Canopy Growth Corp. paid a lot for cannabinoid player C³, GMP says

The acquisition of German cannabinoid compound firm C³ will help Canopy Growth Corp’s (Canopy Growth Corp Stock Quote, Chart TSX, NYSE: WEED) pharmaceutical aspirations, but the Canadian company may have paid a high price for it, GMP Securities analyst Martin Landry says.

This morning, Canopy announced it would pay approximately $343-million for C³ in a deal the former says will create the world’s leading full-spectrum medical cannabis offering.

“What this boils down to is greater choice,” CEO Bruce Linton said. “This acquisition will allow us to offer more options to physicians across Europe, accelerate our commercial sales and increase our economic footprint on the continent, and drive forward new innovations. Our goal is to build on C3’s extraordinary reputation and decades of success as we move to an innovative continuum of medical cannabis therapies that will enable physicians globally to better treat their patients.”

Landry says the price WEED paid seems high at first blush.

“It is difficult for us to assess the value of the IP acquired as part of this transaction,” the analyst says. “Hence, without much visibility on the IP acquired, the valuation paid by Canopy appears high at first glance. C³ sales have been growing rapidly in recent years boosted by the German law amendment on the reimbursement of cannabis medicine. However, it is unclear if this pace of growth is sustainable. As an offset, C³’s facilities appear to have been recently constructed.”

Nonetheless, Landry says C³ is an experienced player in the production of cannabis APIs.

“C³ has been producing dronabinol synthetically for nearly 20 years and has also been building out its capacity to produce pharmaceutical-grade dronabinol from cannabis flower. The company’s experience in producing pharmaceutical-grade cannabinoids (THC and CBD) could bolster Canopy’s efforts in becoming a major player in the future pharmaceutical cannabis market.”

In a research “FLASH” update to clients today, Landry maintained his “Buy” rating and one-year price target of $72.00 on Canopy Growth Corp, implying a return of 11.8 per cent at the time of publication.