Back in April 2019, Canopy Growth (CGC 3.27%) reached an agreement to acquire Acreage Holdings (ACRGF) for $3.4 billion. However, this deal came with a major caveat: The transaction will take place only if marijuana becomes legal at the federal level in the U.S. The acquisition price represents a significant premium on Acreage Holdings' market value, which is currently $542 million. 

In other words, those who decide to purchase shares of the New York-based cannabis company now will be handsomely rewarded if this deal goes through. That being said, there is, at this point, little reason to think the U.S. will legalize marijuana anytime soon. So before rushing to purchase shares of Acreage Holdings because of its pending merger with Canopy, investors should consider the company on its own merits. With that in mind, let's see whether Acreage Holdings -- whose shares slid by 68.9% last year -- is a buy.

Cannabis leaf on top of pile of $100 bills

Image source: Getty Images.

Acreage Holdings' footprint in the U.S. market

Marijuana is classified as a Schedule I substance by the U.S. Drug Enforcement Agency (DEA), which means it has no officially recognized medical benefits and has a high potential for abuse. However, about a dozen states have legalized recreational uses of marijuana, and more than 30 have legalized medical uses. This presents an exciting opportunity for cannabis companies looking to profit from the U.S. market, and few companies have as deep a presence in this market as Acreage Holdings. 

The company has operations in about 20 states (including pending acquisitions), and a market totaling some 180 million Americans. Acreage Holdings was able to expand its footprints thanks to a slew of acquisitions. For instance, back in March of last year, Acreage Holdings acquired a California-based dispensary operator called Kanna, Inc., in an all-stock transaction valued at $11.5 million. This acquisition helped the company enter the California cannabis market, which is one of the largest in the U.S.  

Further, in April of 2019, Acreage Holdings made its way into the state of Nevada with its acquisition of Deep Roots Medical LLC, in a cash-and-stock transaction valued at $120 million. With its broad and growing presence across almost two dozen U.S. states, Acreage Holdings looks well-positioned to profit from the rapidly evolving U.S. cannabis market.

With that said, however, the company has yet to impress investors with its financial results. While Acreage Holdings' revenue for the third quarter was $22.4 million, a whopping 307% year-over-year increase, the company reported an operating loss of $46.5 million, compared to an operating loss of $12.3 million recorded during the prior-year quarter. Lastly, Acreage Holdings recorded a net loss per share of $0.45, significantly worse than the $0.06 net loss reported during the year-ago period.  

Red ink on the bottom line has been the norm -- rather than the exception -- within the cannabis industry, and Acreage Holdings has yet to differentiate itself from most of its peers in this department.

An intriguing play

Acreage Holdings' far-reaching presence in the U.S. cannabis market could allow the company to significantly improve its financial results as sales of marijuana continue to grow. But the federal laws currently in place present significant obstacles to the company and its peers. These obstacles include the relative lack of financing options and abnormally high tax rates in such states as California. The best-case scenario for Acreage Holdings would be that the federal government legalizes marijuana, which would allow its pending acquisition by Canopy to be completed and reward its shareholders in the process. 

Whether it is worth buying shares of Acreage Holdings now depends on your timeline and risk tolerance. It might be a while before the company can fully profit from the U.S. cannabis market, finally merge with Canopy, or both. In the meantime, Acreage Holdings will struggle to be consistently profitable, and its stock, like so many other cannabis stocks, will likely experience a lot of volatility. An investment in Acreage Holdings may end up paying rich dividends down the road, but for investors who decide to pull the trigger now, lots of patience will be required.