The Canadian cannabis stocks on our list would be logical candidates to rescue CannTrust Holdings from its regulatory issues
SmallCapPower | July 22, 2019: On July 15, we examined the CannTrust Holdings regulatory scandal and whether or not we believed investor trust could be restored. Today, we’ve analyzed an article written by BNN Bloomberg, which discusses two undisclosed white knights that might be interested in purchasing CannTrust. The article talks about how various inside sources have told BNN Bloomberg that at least two Canadian LPs have been approached by investment bankers to gauge interest in acquiring CannTrust. Today we have identified four Canadian cannabis stocks that we believe have the potential to acquire CannTrust Holdings.
*Share prices as at close Thursday, July 18, 2019, data obtained from S&P Capital IQ
Canopy Growth Corporation (TSX:WEED) – $46.61
Canopy Growth is the largest cannabis company listed by market cap on the TSX and NYSE. The Company has the biggest licensed production platform in Canada with over 600,000 sq. ft. of production space. The Company has also secured the necessary agreements to export medicinal cannabis to Australia, Brazil, and Germany. Canopy is one of the front runners to acquire CannTrust, due primarily to its sheer size (largest cannabis company by market cap) and cash balance. The Company’s significant cash position of ~$4.5B and its extensive history of acquiring competitors within its industry make it an ideal candidate to acquire CannTrust.
- Market Cap: $16.1B
- YTD Return: 18.7%
- 90 Day Average Trading Volume: 2,060,000
- Cash as of Latest Quarter: $4.5B
Aurora Cannabis Inc (TSX:ACB) – $9.05
Aurora Cannabis is a licensed producer and distributor of medical cannabis products. The Company has a funded production capacity of over 625,000 kg/year. Aurora utilizes 15 global production facilities, three of which are EU GMP certified. Additionally, the Company is vertically integrated and horizontally diversified across a variety of cannabis value chain segments. Aurora, a company that has stated it is looking to focus the majority of its efforts on its medical segment going forward, could benefit from the ~70,000 Canadian medical patients CannTrust currently has along with the ~2,500 physicians that prescribe its products. Aurora is active in the R&D side of the medical cannabis industry, with ~40 clinical trials and case studied either completed or in progress. Currently, CannTrust has clinical trials with the Queensland Government for the effects of CBD in Amyotrophic Lateral Sclerosis and Motor Neuron Disease, and McMaster University for CBD’s effects on chronic pain. CannTrust’s involvement in these trials could make it even more attractive to ACB.
- Market Cap: $9.2B
- YTD Return: 27.6%
- 90 Day Average Trading Volume: 5,040,000
- Cash as of Latest Quarter: $535.2M
HEXO Corporation (TSX:HEXO) – $6.49
HEXO is a consumer-packaged goods cannabis experience company. The Company currently operates 2.4 million sq. ft of facilities in Ontario and Quebec. Through its hub and spokesperson strategy, the Company is partnering with Fortune 500 companies to bring its brand value, cannabinoid isolation technology, licensed infrastructure and regulator expertise to established businesses, leveraging its distribution networks and capacity. CannTrust’s Ontario presence could be a boost to HEXO, a company whose operations are located primarily in Quebec but has a processing facility in Ontario. A larger cannabis company such as HEXO could expect to realize the synergies of having both processing and cultivation within the same province.
- Market Cap: $1.6B
- YTD Return: 30.2%
- 90 Day Average Trading Volume: 2,420,000
- Cash as of Latest Quarter: $173.6M
The Green Organic Dutchman Holdings Ltd. (TSX:TGOD) – $3.29
The Green Organic Dutchman Holdings is a Canada-based cannabis producer with operations spanning from Ontario to Quebec. TGOD has already received the ACMPR cultivation and sales license but its two facilities are currently under construction. The Company aims to be the lowest-cost producer in Canada by accessing the lowest power rates within the provinces in which it operates. CannTrust is currently looking to establish an outdoor cultivation strategy to provide low-cost production for use in extraction-based products. It has also entered into a long-term agreement with Envest Corporation to provide low-cost heat and power from natural gas co-generation at the Company’s Perpetual Harvest Facility. Through this agreement, CannTrust implemented a 10-megawatt cogeneration solution to ensure it would remain one of the lowest cost producers in the industry. On the other hand, TGOD is also heavily focused on growing premium and organic cannabis – if the Company is looking to diversify its operations, CannTrust may be a good fit.
- Market Cap: $906.2M
- YTD Return: 23.2%
- 90 Day Average Trading Volume: 1,620,000
- Cash as of Latest Quarter: $174.4M
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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