Canopy Growth to Buy Wana Brands; Shares Soar

Canopy Growth (WEED) announced Thursday that it has signed a deal to acquire Colorado-based Wana Brands, the top cannabis edibles brand in North America by market share.

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This acquisition will strengthen the pot giant’s presence in the rapidly evolving segment of marijuana gummies in the United States and Canada. Wana manufactures and sells gummies in 12 states and nine Canadian markets. The company plans to expand to 20 states by the end of 2022.

Canopy Growth CEO David Klein said, “The right to acquire Wana secures another major, direct pathway into the U.S. THC market upon federal permissibility, and in Canada we’ll be adding the top-ranked cannabinoid gummies to our industry-leading house of brands. We’re confident in the future growth of the edibles category and the tremendous opportunities with Wana.”

Canopy said it will make an upfront cash payment of $297.5 million to acquire call options to purchase Wana, which is made up of three separate entities: Mountain High Products LLC, Wana Wellness LLC and The Cima Group LLC.

Once the United States legalizes cannabis at the federal level, Canopy will be able to elect to exercise these options and will pay 15% of the fair market value of each entity in cash, stock, or a mix of the two. (See Analysts’ Top Stocks on TipRanks)

Two weeks ago, Bank of America analyst Heather Balsky downgraded WEED to Hold from Buy, and lowered its price target to C$22 (from C$41). This implies 23.7% upside potential.

Balsky no longer estimates that Canopy will achieve positive EBITDA in the fourth quarter of 2022, despite the company’s guidance and efforts to achieve this target.

Overall, the consensus is that WEED is a Hold, based on one Buy and seven Holds. The average Canopy Growth Corporation price target of C$26.61 implies upside potential of 49.7% to current levels.