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Canopy Growth (NASDAQ:CGC) announced it will create a new U.S.-domiciled holding company, Canopy USA, as part of its strategy to accelerate its entry into the U.S. cannabis industry.
CGC shares jumped more than 27% on Tuesday following the news.
The company said in its press release that the move allows them to capitalize on the “once-in-a-generation opportunity in the largest cannabis market in the world.”
“This strategy and positioning are true differentiators, which we expect to enable our investors and brands to realize value in the near term while positioning Canopy for profitable growth and a fast start upon U.S. federal permissibility,” said David Klein, Chief Executive Officer of Canopy Growth Corporation.
Reacting to the company’s move, Stifel analysts told investors in a note that the company “made an announcement this to morning to establish Canopy USA, an amalgamation of assets acquired via exercising options in Acreage Holdings (OTC:ACRGF), Wana, and Jetty.”
“Canopy Growth will hold an exchangeable position in Canopy USA planning to consolidate results with the conversations with the exchanges ‘ongoing’. Constellation Brands (NYSE:STZ) will convert its stake to an exchangeable share structure inclusive of converting C$100 million outstanding convertible debt, cancel outstanding warrants, and terminate the investor rights agreement including exclusivity,” wrote the analysts, who added that Stifel takes a negative view of the transaction given the “long timeline, complexity, capital costs, and added near-term costs not alleviating Canopy’s core issues (significant cash burn, balance sheet risk).”
“We believe the unintended consequence here is creating asset price inflation across the sector that we believe works against the category. We continue with our Sell rating highlighting our C$2.90 target price includes over C$1 billion of value to U.S. investments,” they concluded.
