Newstrike eyes a sale: Sources
Newstrike Brands’ hunt for a buyer could signal another “wave of consolidation” as the countdown to legalized recreational cannabis in Canada approaches, according to one Bay Street portfolio manager.
Greg Taylor, portfolio manager at Toronto-based Purpose Investments, told BNN Bloomberg Friday that there is a glut of licensed cannabis producers in Canada that have all seen their stock valuations balloon in recent months given the “massive global opportunity” investors have identified in the sector. But, he added, there will be further clarity on who will succeed in the space after the launch of legal marijuana in Canada next month.
“At the end of the day, it’s uber competitive and you have these big players and you’ve kind of got the rest of these guys that have raised money and got big stock valuations and don’t have much else,” Taylor said. “I think there’s going to be a lot separating the winners and losers over the next six months.”
Taylor’s comments come after BNN Bloomberg reported that Newstrike, the cannabis producer partly owned by The Tragically Hip, is exploring a sale and has approached several other marijuana companies about a possible tie-up.
Toronto-based Newstrike, the parent company of Up Cannabis Inc., which has developed recreational cannabis strains inspired by The Tragically Hip’s song titles, has reached out to at least four cannabis companies in the past month, the sources told BNN Bloomberg.
Taylor added that some cannabis companies are going to be “terrified” now that they’ll have to deliver on their supply agreements while competing in such a crowded market.
“They have to keep inventory stock, they have to keep pricing under control, they have to keep quality high. I think a lot of people are thinking that they don’t have the scale to do this, [so] we need to find partners fast,” he said.
Newstrike will likely seek a “merger of equals” within the cannabis space as opposed to being swallowed up by a larger company such as Aurora Cannabis Inc. or Canopy Growth Corp. that already has domestic supply plans in place, Taylor noted.
“You’re getting closer to the point that you’ve got to get mergers of equals in consolidating other guys similar to Newstrike that might have better deals with different provinces,” Taylor said. “They may need to get together to create the next mid-tier producer because a lot of the big guys are saying that they’re good for Canada, now they’re looking international.”
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