GMP Upgrades Canopy Growth To Buy Following Acreage Deal

Cannabis stocks were mostly higher Monday after Canopy Growth Corp CGC received positive coverage from an analyst.

The Analysts

GMP Securities' Martin Landry upgraded Canopy Growth from Hold to Buy with a price target lifted from $65 to $72.

The Thesis

Canopy Growth last week secured the rights to buy Acreage Holdings ACRGF when cannabis is legalized in the U.S. The agreement constitutes the bulk of Landry's upgrade and should improve Acreage's ability to consolidate the American market, MarketWatch quoted the analyst as saying. As such, assuming Canopy eventually owns Acreage, it will likely be "much larger than currently."

Acreage's footprint spans 20 states, 87 dispensaries and 22 cultivation and processing sites. The price tag on the deal is $3.4 billion, or 21.5 times consensus EBITDA on 2020 estimates, which Landry said is a low multiple despite the "strategic nature of the acquisition" and expectations for strong growth. If cannabis is fully legalized in the U.S., valuation multiples of multi-state operators like Acreage are "likely to be higher."

Canopy's move gives it geographical diversity away from Canada, according to MarketWatch. In fact, the U.S. market is estimated to be 10 times larger than Canada.

Price Action

Canopy Growth's stock traded higher by 6 percent at $47.22 per share Monday afternoon.

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