Mergers and acquisitions (M&A) continue to heat up in the cannabis sector. This is a trend that investors need to know about because it’s creating an opportunity to pick up a quick gain.
The latest evidence?
Harvest Health and Recreation (CSE: HARV, OTC: HRVSF), one of the largest cannabis companies in the U.S., jumped 35% in five days after announcing it was being bought by Trulieve Cannabis (CSE: TRUL, OTC: TCNNF), also a cannabis giant in the U.S.
Shares of Harvest responded with a big rally. Shares jumped 35% in five days.
Harvest is the latest in a string of recent deals in the cannabis sector.
- Liberty Health Sciences (OTC: LHSIF) jumped 124% in three weeks after being bought by AYR Strategies (OTC: AYRWF).
- GW Pharma (NASDAQ: GWPH) jumped 45% in one day after being bought by Jazz Pharmaceutical (NASDAQ: JAZZ).
Now, investors are asking an important question. Who is next?
I see an early industry leader that looks like a great buyout target because of three key factors.
Columbia Care (CSE: CCHW, OTC: CWBHF) is an early leader in the high-growth, U.S. cannabis industry. Headquartered in New York, New York, Columbia is one of the largest cannabis companies in the U.S. with a market cap of $1.7 billion. Columbia Care boasts an impressive portfolio of cannabis assets.
- operates in 18 U.S. states and the European Union.
- owns 76 dispensaries and 24 cultivation and manufacturing facilities.
- just reported Q3 revenue of $54 million, an increase of 64% from last quarter and 145% from last year.
3 Reasons Columbia Care Is a Great Buyout Target
#1 – Columbia Is the Perfect Size for an Acquisition
Columbia has a market cap of $1.8 billion. While this does make Columbia one of the largest cannabis companies in the U.S., it is still significantly smaller than the largest companies in the industry. For example, Curaleaf Holdings (CURLF) has a market value of $10 billion. This smaller size makes Columbia the perfect size to be acquired by one of the largest companies in the industry.
#2 – Columbia Offers Access to the High-Growth New York Cannabis Market
Columbia has an early presence in New York, where recreational cannabis is set to go legal next year. Columbia currently owns and operates four medical cannabis dispensaries in New York.
Last month, Columbia announced it bought a cannabis cultivation site in New York for $42.5 million. This is a massive grow site with total production capacity estimates to be around 1 million square feet in the next few tears. Buying Columbia would be a quick and easy way for the largest cannabis company to gain access to the high-growth, New York cannabis market.
#3 – Columbia Looks Undervalued Compared to Its Peers
Columbia has an attractive valuation for a buyout. Columbia has a price-to-sales ratio of 8. This is a solid discount to the largest companies in the industry. For example, Curaleaf has a P/S ratio of 11 and Green Thumb Industries (CSE: GTII, OTC: GTBIF) has a P/S ratio of 10. This lower P/S ratio makes Columbia a bargain for a potential buyout.
Columbia shares are up a lot in the last 12 months after a big rally in 2020. However, shares are mostly down in 2021 and trading about 25% below the all-time high. Buy the dip?
In the short run, I expect to see more volatility. However, in the long run, I expect the uptrend to continue.
The Big Picture on Columbia Care and A Potential Buyout
M&A activity is heating up in the cannabis sector and Columbia Care looks like an ideal target because of three key factors.
Columbia Care is the right size, offers quick access to the high-growth New York cannabis market, and the company has an attractive valuation. In the meantime, Columbia Care shares are trading 25% below the 52-week high.
About the Author & Cannabis Stock Trades
Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.
Mr. Vodicka brings his expertise and guidance to the members of Cannabis Stock Trades.
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