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In late 2016, we reported on Canopy Growth’s (CGC.TO: TSX) (TWMJF: OTC) announced acquisition of medical cannabis producer Mettrum Health (MT.V: TSX Venture) (MQTRF: OTC).
Last week, the companies’ shareholders approved the all-stock acquisition valued at $430 million. Now, the deal needs to be approved by an Ontario Supreme Court Justice and it is likely to come into effect on January 31st.
The combination of the two businesses will create a globally diversified cannabis company that has six licensed facilities and a licensed production footprint of approximately 665,000 sq. ft. with significant acreage for expansion.
Under the terms of the agreement, Mettrum shareholders will receive 0.7132 common shares of Canopy Growth for each common share of Mettrum. Once completed, Mettrum shareholders are expected to own approximately 22.3% of the combined company.
Canopy Growth CEO Bruce Linton said, “We are delighted that the shareholders of Canopy and Mettrum have demonstrated such strong support for bringing our two companies together. Our focus remains on expanding production capabilities in order to capture market share through a variety of brands. Mettrum’s strong growing platform and brand furthers this strategy.”
Expect Acquisition to Provide Million in Synergies
We are favorable on this acquisition for several reasons and believe it will immediately prove to be accretive. Canopy Growth expects to realize significant synergies through improved supply chain management and back office efficiencies, cross-selling to customers due to the broader product offerings and combined research capabilities.
The combined company will bring together the Mettrum Spectrum brand with the medically-focused brand of Bedrocan Canada and the lifestyle-focused brand of Tweed. On the hemp side of the business, the integration of Mettrum Originals with Canopy Growth’s recently acquired hemp.ca platform will solidify Canopy Growth’s position in the hemp market.
Acquisition Should Support International Opportunities
We also expect the combination of these business to benefit Canopy’s entrance into the German medical cannabis market through its acquisition of MedCann GmbH Pharma and Nutraceuticals.
MedCann is federally licensed by the German Health Ministry to import, manufacture and distribute medical cannabis products. The pharmaceutical distributor that has placed Tweed-branded cannabis strains in German pharmacies.
We favorable on both Canopy Growth and Mettrum Health and believe the companies represent attractive investments. Although the discount between the acquisition price and MT.V’s current price is minimal, we would keep an eye on this prior to the closing of the acquisition.
We continue to view Canopy as one of the most attractive cannabis investments due to its significant market share, its strong balance sheet, its improving fundamentals and its management team that continues to impress investors.
Cannabis investors should keep an eye on Canopy Growth as we expect to see the company benefit off positive legalization trends in Canada.
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Important Investor Disclosures
Disclosure. Compensated Affiliate. This report was authored by and is property of StoneBridge Partners LLC. All information and data relied upon in drafting this report is publicly available. The author believes and considers its sources to be reliable, but does not guarantee the accuracy or completeness of any information contained in this report. Any and all information, data, analyses and opinions are provided for informational purposes only and is not intended, in any manner, as investment advice. Any projections or other information generated by StoneBridge Partners LLC regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. None of the material contained in this report is intended as a solution or offer to sell or purchase a specific stock or any other investment. This report is not directed to, or intended for distribution or use by, any person or entity that is a citizen, resident or located in any municipality, state, country or other jurisdiction where the distribution, publication, availability, or use of this report is contrary to any governing law or regulation. The securities discussed in this report may not be eligible for purchase and/or sale in certain jurisdictions or by particular individuals. It is important that you check any and all governing laws and/or regulations that may be applicable in your jurisdiction. Investing in securities of issuers organized outside of the United States, including ADRs, entail certain risks. The securities of non-United States issuers may not be registered with, nor be subject to the reporting requirements of the United States Securities and Exchange Commission. Please contact a Financial Advisor for professional advice regarding any and all securities investments. This report is intended for informational purposes only. StoneBridge Partners LLC’s officers, directors, employees, affiliates, or subsidiaries may have positions in securities covered by StoneBridge Partners LLC. StoneBridge Partners LLC receives compensation from the company and/or has a position in the securities mentioned in this report
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