Marijuana stocks to watch.
Consolidation is one strategy for marijuana companies to survive the burgeoning market and emerge ahead of competitors. The Canadian marijuana market has potential for mergers and acquisitions because “big food and pharma” will look toward the licensed producers to be strategic partners, says Brett Hundley, a senior analyst at investment bank Seaport Global Holdings. Consolidation will also occur in the U.S., with American marijuana companies seeking deals with rivals in states, where recreational and medical use is legal. “We expect considerable consolidation within the U.S., since there are thousands of companies operating relative to a little over 100 in Canada,” he says. Here are seven marijuana companies that could seek acquisitions.
Hexo Corp. (ticker: HEXO)
In March, Hexo received a $65 million credit facility to fund expansion projects and acquired Newstrike Brands (NWKRF) in a stock acquisition valued at about 260 million Canadian dollars ($197 million). The Canadian marijuana producer could be “busy on the M&A front in 2019,” says Michael Berger, founder of Technical420. Berger says he wouldn’t be surprised if Hexo made additional acquisitions, merged with a similar-sized company, received a massive investment or became acquired. “Hexo is attractively valued when compared to its peers,” he adds. Hexo could seek strategic partners potentially, such as Campbell Soup Co. (CPB), since the company’s lackluster performance would use Hexo’s production and technology to reinvigorate its brand, Hundley says.
Stem Holdings (STMH)
A Boca Raton, Florida-based vertically integrated cannabis company, Stem owns cannabis facilities in Nevada, Oklahoma and Oregon. One of the most exciting themes in the cannabis industry has been the emergence of the U.S. multistate operator, Berger says. “These cannabis retail companies are levered to burgeoning state markets in the U.S. and we are favorable on many of these opportunities.” Stem Holdings is an MSO