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Why the Canopy Growth – Acreage Deal Means Nothing Today

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Well, I guess now we know why Bruce Linton was so optimistic the other day.

Today, we learned that cannabis giant Canopy Growth Corp (TSX:WEED)(NYSE:CGC) would be acquiring Acreage Holdings Inc (CNSX:ACRG.U) in a huge deal worth US$3.4 billion. It’s the biggest deal we’ve seen thus far in the industry and it would give Canopy Growth a huge presence in the U.S. market as Acreage has a footprint in 20 states.

But not so fast….

The deal is still contingent on legislation that would allow it to happen. The TSX has warned companies in the past the investments in U.S. cannabis is a big no-no and that doing so would still be in violation of U.S. federal laws and could run them the risk of being delisted from the exchange.

It’s a big deterrent and in the past, we saw Aphria Inc (TSX:APHA)(NYSE:APHA) divest itself of its U.S. investments as a result of that. That’s why Canopy Growth is taking the careful path in putting a big asterisk on this deal, saying that it won’t go ahead with it until legislation is in place that makes it okay to move forward.

Won’t legalizing marijuana take years to happen in the U.S.?

While it’s unlikely we’ll see marijuana get legalized federally anytime soon, and my bet would be that it won’t happen until we see the Democrats get back into power, that doesn’t mean there aren’t ways around it.

The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act could allow for a loophole that would make the deal work. Effectively, it would allow states to govern themselves with respect to cannabis and the federal government would stay out of it. And although that’s been happening already, putting it in writing and into law would hopefully be enough for the TSX to allow the deal to go through and not cause any problems for Canopy Growth.

However, the one caveat is that like with any bill, there’s no guarantee that it’ll go become law. Cannabis bills, in general, have been difficult to pass and although the U.S. House is now Democrat controlled, the Senate is not and there’s still a lot of resistance when it comes to marijuana from Republicans. And so there’s no guarantee that we’ll see the STATES Act or any other cannabis legislation get passed anytime soon that would enable this deal to become final.

Investors could be waiting weeks at least, perhaps even months or worst case years before everything is finalized. The announcement sounds great on paper, but it’s hard to get excited about it given we don’t know if and when the necessary legislation will pass to make it a reality.

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