Please ensure Javascript is enabled for purposes of website accessibility

Why Canopy Growth Stock Dropped Today

By Rich Smith - Updated Apr 8, 2021 at 1:29PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Canadian marijuana company will pay a 66% premium to acquire a rival.

What happened

Shares of Canopy Growth (CGC -5.96%) had dropped 2.7% by 11:50 a.m. EDT on Thursday after the Canadian cannabis company announced that it will acquire fellow Canadian producer Supreme Cannabis (OTC:SPRW.F).  

So what

Canopy Growth will pay for the acquisition in both stock and cash, trading 0.12 shares of its own stock, and a token $0.0001 (that's 1 penny per every 100 shares) for each share of Supreme Cannabis outstanding. In total, the deal works out to 435 million Canadian dollars ($348 million) -- 66% above Supreme Cannabis' closing price last night. In exchange, according to the announcement of the deal, Canopy will gain a top-10 marijuana company in Canada, a "low-cost and scalable cultivation facility," and one of Canada's leading premium brands in 7ACRES.

Man looking at marijuana plant with a magnifying glass

Image source: Getty Images.

Still, in either currency, Canopy Growth is paying a 66% premium to acquire Supreme Cannabis. No wonder Canopy investors are wondering if this is a good price.

Now what

So is it a good price?

At $348 million, Canopy Growth is valuing Supreme Cannabis at about 8.85 times its $39.3 million in trailing-12-month sales (according to data from S&P Global Market Intelligence). That sounds like quite a lot, until you consider that at $11.5 billion in market capitalization, Canopy Growth stock costs 28.5 times its own trailing sales. (Neither company is currently profitable, which is why we have to value them both on sales.)

Viewed in that light, even at a 66% premium, it looks like Canopy Growth is getting a steal of a deal here.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Canopy Growth Stock Quote
Canopy Growth
CGC
$5.52 (-5.96%) $0.35
The Supreme Cannabis Company, Inc. Stock Quote
The Supreme Cannabis Company, Inc.
SPRWF

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.