There’s a “green gold rush” underway in Canada. And it’s setting up to be the biggest profit play for 2018.
With Canada on the verge of complete legalization, a small group of pot stocks are surging.
The legal weed business is still in its infancy. It was just four years ago that Health Canada issued the first cannabis production licenses…
That paved the way for a small group of six private companies to legally grow weed for medical use.
Today, we’re on the cusp of 100% legalization in Canada. Prime Minister Justin Trudeau’s bold move will make his country the first developed nation to fully legalize cannabis.
That’s already sending some small stocks higher (go here to see the next big movers).
With any emerging growth market, early movers often try to secure their lead.
That’s what’s happening right now: the dominant players are buying up shares of the smaller players.
In November, we saw Aurora Cannabis (TSE: ACB) announce an unsolicited takeover bid for CanniMed Therapeutics (TSE: CMED) at $24 per share.
The stock jumped from 30% overnight on the news, and currently trades around $20.
Meanwhile, CanniMed responded with its own bid to acquire NewStrike Resources (CVE: HIP), the parent company of Up Cannabis. Together, the two companies would have 40,000 patients.
CanniMed is also adopting a shareholder rights plan – also known as a “poison pill” – in an attempt to dissuade Aurora from pursuing the acquisition.
It’s unclear how this cannabis land grab will end up.
However, it’s perfectly clear that the bigger players plan to dominate the market.
The biggest player is Canopy Growth (TSE: WEED), with a current market capitalization of C$3.65 billion.
The company has formed a strategic partnership with one of the biggest alcohol companies – Constellation Brands (NYSE: STZ). That deal also included Constellation buying a 10% equity investment in Canopy for C$245 million.
Since that investment was announced in October, Canopy’s share price has jumped 46%.
Bruce Linton – the CEO of Canopy Growth – told the Financial Post: “I believe the vast majority of participants in this market have a limited interest in actually creating a proper and sustained business. Over the long term, I see an industry with two or three major, relevant players and a bunch of craft producers.”
With 74 companies approved by Health Canada to produce and sell cannabis, there are plenty of smaller players that are ripe for acquisition in the cannabis buyout boom.
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