Recent stock-price weakness has turned the Canadian marijuana stocks on our list into tempting takeover targets
SmallCapPower | December 5, 2018: An industry in its infancy, the cannabis sector has been drawing several big-name investors given the industry’s rapid-growth outlook. Back in November 2017, Canopy Growth Corp. (TSX:WEED) drew headlines as Constellation Brands (NYSE:STZ), one of the world’s largest alcohol companies, announced a $245M investment in Canopy. Since then, the industry has seen further consolidation and continues to draw interest from large alcohol and tobacco companies. On December 4, 2018, Cronos Group (NASDAQ:CRON) confirmed it is in talks with Altria (NYSE:MO) about a potential investment. On the subject of M&A, the CEO of ICC Labs, a subsidiary of Aurora Cannabis Inc. (TSX:ACB), recently predicted a flurry of M&A activity in the next two years, with many of the smaller companies being acquired by larger players. Given the recent share-price slump across the cannabis space, now could be a good time for further consolidation. As a result, we have identified three Canadian marijuana stocks that could be potential takeover targets in the coming months or years.
*Market Cap and share prices as of December 3, 2018.
Organigram Holdings Inc. (TSXV:OGI) – $5.27
Organigram is a Canada-based marijuana producer operating in New Brunswick. The Company currently produces 22,000 kg/year out of its 134,000 sq. ft. facility. OGI plans to expand this facility, increasing production to 65,500 kg by April 2019 and 113,000 kg by April 2020. The Company has signed Memorandums of Understanding with New Brunswick for the supply of five million grams in 2018 and Prince Edward Island for the supply $8M-$12M worth of cannabis to the recreational market. Early sales data for Nova Scotia and Prince Edward Island have OGI taking a 24% market share in both provinces, ahead of Canopy, Aphria (TSX:APHA), and Aurora. A strong brand presence in the Atlantic may provide the Company with a defensive moat, making for a potential acquisition target.
Aleafia Health Inc. (TSX:ALEF) – $1.39
Aleafia Health is involved in the production and sale of cannabis products, as well as consultation services to determine the suitability of the Company’s products for treating various chronic conditions. Aleafia operates 22 referral-only medical cannabis clinics across Canada, assisting over 50,000 patients to date. In addition, the Company expects its annual cannabis production capacity to hit 38,000 kg by 2019. On September 4, 2018, Aleafia received a sales license from Health Canada. Then, on October 9, 2018, the Company received Health Canada approval for an outdoor cultivation facility in Port Perry. The Company already enjoys support from private sponsors, including Serruya Private Equity, which recently invested $10M into Aleafia.
Beleave Inc. (CSE:BE) – $0.11
Beleave is a Canada-based biotech company with a focus on the production of medical marijuana. The Company is working towards the development of patents through research with Canadian institutions, as well as the research and development of cannabis-based therapies, such as smoke-harm reduction products, portable and stationary vaporizers and accessories. Beleave Inc’s purpose-built facility is located near Hamilton, Ontario and will be expanded to 80,000 sq. ft. with a production capacity of 32,000 kg/year. Potential acquirers looking to build their R&D platforms or seeking to expand their medical presence may see value in Beleave.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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