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Why Acreage Acquisition Looks Valuable for Canopy Growth

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May. 7 2019, Updated 9:28 a.m. ET

Value from Acreage

Canopy Growth’s (WEED)(CGC) recent acquisition announcement of Acreage Holdings (ACRGF) received opposition from Marcato Capital Management, one of Acreage’s investors, on May 6. Marcato believes that the value at which Canopy Growth will acquire Acreage Holdings represents a significant discount. Marcato believes that Acreage Holdings’ economic value was about $6.9 billion, which was twice Canopy Growth’s offer at $3.4 billion.

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Canopy upgraded

Due to Canopy Growth’s acquisition of Acreage Holdings, Jefferies raised its target price on the company to 77 Canadian dollars from 64 Canadian dollars. According to Jefferies, Acreage Holdings will enable Canopy Growth to enter the US, which has a huge potential for cannabis companies.

This potential was further evidenced by the claim made by Marcato that “the relative value is unbelievably lopsided in Canopy’s favor. Canopy stock for Acreage stock is simply a bad deal for Acreage shareholders.”

While Marcato Capital Management called the deal “value-destroying” in effect, given the above information, the deal seems positive for Canopy Growth.

Cannabis companies including Aphria (APHA), Cronos Group (CRON), and Tilray (TLRY) are eyeing the big US market, and getting a foot in the door early on will likely be very valuable to these companies (MJ). Thus, it appears that Canopy Growth has scored a big win, assuming the Acreage acquisition goes through.

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