Canopy upgraded to buy at GMP after clinching Acreage deal

Canopy Growth Corp. was upgraded to buy from hold on Monday by analyst Martin Landry at GMP, after the company last week bought the rights to acquire U.S. multi-state operator Acreage Holdings Inc. as soon as cannabis is legalized in the U.S. “This transaction should boost Acreage’s ability to consolidate the US market,” Landry wrote in a note to clients. “Hence, when Canopy officially takes ownership of Acreage, it could be much larger than currently.” The deal gives Canopy a foothold in the U.S. market, which is estimated at about $10 billion, or 10 times larger than Canada, which fully legalized cannabis last October. Acreage is already in 20 states with 87 dispensaries and 22 cultivation and processing sites. Canopy is paying $3.4 billion, equal to a valuation multiple of 21.5 times consensus EBITDA for 2020. “In our view, this takeout multiple is low given the strategic nature of the acquisition and the potential for continued strong growth as 2021 consensus estimates forecast Acreage’s EBITDA to double over 2020,” Landry wrote. “Furthermore, valuations of MSOs are likely to be higher upon legalization.” The analyst raised his stock price target by $7 to $72, or about 21% above its current trading level. U.S.-listed shares rose 1.8% in premarket trade and have gained 89.3% in the last 12 months, while the S&P 500 has gained 8.5%.

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