Canopy Growth may be on the way to making a big effort at US Marijuana Legalization – The Motley Fool

You can call it "Coming to America Part II."

Bloomberg and CNBC reported Wednesday that the top Canadian marijuana manufacturer Canopy Growth (NYSE: CGC) is in negotiations to acquire the US-based cannabis operator Acreage Holdings ( NASDAQOTH: ACRGF) . Both news organizations stated that sources "familiar with the case" believe Canopy is close to making an agreement to buy Areal. When the market closes on Wednesday, Acreage Holdings's market value was nearly $ 2.5 billion.

In January, Canopy Growth announced it is planning to invest between $ 1[ads1]00 million and $ 150 million to build a large hemp production facility in New York State. But the possibility that the company could soon acquire Acreage Holdings means that Canopy could be on the way to making a huge effort on US marijuana legalization.

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What Canopy Would Get

It is not surprising that Canopy Growth may be interested in Acreage Holdings. The company is ranked as the largest vertically integrated, multi-state owner of cannabis licenses and US assets based on the number of states where it has licenses.

The total number of states currently stands at 19, including Acreage's pending acquisitions. And these states include several of the largest cannabis market in the United States Arcview Market Research estimates that the total addressable market in those countries where Acreage owns licenses will grow to $ 14 billion by 2022.

Acreage announced the addition of an important asset in December with the acquisition of Form Factor, a multi-state manufacturer and distributor of cannabis-based edibles and beverages. Acreage CEO Kevin Murphy said at the time that the deal put his company "on a direct path to becoming Procter & Gamble by cannabis."

If Canopy Growth buys Acreage Holdings, there will also be some impressive political connections. Former US homeowner John Boehner and former Canadian Prime Minister Brian Mulroney serve on Acreage's regime.

Why there is a great deal of marijuana legalization

There is a big wrinkle with a potential acquisition of Acreage Holdings by Canopy Growth. As long as marijuana remains illegal at federal level in the United States, Canopy cannot operate in the US marijuana market and keep its listings on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX).

This was not a problem with Canopy Growth's move to build a hemp production facility in New York. The review of the bill of 2018 in the country legitimized hemp (which, like marijuana, comes from the cannabis plant, but in contrast to marijuana contains low levels of psychoactive chemical THC).

However, Canopy Growth should buy Acreage Holdings and operate actively The company would violate the requirements of the NYSE and TSX. So how can Canopy get land? One scenario is that the company could buy land in a way where ownership does not become active until the US legalises marijuana at federal level.

Taking this approach will probably not make much sense if changes in US marijuana laws were not a likelihood in the non-distant future. But the two-party legislation goes through the US Congress to revise federal marijuana laws. There is a real chance that legalization of marijuana in the US may be on the move relatively soon. A multibillion-dollar acquisition of Acreage by Canopy would be a huge throw of the dice as this could happen.

What's Next

CNBC's sources said Canopy Growth and Acreage Holdings spoke Wednesday night to complete a deal. Bloomberg reported that a deal "could be announced as soon as this week."

Regarding the bill of changing federal marijuana laws in the United States, prospects for passengers look very good in the democratically-controlled House of Representatives. There are several obstacles in the Senate, but political pressure can be put in place for the bill to be put to the vote. If that happens, Senator Cory Gardner (R. Colo.), A sponsor of the law, believes there will be enough votes to pass it, and that President Trump will sign the bill in law.

We should soon know if Canopy Growth is actually making a big effort on US marijuana legalization, but it can take several months to know if that effort will get a quick payout.