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Why These Marijuana Stocks Blasted Higher Today

By Eric Volkman - Mar 11, 2021 at 6:27PM

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A major buy-in from a tobacco company lifts virtually the entire sector.

What happened

Many marijuana stocks saw market-crushing gains on Thursday.

These included Aphria (APHA), with a 12% jump, HEXO (HEXO 3.02%) climbing 11%, and Aurora Cannabis (ACB 3.35%) and cannabidiol (CBD) specialist Charlotte's Web Holdings (CWBHF 2.45%) both shooting almost 8% skyward. Big news from a peer inspired those pops.

Hand holding a burning marijuana cigarette.

Image source: Getty Images.

So what

Relatively small Organigram Holdings (OGI 2.45%) announced that a subsidiary of tobacco mainstay British American Tobacco has bought a nearly 20% stake in its equity for roughly 221 million Canadian dollars ($175 million).

That's reminiscent of Marlboro maker Altria's approximately $1.8 billion purchase of a 45% chunk of Cronos Group in 2018.

While the British American/Organigram deal is taking place well after the heady days of multi-billion-dollar cannabis arrangements, it's encouraging nevertheless. Here are two reasons why:

First, British American's investment implies a premium of nearly 40% over Organigram's previous day closing price. Perhaps this sets a kind of standard for buy-ins -- or even potential buyouts -- in an industry that has been lively on the mergers and acquisitions (M&A) front recently.

Second, it shows that well-capitalized companies outside of the weed business remain keenly interested in marijuana, buttressing the bullish view that the cannabis industry has a glowing future.

Now what

Given all of the above, if I were a marijuana stock investor, I'd keep my eye on companies like Organigram that have comparatively low market caps. HEXO, for one, is still under $1 billion, while Charlotte's Web might be an attractive and affordable dance partner at roughly $667 million.


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Stocks Mentioned

OrganiGram Holdings Stock Quote
OrganiGram Holdings
$1.26 (2.45%) $0.03
Altria Group, Inc. Stock Quote
Altria Group, Inc.
$53.44 (0.74%) $0.40
British American Tobacco p.l.c. Stock Quote
British American Tobacco p.l.c.
$42.40 (0.09%) $0.04
Aurora Cannabis Stock Quote
Aurora Cannabis
$2.94 (3.35%) $0.10
HEXO Stock Quote
$0.27 (3.02%) $0.01
Charlotte's Web Holdings, Inc. Stock Quote
Charlotte's Web Holdings, Inc.
$0.51 (2.45%) $0.01
Aphria Stock Quote

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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