Pot Stocks May See Deal, Capital Influx Amid Canada Legalization

(Bloomberg) -- The Canadian marijuana sector is expected to see a new wave of capital inflows from investors and a surge in deals among the companies involved, now that the industry has received the green light to legalize recreational use, according to Eight Capital analyst Graeme Kreindler.

Royal Assent, a ceremonial approval from the governor-general and the final step for Bill C-45 to come into full force, could come as soon as Wednesday, Kreindler said, and the first sales to consumers could follow within the next 12 weeks. This approval will lead to new “capital to enter from both institutional investors as well as established players in threat or substitute industries,” he added.

Deal-making within the sector has already seen an uptick, and Kreindler thinks additional transactions are “a matter of when, not if” as the sector will likely mature to a stage in which the top three players will have the majority of the market share.

Marijuana stocks surged across the board Wednesday, with the Bloomberg Intelligence Canada Cannabis Competitive Peers Index up as much as 3.7 percent. Neptune Technologies & Bioressources Inc. is the biggest gainer within the 56-member index following its deal Tuesday with Canopy Growth Corp. to supplement its extraction, refinement, and extract product formulation capacity.

Here are few potential upcoming catalysts for the sector, according to Kreindler:

  • Provincial regulations are expected 8-12 weeks after the Cannabis Act comes into force
  • Product calls from Ontario, Alberta and British Columbia provinces
  • Start of recreational sales expected in September
  • M&A activity and possible pharmaceutical/consumer packaged goods partnerships
  • Increased insurance coverage for medical cannabis
  • GW Pharmaceuticals’ CBD-derived drug, Epidiolex’s PDUFA date, which is June 27

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