As much as just about any market sector, the canna-business is a hub of spotlight-grabbing deals. Among the most noteworthy deals is one made by Canopy Growth (NYSE:CGC), and long-term investors in CGC stock are watching it for ongoing developments.
Approximately a year ago, Canopy Growth made waves when its shareholders approved the acquisition of Acreage Holdings (OTCMKTS:ACRGF). A successful American cannabis company, Acreage Holdings covers pretty much the full marijuana product cycle, from cultivation to processing, dispensing and branding.
Virtually everything Canopy does is major news for pot-market investors. In this case, though, CGC stock traders should pay particularly close attention. Any problems with the Acreage deal could haunt the company, and its stakeholders, for quite a while.
A Closer Look at CGC Stock
The good news for CGC stock investors is that the price action appears to be stabilizing somewhat. For the most part, June’s price movements for CGC were confined to a range between $16 and $18, give or take a few cents.
It’s challenging to achieve real price discovery with CGC because the stock has traded at much higher prices as well as much lower prices. Over the long term, the $50 area has been touched multiple times. However, the bulls will need a big push to clear that hurdle once and for all.
In the short term, clearing the $20 level would be a reasonable objective for CGC bulls. Just as importantly, they’ll want the stock to maintain that level instead of giving the momentum back to the bears, which has happened in the past.
The Plan of Attack
Upon the announcement of the proposed deal between Canopy and Acreage last year, the move was heralded as Canopy’s major foray into the U.S. and, by extension, the global cannabis market.
Bruce Linton was Canopy’s chief executive at the time. With the big announcement, he said, “Completion of the [t]ransaction is intended to position us to efficiently and effectively enter the U.S. cannabis market once federally permissible.”
Times have certainly changed since then, haven’t they? As you may already know, Linton was fired from Canopy Growth. Moreover, the push for Cannabis 2.0 (the sale of cannabis derivatives in Canada) wasn’t the huge success that many investors hoped.
Partly due to those factors, the CGC stock price is lower than it was a year ago. Also, don’t forget about the “once federally permissible” clause that Linton mentioned. We’re in the summer of 2020 and there’s still no sign that cannabis will be legalized federally in the U.S. anytime in the near future.
When times get tough, sometimes investors have to temper their expectations. And if you haven’t downgraded your expectations concerning the Canopy-Acreage deal, perhaps you should consider it.
Revised Deal Short of Expectations
Originally, the deal carried a price tag of around $3.4 billion. That would have made it, at that time, the cannabis industry’s biggest deal dollar-wise.
As reported by Cowen analyst Vivien Azer, the recently announced revised deal would only be worth approximately $900 million. That’s less than one-third of the original deal.
In light of this disappointing development, Canopy cited the “challenging economic environment and increasingly tighter and volatile financial market conditions, particularly for cannabis companies” as factors.
Green Market Report Editor-in-Chief Debra Borchart’s response sums up the reaction of many observers. “It’s amazing how quickly the Acreage Holdings and Canopy Growth [deal] unraveled,” Borchart commented.
Was it really so quick, though? Or was it a train wreck that was a year in the making? Either way, here we are and investors must now reassess their outlook on Canopy Growth. Alternatively, they can wait and decide later on whether the Acreage acquisition really adds much value. For cautious investors, that’s a reasonable thing do to at this point.
The Bottom Line on CGC Stock
Caution is most definitely advised right now when it comes to CGC stock. It’s a smart idea to keep your expectations in check and to watch the Acreage-deal wreckage from a safe distance.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.