This Could Be the Next Big Cannabis Buyout Target

Mergers & Acquisitions

When a stock jumps 47% in one day it is time to start paying attention.

That’s what happened to GW Pharmaceutical (NASDAQ: GWPH), one of the largest cannabis biotechs in the world, on February 3, when news broke that GW was being bought by leading pharma company Jazz Pharmaceutical (NASDAQ: JAZZ).

The news sent shares of GW soaring 47% in one day and into a new all-time high.

12-Month Chart GW Pharmaceutical (NASDAQ: GWPH)
12-Month Chart GW Pharmaceutical (NASDAQ: GWPH)

The GW deal is part of a growing trend. Mergers and acquisitions (M&A) activity is heating up in the cannabis industry.

  • On December 16, 2020, two of Canada’s largest cannabis companies, Tilray (NASDAQ: TLRY) and Aphria (NYSE: APHA) announced a merger in a $4 billion deal that created one of the largest cannabis companies in the world. Shares of Tilray jumped close to 50% on the news.
  • On December 22, 2020, U.S. multi-state operator AYR Strategies (OTC: AYRWF) announced a deal to acquire Liberty Health Sciences (OTC: LHSIF) for $290 million. Shares of Liberty Health jumped 60% on the news.

Looking forward, I see a high probability that 2021 will be a record year for M&A activity in the cannabis industry. I believe we’ll see a string of mega-deals in the next six months.

Now, investors are asking an important question. Which cannabis stock will be the next to spike on a buyout?

One cannabis stock looks like an ideal buyout target. This company is:

  • already operating in six states
  • a market leader in high-growth Arizona
  • delivering impressive sales growth
  • undervalued compared to peers

Harvest Health and Recreation (CSE: HARV, OTC: HRVSF)

Headquartered in Tempe, Arizona, Harvest is one of the largest cannabis companies in the U.S., with a market cap of $1 billion and operations in six states. The company owns 36 retail locations, 12 processing and cultivation locations, 15 retail locations in AZ, 8 medical dispensaries in PA, and 6 medical dispensaries in FL.

This early leadership in Arizona’s medical cannabis market should be a strong catalyst for growth. Arizona voted to legalize recreational cannabis in November of 2020, and the state is projected to grow into one of the largest cannabis markets in the U.S.

Harvest is in a position to capture that growth because companies with medical permits are usually the first ones to receive permits to sell recreational cannabis. That puts Harvest in an ideal position to benefit from recreational cannabis going legal in Arizona.

3 Reasons Harvest is a Great Buyout Target

#1 – Harvest Is the Right Size for a Buyout

With a market cap of $1 billion, Harvest is technically one of the largest cannabis companies in the U.S. However, it is significantly smaller than the industry’s biggest players like Curaleaf (OTC: CURLF), with a $9.5 billion market cap and Green Thumb Industries (OTC: GTBIF), with a market cap of $6.2 billion. Harvest’s smaller market value relative to the industry’s largest players makes it a potential buyout target.

#2 – Harvest Offers Quick and Easy Access to New Markets

Buying Harvest would give a larger competitor a quick and easy way to expand into some of the fastest-growing cannabis markets in the U.S., including Arizona, Pennsylvania, and Florida.

#3 – Harvest is on Sale

Harvest shares have seen a big rebound in the last six months, driven-by impressive sales growth and a rebound in the broader cannabis sector. However, despite the big boost, shares are still trading 70% below the all-time high from March of 2019. This means Harvest is on sale, trading at a sharp discount to its all-time high value from two years.

2-Year Chart Harvest Health and Recreation (CSE: HARV, OTC: HRVSF)

Members of Cannabis Stock Trades cashed in on the big rebound in Harvest.

On September 2, we alerted them that we were adding shares of Harvest to our cannabis stock portfolio. Since adding this position, Harvest shares have risen 158%.

If you would like to know when we are adding or removing cannabis stocks from our member portfolio, sign up for a 2-week free trial.

The Big Picture on Harvest and a Potential Buyout

M&A activity is heating up in the cannabis sector. Harvest looks like an ideal buyout target. The company is smaller than the largest U.S. cannabis companies, a buyout would be a quick and easy way for a larger competitor to enter new markets, and shares are on sale, trading 70% below the all-time high from March of 2019.

All factors considered, 2021 should be an excellent year for Harvest with strong tailwinds supporting shares.

*Author Michael Vodicka owns shares of Harvest Health and Recreation (HRVSF).

Best,
Michael Vodicka
Editor, Cannabis Stock Trades


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.

Join Cannabis Stock Trades for Mr. Vodicka’s exclusive analysis, trade alerts, and model portfolio.