Shares of Charlotte's Web Holdings (OTC:CWBHF) were trading 5% higher as of 3:47 p.m. EDT on Monday after jumping as much as 13.1% earlier in the day. The gain came after the company announced that it was acquiring Abacus Health Products in an all-stock transaction valued at 99 million Canadian dollars, or around $68 million.
Investors reacted positively to Charlotte's Web's pending acquisition of Abacus for good reason. The deal will make Charlotte's Web even more dominant in the hemp CBD products market with a market share of nearly 35% -- more than double that of the No. 2 player in the industry.
In particular, buying Abacus will position Charlotte's Web to compete more effectively in hemp CBD topicals. This market should soon become the largest, fastest-growing CBD segment.
Charlotte's Web should also increase its overall retail presence. The company currently has its products on shelves in around 11,000 retail stores. The addition of Abacus will bump that number up by around 4,000 stores.
Both companies' boards of directors have approved the transaction, but it must now be put before a vote at a special meeting of Abacus shareholders. A vote by Charlotte's Web shareholders won't be necessary. The deal must also be approved by regulators. If all goes as planned, the buyout should close in the second quarter of 2020.
In the meantime, cannabis stocks continue to be hammered by the coronavirus pandemic. Charlotte's Web is no exception, with the company losing over half of its market cap so far this year. Although the Abacus acquisition is promising, it's not likely to change the underlying challenges that any company dependent upon retail sales faces right now.