important first step vs. its Canadian peers.”
The transaction still awaits regulatory approval by both the New York Stock Exchange as well as the Toronto Stock Exchange, with the asset acquisition expected to close in November of this year.
Canopy Growth Inc. Company Profile
Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms. From product and process innovation to market execution, Canopy Growth is driven by a passion for leadership and a commitment to building a world-class cannabis company one product, site and country at a time.
The Company has operations in 12 countries across five continents. The Company is proudly dedicated to educating healthcare practitioners, conducting robust clinical research, and furthering the public’s understanding of cannabis, and through its partly owned subsidiary, Canopy Health Innovations, has devoted millions of dollars toward cutting edge, commercializable research and IP development.
Through partly owned subsidiary Canopy Rivers Corporation, the Company is providing resources and investment to new market entrants and building a portfolio of stable investments in the sector. – Canopy Growth
