Canadian cannabis producer Canopy Growth (NASDAQ:CGC) is in the headlines after agreeing to acquire the shares of Acreage (OTCMKTS:ACRHF), a cannabis cultivation and retail company. This appears to be motivated by Canopy USA’s strategy to gain a stronger foothold in the U.S. cannabis market. In light of this development, CGC stock and ACRHF stock are significantly higher today.
So, here’s the lowdown. While Acreage is a Canadian company, it operates cannabis cultivation and retailing facilities in the U.S. Meanwhile, Canopy Growth has a newly-created, U.S.-domiciled holding company known as Canopy USA.
Can you see where we’re going with this? If Canopy Growth wants to branch out of the Canadian cannabis industry and into the U.S., it can start operations there from scratch — or, it can just set up a subsidiary company called Canopy USA and buy out an already established business like Acreage.
And so, Canopy Growth’s new U.S. unit has entered into a complex “Floating Share Agreement” with Acreage. Basically, Canopy USA will acquire all of Acreage’s issued and outstanding floating shares.
What’s Happening with CGC Stock?
Speaking of that, CGC stock floated higher today — or perhaps I should say it rocketed higher, to the tune of 25%. Apparently, Canopy Growth’s investors see eye-to-eye with the company concerning its U.S. invasion strategy.
Today’s move makes sense, since shares of acquired companies often increase in value soon after the buyout announcement is made.
The press release associated with this transaction was optimistic, to put it mildly. It anticipates that the Acreage acquisition will “strengthen Canopy’s position as a brand powerhouse ahead of potential U.S. federal permissibility.”
Perhaps there are some assumptions being made there, but we don’t need to begrudge CGC stock investors their exciting day of fast financial gains. In due time, we’ll learn whether the U.S. government actually takes a “permissive” turn concerning cannabis regulation. Moreover, we’ll know soon enough whether Canopy’s big-time buyout reaps the anticipated rewards.
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 InvestorPlace.com Publishing Guidelines.