This chart shows the percent change in the stock prices of the 5 largest U.S. and Canadian cannabis companies by market cap from the market close on January 4, 2021 (the day before the Georgia senate election) to January 8, 2021 (3 days after the election).
Unexpectedly, the large Canadian LPs outperformed their U.S. counterparts over this period primarily due to the belief that a passage of the MORE Act or similar legislation would allow them to begin operations in the U.S. The biggest gainer was Acreage Holdings (not shown), which was up 80% on the narrowed arbitrage spread on its previously agreed upon contingent merger with Canopy. The spread is now 37.5% indicating that the market still doesn’t think it’s a sure thing.
We believe the Canadian gains may be overdone. The primary beneficiaries of an opened U.S. market will be the large MSOs with access to capital as well as the 2nd tier companies who may become acquisition targets. Interstate commerce in cannabis is still a considerable distance away; States will push to protect their indigenous industries with their considerable employment and tax bases against incursion from out of state, let alone cross border commerce.
We expect a continued surge of M&A activity as the MSOs build scale in newly opened and soon-to-open markets.