Takeovers: marijuana stocks have been on an acquisition binge

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Share-based cannabis stock deals could make it harder for stocks to produce meaningful per-share profits

Several of the largest cannabis deals in history took place in 2018. Leading marijuana stocks have been on an acquisition binge this year as part of the crescendo leading to Canada’s launch of recreational marijuana sales. While most analysts agree the mergers and acquisitions were necessary, some criticize the stocks’ approach to dealmaking.

The first major cannabis stock deal of the year came in May when Aurora Cannabis acquired CanniMed. It made history at the time as the largest cannabis acquisition in history for $852 million. However, it was surpassed in July when Aurora paid, even more, to acquire Ontario-based MedReleaf for over $2 billion.

The next high-profile cannabis deal went down in March when Aphira, which had zero operations at the time, acquired Nuuvera for CAD$425 million. The deal launched Aphira into operations as Nuuvera was already established in eight markets.

Most recently, Canopy Growth expanded its appeal to adult-use consumers with the purchase of Hiku Brands. The move marked Canopy’s new focus on brand building and cost the company CAD$269.2 million.

According to analysts, the above acquisitions and many others like them were necessary in order to thin out the overly-crowded field of cannabis stocks. However, the majority of the deals this year were conducted entirely using common stock – a trend that could be bad for investors.

The data producer Dealogic reports that 69 percent of the $5.3 billion in cannabis deals conducted this year were made entirely in stock. These share-based deals can affect the bottom lines of stocks by ballooning share counts. This makes it harder for stocks to generate significant per-share profits.