As Marijuana Businesses Merge, Don’t Forget About Canopy Growth

Back in late 2018 when the pot stock boom was in full effect, traders spoke of Canopy Growth (NASDAQ:CGC) with reverence and traders furiously bought up shares of CGC stock.

CGC stock Image of marijuana plants
Source: Shutterstock

Then, in 2019 the boom morphed into a bust and suddenly, marijuana stocks weren’t so popular. Traders weren’t buzzing about Canopy Growth as much. But then, the cannabis market was going into a state of decline generally.

Now in 2021, with a new presidential administration and a headline-grabbing merger, folks are getting excited about pot stocks again.

But that merger has taken the limelight away from Canopy. And too many traders are ignoring a premier cannabis producer that still has plenty of clout.

A Closer Look at CGC Stock

Fifty dollars per share is an obvious long-term resistance level which the CGC stock bulls need to overcome. Once in 2018, and then twice in 2019, they tried to push the stock past $50 and keep it there, but failed.

Even before the onset of the novel coronavirus, the marijuana stock sector had been mired in a painful bear market. The Covid-19 pandemic only made the situation worse.

The bottoming process occurred in March of 2020, when CGC stock dipped below $10. However, in February of this year, the bulls tried once again to push and keep the stock above $50.

Unfortunately, once again, they did not succeed. By mid-May, Canopy Growth shares were down to $23.

Eventually, another run for $50 is almost inevitable. This suggests the possibility of doubling your money if you can get the shares while they’re still at a low price.

Don’t Get Distracted

I’ll admit, I got as excited by the announcement of Tilray’s (NASDAQ:TLRY) acquisition of  Aphria (NASDAQ:APHA) as anybody else.

After all, this merger will produce the world’s biggest cannabis cultivator. An argument could be made that this is the most important pot stock event of the year.

On top of that, Aphria recently acquired a craft beer company called Sweetwater Brewing. And the new company resulting from  the Tilray-Aphria combination plans to introduce Sweetwater’s brands through CBD-infused beverages in the U.S.

As you can see, this is a time of consolidation in the cannabis industry. Yet, let’s not get so distracted that we forget about Canopy Growth’s own game-changing merger deal.

It really wasn’t very long ago when Canopy announced that it will acquire Supreme Cannabis (OTCMKTS:SPRWF).

And while the Tilray-Aphria deal is extremely significant, the Canopy-Supreme merger is newsworthy in its own right.

A Really Big Deal

Reportedly, the Canopy-Supreme deal will be worth approximately $435 million.

And while the positive impact of the merger isn’t being felt by CGC stockholders right now, traders should still view the acquisition as good news.

Post-merger, Canopy Growth should have a pro forma Canadian recreational cannabis market share of 13.6%. The numbers get even higher when we focus on specific market segments.

Specifically, Canopy expects to have a pro forma market share of 23.3% of the premium flower segment in Ontario, and 21.4% of the premium flower segment in British Columbia.

Going forward, all of this should contribute to Canopy Growth’s ability to generate revenues. InvestorPlace contributor Tom Taulli has the numbers to back this thesis up:

For fiscal 2022 to 2024, the net revenues are forecast to increase by 40% to 50%. The company also expects to reach positive adjusted EBITDA in the second half of fiscal 2022.

The Bottom Line

It’s tempting to focus all of our attention on Tilray and Aphria. And don’t get me wrong: this merger is a game-changing event.

Yet, there’s still room for more than one marijuana market giant. Canopy is a fierce competitor and is forging ahead with a value-added acquisition and no shortage of ambition.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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