Canopy Growth Corp (TSX:WEED)(NYSE:CGC) announced that it was acquiring Hiku Brands Co Ltd (TSXV:HIKU) on Tuesday in what will obviously be an all-stock deal. The paper-trading game that is the cannabis industry continues as Hiku shareholders will receive 0.046 of a Canopy Growth share for each of their own shares.
The deal places a value of $1.91 on Hiku shares, which is more than 30% higher than the $1.46 that the shares were trading at on Tuesday.
Hiku had previously agreed to merge with WeedMD Inc (TSXV:WMD) back in April of this year, although in light of the acquisition by Canopy Growth, that deal will now be terminated.
Tokyo Smoke is owned by Hiku and is a well-known cannabis brand that Canopy Growth hopes will help accelerate the company’s trajectory.
Year-to-date, Hiku has been down nearly 40% and with minimal sales, Canopy Growth is paying, or trading, a lot of stock for a brand that hasn’t really proven much.
However, in a world where valuations are based on intangibles and expectations, it’s par for the course. Trying to gauge what is fair value for a pot stock is more of an art than it is a science.
For investors, it makes it difficult to assess whether a stock is appropriately priced or not, and just how high its share might go. In the past, Canopy Growth has stayed in the sidelines as it watched rivals Aphria Inc (TSX:APH) and Aurora Cannabis Inc (TSX:ACB) pay egregious values on acquisitions, but this time it saw an opportunity that it couldn’t pass up.
However, I’m not convinced that this deal will do much for Canopy Growth over the long term.
