Shares of Canadian cannabis maker Canopy Growth Corporation (NASDAQ:CGC) (TSE:WEED) jumped 27% yesterday and are trending another 5% higher in the early trading hours. The share price jump followed the company’s announcement that it would create a holding company to accelerate its entry into the U.S. markets.
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Furthermore, it disclosed its plans to acquire three companies by exercising options: Acreage Holdings Inc. (ACRDF), Wana Brands, and Jetty Extracts.
The newly formed holding company, Canopy USA LLC, will be indirectly owned by CGC. Its board of directors will have four members, with two designated by Canopy Growth.
Canopy USA LLC will acquire Acreage, Wana, and Jetty and will combine all three companies under a single ownership.
Currently, producing and selling marijuana is illegal in the U.S. However, with President Biden’s cannabis reforms in the process, a change in the existing U.S. federal law is probably around the corner and will benefit cannabis stocks like CGC.
Is CGC Stock a Buy or Sell?
As per TipRanks, Canopy Growth stock has received one Buy, two Hold, and five Sell recommendations, for a Moderate Sell consensus rating. Canopy Growth’s average price forecast of $2.32 implies 20.27% downside potential.
Following the dual pieces of news, Stifel analyst W. Andrew Carter reiterated a Sell rating with a price target of $2.12 on the stock.
Carter stated, “We take a negative view of this transaction given the long timeline, complexity, capital costs, and added near-term costs not alleviating Canopy’s core issues (significant cash burn, balance sheet risk).”
He added, “Moreover, we believe the unintended consequence here is creating asset price inflation across the sector that we believe works against the category.”
Concluding Thoughts
The U.S. cannabis industry is estimated to have a TAM (total addressable market) of more than $50 billion. This presents a huge opportunity for the cannabis stock. Canopy growth will potentially hold the leading market share in the U.S. upon federal approval and unlock significant value for its shareholders.
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