Canopy deal seen as a potential ‘gamechanger’ for rallying pot stocks

Canopy deal seen as a potential ‘gamechanger’ for rallying pot stocks
Canopy deal seen as a potential ‘gamechanger’ for rallying pot stocks

Pot stocks received another shot in the arm on Monday after alcohol giant Constellation Brands announced it was buying a near 10-per-cent stake in Canadian marijuana company Canopy Growth Corp. for $245-million.

The agreement is considered a signal of how some alcohol companies plan to respond to the growing acceptance of marijuana for medical and recreational use, giving changing legislation, and the potential opportunity for investors in the cannabis sector.

"We see this transaction as a gamechanger for Canopy, as well as the industry at large, " Beacon Securities analyst Vahan Ajamian said in a note on Monday.

 

Shares of Canopy Growth Corp., Canada's largest marijuana producer, were up about 15 per cent in mid-morning trading. Other large producers also saw increases including Aphria Inc. and Aurora Cannabis Inc., which saw their shares rise 7 per cent and 4 per cent, respectively. The Horizons Marijuana Life Sciences Index ETF, Canada's first cannabis ETF, was up 6 per cent.

Mr. Ajamian says there has been speculation that alcohol companies would look to enter the sector but that "such a tie-up occurred much sooner than we expected.

 

"In our view, this highlights the disruption that the alcohol companies are likely to face as recreational cannabis continues its global march forward – and how the leaders in the sector are looking to get in front of it," he said. "We suspect more alcohol companies may look to accelerate plans to enter the industry – as well as pharmaceutical and tobacco companies."

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