Forget About SAFE Plus Or CLIMB Act As Cannabis Stock Catalysts, With Canopy's Potential Exception

Canopy Growth Corporation CGC recently announced it will create a new U.S.-domiciled holding company, Canopy USA, LLC, which will hold the company's U.S. cannabis investments and enable it to exercise rights to acquire Acreage ACRHF, Wana and Jetty.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic kept a ‘Neutral’ rating on Canopy’s stock while raising the price target to $3.30 from $3.05.

The Thesis

The analyst increased the price target on advanced sentiment of Canopy USA's structure.

Canopy’s shares gained 44% since the close of Oct.24 – the night before the company announced plans for Canopy USA, compared to SPDR S&P 500 SPY that declined 1%, and a 7% gain for AdvisorShares Pure Cannabis ETF YOLO.

Shortly after announcing its plan to conquer the U.S. cannabis market via consolidation of its assets into a new holding company, the NASDAQ expressed disapproval of Canopy’s plan to consolidate the financial results of Canopy USA at one point.

As such, Canopy’s listing on the NASDAQ is in question, if it chooses to continue with its plan and speed up its entry into the U.S. cannabis market.

“We expect Canopy to successfully close the transactions related to the newly formed Canopy USA structure in the year ahead, and eventually even consider delisting from NASDAQ (among other options), assuming the latter does not alter its current stance against listed companies consolidating US THC-plant-touching assets (a lot could happen in the interim),” Zuanic wrote.

The analyst further noted that considering the Toronto Stock Exchange has quickly announced support for the Canopy USA structure, “we believe the TSX would not delist CGC.”

“A scenario of the NYSE being more flexible than NASDAQ seems improbable to us, but not impossible,” he added.

Zuanic said that an important milestone for the company in the close future will be Acreage shareholders voting for the deal.

“CGC could be in a great position to further acquire US assets in the months ahead, with likely expanding opportunities if the 117th Congress does not pass banking reform during the lame-duck session. Indeed, CGC could be steps ahead of peers, which may have less flexibility.”

In case of NASDAQ approval, the analyst believes the “floodgates will open and the entire sector would rerate, including multi-state operators.”

“In other words, instead of SAFE Plus, a Cole Memo II, or a CLIMB Act, we believe that the sector’s main catalyst would be the 'David Klein Exception' (which of course would then become a generalized exception),” Zuanic concluded.

Price Action

Canopy shares were trading 0.73% lower at $3.27 per share at the time of this writing Monday mid-morning. 

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