Is Canopy Preparing for U.S. Federal Legalization?

The company announced an acquisition in the U.S. this morning – another step south.

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Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) announced an agreement with hemp research company ebbu, Inc. this morning. Ebbu, based in Evergreen, Colorado, is a leader in hemp research.

Research will flow to beverages

The ebbu acquisition could be the lime wedge in Canopy’s Corona bottle, following its Constellation Brands partnership announcement. The company says that ebbu’s research will contribute to Canopy Growth’s hemp and THC-rich cannabis genetic breeding, and to cannabis-infused beverages. So, the knowledge it gains from ebbu is likely to be infused in Canopy/Constellation drinks.

Constellation Brands, makers Corona beer, recently increased their stake in Canopy Growth to 38%

Biopharm subsidiary to benefit as well

Beyond that, ebbu’s Intellectual Property (IP) will be an asset to Canopy Health Innovations, Canopy’s biopharmaceutial research subsidiary. Specifically, the company plans to apply ebbu IP to their Saskatchewan-based hemp facilities.

“Beyond the technological edge this transaction provides, we are pursuing this acquisition because Canopy shares ebbu’s core ethos of building consumer trust,” said Mark Zekulin, Co-CEO & President, Canopy Growth. “We collectively believe consumer trust is achieved by driving the scientific agenda needed to build predictable, repeatable outcomes and layering on brand power.”

Another step toward U.S. expansion

Canopy continues to grow its U.S. operations within the limits of the law there. The company will form a new subsidiary for ebbu’s assets and will continue R&D south of the border. While no production or sales will take place, the company may be getting its ducks in a row federal U.S. legalization.

The company recently announced it made history with its first shipment of medical marijuana to a scientific partner in the U.S. “The United States presents a unique market opportunity and as the most established cannabis business in the world we, in turn, offer a unique ability to advance standardization, IP development, and clinical research that can improve the understanding and legal application of cannabis and cannabinoids,” said Mark Zekulin, President and Co-CEO, Canopy Growth.

Regulatory and legal barriers in the U.S. are still in front of the industry, of and could be a barrier. Nonetheless, 64 percent of Americans polled said that marijuana should be made legal, according to a recent Gallup poll.

When the deal closes, Canopy Growth will pay CDN $25 million in cash and issue 6,221,210 shares to ebbu. A milestone option is baked into the agreement as well. Up to CDN$100 million in purchase price is payable if the subsidiary meets related scientific milestones after two years.

As of now, the Toronto Stock Exchange and New York Stock Exchange must still approve the transaction.

Written by Rob McLean

Rob loves staying on top of developments in the cannabis sector, and always has his finger on the pulse of real estate markets.

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