Why Charlotte’s Web Holdings Blasted Higher Today

What happened

Charlotte’s Web Holdings (OTC:CWBHF) isn’t exactly a stock that experiences frequent price pops. So it was a bit of a surprise when the cannabidiol (CBD) specialist soared to close nearly 18% higher on the day. It seems that a move by a peer company might have been behind that upward trajectory.

So what

On Monday, concurrent with announcing its latest quarterly results, top multistate operator Curaleaf (OTC:CURLF) announced a new acquisition.

Image source: Getty Images.

The company said it has signed a definitive agreement to acquire Tryke Companies, a privately held business that owns six dispensaries in Arizona and Nevada branded under the Reef name. Arizona recently legalized recreational marijuana and is thus a hot market for the drug, while Nevada is a well-established and thriving pot state.

The deal is being effected in a mix of cash and Curaleaf stock, for a total price of roughly $286 million. That’s approximately 25% above the market cap of Charlotte’s Web as of Friday’s close. The company’s stock price jump the following trading day does not seem coincidental.

It’s very possible investors are considering the CBD company to be an attractive takeover target; after all, it’s struggled with frequent losses, revenue stagnation and erosion, and significant shareholder dilution for some time, and it could use an owner that’s in better financial shape. Also, it’s a recognized leader in the pure-play CBD space and has brands that are familiar and popular within that category.

Now what

The big players in the marijuana industry, Curaleaf very much included, are famously acquisitive. It’s theoretically possible one would find Charlotte’s Web attractive enough for an acquisition to compliment an existing product portfolio.

But the rivers of red ink on the bottom line might deter anyone from paying a premium for the company, plus nearly every major pot company portfolio includes some CBD products. I wouldn’t place a bet just now on a top-dollar buyout of Charlotte’s Web.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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