One of the more interesting stocks making waves in today’s market is Canopy Growth (NASDAQ:CGC). Currently, CGC stock has declined more than 2% on a warning from the Nasdaq that the cannabis producer that may be at risk of delisting. This warning follows a rather unique plan put forward by the Canada-based company, in which it would set up a U.S. holding company to make strategic investments in the U.S.
This plan is necessary because laws in Canada and the U.S. vary greatly on the topic of cannabis. Canada legalized the recreational use of cannabis in 2018, and despite expectations that the Biden administration would follow Trudeau’s lead in doing the same, little progress has been made on legalizing marijuana at a federal level in the U.S. Thus, U.S. exchanges such as the Nasdaq have made exceptions to listing only companies who agree to follow specific policies tied to cannabis sales.
In general, Canadian companies have avoided directly investing in the U.S. market, given these stipulations. Accordingly, many investors are watching how this proposed plan may or may not proceed.
Let’s dive into what this may mean for investors.
CGC Stock Dips on Warning
Canopy is looking to acquire Wana, Jetty, and Acreage for a combined value of nearly $1 billion. The company planned to roll these three companies into a U.S. holding company, then consolidate its U.S. financial results. However, in a proxy filing, Canopy Growth noted that the Nasdaq exchange objected to the company consolidating its financial results from its potential acquisition targets.
This could mean that if Canopy proceeds with these acquisitions, the company could be at risk of de-listing from the Nasdaq. This could be a pivotal moment for the industry, as other companies look at whether this model will succeed or not.
On the one hand, if Canopy is delisted, the risk of foreign companies following through with additional acquisitions in the U.S. will be too high to induce much buying. Thus, valuations may come down across the sector.
On the other hand, if Canopy can work with the Nasdaq to make this deal happen in a compliant manner, perhaps the next wave of mergers and acquisitions (M&A)-fueled investment will take place. Investors are on the edge of their seats, in this regard.
For now, Canopy’s relatively small move on this news is probably welcome for investors. Like most cannabis stocks, it’s way down this year already. Accordingly, perhaps there’s some speculative value investors see in owning this stock as it tries to blaze a new path forward in this sector.
On the date of publication, Chris MacDonald 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 InvestorPlace.com Publishing Guidelines.