What happened
In what is hardly a regular occurrence for a marijuana stock these days, Canopy Growth (CGC -0.97%) shares rose in price on Wednesday, gaining 1.3%. Optimism throughout the broader market was one factor behind that, but investors were also cheered by the company-specific news that Canopy was divesting itself of a European subsidiary.
So what
Canopy Growth is selling Germany-based C3 Cannabinoid Compound Company to the German pharmaceutical company Dermapharm Holding.
Image source: Getty Images.
Dermapharm will pay 80 million euros ($90 million) up front for C3. Canada-based Canopy Growth can reap additional payments of up to 46.2 million euros ($52 million) in earnouts if the acquisition hits certain milestones. Canopy Growth did not provide any details about these milestones. It anticipates the transaction will close by Jan. 31.
As its name implies, C3 is comprised of three businesses. Two, Spectrum Therapeutics and THC Pharm The Health Concept, are based in Germany. The third, Spectrum Therapeutics Austria, operates in that central European country. Both nations have sanctioned the use of medical marijuana, although to differing extents.
Now what
While the medical marijuana market in Europe certainly has potential -- and the drug will likely become legalized more broadly there -- it's still a relatively small market. Canopy Growth has bulked itself up through numerous acquisitions over the years, and management might have felt that holding on to C3 was a bit of a strain, so it took advantage of an opportunity to hive it off. Investors clearly were pleased to see the company consolidating its operations, at least a little bit.
