Aurora Cannabis Inc. led a rally in cannabis stocks Wednesday, after the company said it’s hiring hedge-fund manager Nelson Peltz as an adviser with the aim of sealing new cooperation agreements and expanding globally.
The stock ACB, +10.62% ACB, +10.90% soared 12.5% in early trade. Peltz, the founder of Trian Fund Management L.P., is a well known activist investor who has run campaigns to shake up management and operations at a range of companies, including Procter & Gamble Co. PG, +0.83% the former DuPont and Dow Chemical, newly merged as DowDuPont Inc. DWDP, +1.05% and General Electric Co. GE, +0.92% He is chairman of fast-food chain Wendy’s Co. WEN, +0.27% and currently sits on the boards of P&G, food services giant Sysco Corp. SYY, +0.47% and The Madison Square Garden Co. MSG, -0.07%
Jefferies analyst Owen Bennett said the news bolsters his view of Aurora as well positioned to become a global leader in the sector.
“Some investor pushback on Aurora’s investment case is they have spent large amounts on numerous assets across the value chain, with perhaps little thought to which are best suited,” Bennett wrote in a note to clients. “Peltz should support in ensuring assets are kept that yield most value. Given his past, we would also suggest that his involvement should support in maximizing the route towards profitability.”
Jefferies has a buy rating on Aurora stock and a $12 price target, equal to about 13% above its priors-session closing price.
Peltz will be granted options to purchase 19.9 million common shares in the company at C$10.34 ($7.74) a share. The options will vest over a four-year period on a quarterly basis, and the vesting may accelerate if the company meet certain goals, including the consummation of certain defined transactions and the share price being at least at C$31.02 and C$41.36 for a specified number of trading days.
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Hexo Corp. shares HEXO, +6.81% HEXO, +5.95% rose 3.9% after the Quebec-based company said it has agreed to acquire its smaller rival, Toronto-based Newstrike Brands Ltd. NWKRF, +6.86% HIP, +8.89% in an all-stock deal valued at about C$263 million. Newstrike shareholders will receive 0.06332 Hexo shares for each Newstrike share owned. Both boards have approved the deal which must now be approved by shareholders.
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The deal will give Hexo an extra capacity of roughly 150,000 kg of cannabis annually and diversify its domestic market distribution. The combined companies will have agreement in 8 Canadian provinces, including Quebec, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, and Prince Edward Island. The companies expect to generate annual synergies of $10 million. Hexo is expecting to achieve net revenues from Canadian cannabis sales of $400 million for fiscal 2020.
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“We expect this to be taken positively with the addition of a strong recreational brand, but reiterate concerns around Hexo’s valuation with question marks over other areas of the business and yet to be seen validation of its strategy to be an ingredient provider,” Jefferies Bennett wrote in a note.
Hexo stock has gained 67% in 2018 to date.
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In other news, comedian, author and activist Chelsea Handler has become an investor in Civilized, a digital content provider that aims to build brands and events in the cannabis sector.
“Cannabis has made a difference in my life, in the lives of my friends and people who have been reintroduced to it,” Handler said in a statement. “Working with Civilized, I’ve seen how passionate they are about smashing outdated cannabis stereotypes while keeping people entertained, and it’s been a real inspiration.”
Acreage Holdings Inc. shares ACRGF, +0.41% rose 0.9% after it reported wider fourth-quarter net losses of $217.6 million, or $2.63 a share, compared with losses of $4.8 million in the year-earlier quarter; the company did not issue a year-earlier per-share figure.
The New York-based company said revenue grew to $10.5 million from $2.2 million in the year-ago period. The company does not have enough analyst coverage for FactSet to provide accurate consensus estimates. Acreage did not release financial tables with its earnings or a full management discussion and analysis.
Elsewhere in the sector, Tilray TLRY, -0.60% was down 1.2%, Canopy Growth Corp. CGC, -1.50% WEED, -1.22% was down 0.7% and Cronos Group Inc. CRON, -0.03% was down 0.6%.
But Green Organic Dutchman Holdings Inc. TGODF, +1.55% TGOD, +1.16% was up 0.9%, CannTrust Holdings Inc. CTST, +1.14% TRST, +0.60% was up 1.1% and MedMen Enterprises Inc. MMNFF, +3.30% was up 2.6%.
The Horizons Marijuana Life Sciences ETF HMMJ, +0.95% was up 1.4% and the ETFMG Alternative Harvest ETF MJ, +1.04% was up 1.6%.
The S&P 500 SPX, +0.85% was up 0.5% and the Dow Jones Industrial Average DJIA, +0.64% was up 0.4%.
Additional reporting by Max Cherney in San Francisco
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