A major buy-in from a tobacco company lifts virtually the entire sector.
What happened
Many marijuana stocks saw market-crushing gains on Thursday.
These included Aphria (NASDAQ:APHA), with a 12% jump,HEXO (NYSE:HEXO) climbing 11%, and Aurora Cannabis (NYSE:ACB) and cannabidiol (CBD) specialist Charlotte's Web Holdings (OTC:CWBHF) both shooting almost 8% skyward. Big news from a peer inspired those pops.
So what
Relatively small Organigram Holdings (NASDAQ:OGI) announced that a subsidiary of tobacco mainstay British American Tobacco has bought anearly 20% stakein its equity for roughly 221 million Canadian dollars ($175 million).
That's reminiscent of Marlboro maker Altria's approximately $1.8 billion purchaseof a 45% chunk of Cronos Group in 2018.
While the British American/Organigram deal is taking place well after the heady days of multi-billion-dollar cannabis arrangements, it's encouraging nevertheless. Here are two reasons why:
First, British American's investment implies a premium of nearly 40% over Organigram's previous day closing price. Perhaps this sets a kind of standard for buy-ins -- or even potentialbuyouts-- in an industry that has been lively on the mergers and acquisitions (M&A) front recently.
Second, it shows that well-capitalized companies outside of the weed business remain keenly interested in marijuana, buttressing the bullish view that the cannabis industry has a glowing future.
Now what
Given all of the above, if I were a marijuana stock investor, I'd keep my eye on companies like Organigram that have comparatively low market caps. HEXO, for one, is still under $1 billion, while Charlotte's Web might be an attractive and affordable dance partner at roughly $667 million.
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