Analysis originally distributed on Decemberber 7, 2016 By: Michael Vodicka of Cannabis Stock Trades
Two of my favorite cannabis stocks reported great news.
On December 1 Canopy Growth Corp (TSX:CGC), Canada’s largest medical marijuana company, announced a $430 million bid to purchase industry rival Metrum (TSX.V:MT).
This is one of the most important events of the year in the cannabis industry.
If the merger is approved by regulators and shareholder it would the single largest merger in the history of the young cannabis industry.
It would help solidify Canopy’s status as the giant of the Canadian medical marijuana market.
The combined company would have a market cap of more than $1 billion, 655,000 thousand square feet of annual production capacity and the potential to capture half the entire Canadian medical marijuana.
It would also position Canopy to cash in if Canada passes measures to legalize recreational cannabis this spring.
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And finally, the acquisition would help Canopy expand operating margins through cost cutting.
This is just the latest chapter in Canopy’s recent buying spree. Management has been on a roll.
In early October Canopy announced a partnership with Snoop Dogg to develop a line of branded marijuana products called Snoops Leaves.
Just like alcohol, branded products are going to become more important as the industry grows and customers become loyal. Click the link below for more info.
Two weeks ago Canopy announced it was buying a German-based marijuana distribution company for $7.2 million.
Medical marijuana is legal in Germany, Europe’s largest economy, but it is still illegal to produce cannabis within the country so Germany imports its marijuana from Canada and Holland.
The acquisition sets the stage for Canopy to become a key supplier to the fast growing German medical marijuana market and a platform to build a trade network across the entire continent of Europe.
Buying Mettrum was a fast way for Canopy to ramp production to service new, international markets.
Despite flurry of activity, Canopy is still well capitalized with plenty of dry powder on the balance sheet.
It still has more than $68 million in cash to invest in R&D, production increases and more acquisitions.
Canopy is up 237% on the year. The good news tells me there are more gains ahead.
GW Pharmaceuticals Reports Encouraging Phase 3 Results for its Promising Cannabis Drug
Canopy wasn’t the only cannabis company making waves this week.
We also heard good news from GW Pharmaceuticals (NYSE:GWPH).
This London based pharmaceutical company is one of the largest in the world that is working on creating cannabidiol-cased medications.
One of its most promising is Epidiolex – a drug designed to treat children with epilepsy.
GW has been conducting extensive pre-clinical research of CBD in epilepsy since 2007.
Epidiolex is currently in Phase 3 testing, the final phase before the FDA (Federal Drug Administration) makes a final decision.
In September GW announced encouraging Phase 3 studies, sending shares up 17% on the day.
Last week, more good news of Epidiolex.
At the 70th Annual Meeting of the American Epilepsy Society, GW reported finding a significant difference in patients receiving Epidiolex and those receiving a placebo.
Looking forward, this puts GW in position to receive a final ruling on Epidiolex from the FDA in the first half of 2017.
GW plans to submit Epidiolex to the European Union in the second half of 2016, a huge market that is virtually untapped right now.
GW is up 73% in 2016. If the company can land an approval for Epidiolex from the FDA in the first half of 2017, I expect shares to hit a new all-time high.
As you can see, there were more than a few reasons for cannabis investors to feel good this week.
Looking forward, December is the best month of the year for the S&P 500.
Since 1950, the S&P 500 has returned an average of 1.7% in December, better than any other month of the year.
I am expecting that trend to support cannabis stocks, and for the sector to drift higher for the next few weeks into the end of the year.
Disclosure: At the time of original publishing, Michael Vodicka owned/owns shares of Canopy Growth Corp (TSX: CGC), and GW Pharmaceuticals (NYSE: GWPH).
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