Why Canopy Growth and Green Thumb Industries Stocks Popped, Then Dropped Today

What happened

Like other marijuana stocks on Tuesday, Canopy Growth (NASDAQ: CGC) and Green Thumb Industries (OTC: GTBIF) saw a bit of initial excitement before ultimately closing down on the day. The former, which traded as much as 5% above Monday’s close, ultimately ended up sinking by 1.6% today. For Green Thumb, those numbers were an early 2.3% gain and a 4% slide at the close.

It seems that optimism about the latest deal in the weed industry faded quickly over the course of the day.

So what

This morning, fellow weedies HEXO (NASDAQ: HEXO) and Tilray Brands (NASDAQ: TLRY) announced a somewhat complicated deal, under which the latter will acquire the $193 million outstanding principal balance of the former’s senior secured convertible note. In Tilray’s words, this will permit it to “acquire a significant equity ownership position in HEXO and participate directly in its considerable growth opportunities.”

Image source: Getty Images.

So it very much feels like the two Canadian cannabis players are inching toward an eventual merger, or at the very least tighter business cooperation. As frequently happens when there’s some consolidation in the marijuana industry, investors likely traded up other pot companies immediately, on the initial hope that one or several might be a new takeover target.

Now what

It’s not clear why those investors quickly turned bearish on peers like Canopy Growth and Green Thumb.

They might feel that Canopy Growth, still one of the major Canadian weed operators, might be getting squeezed by its rivals (Tilray has already bulked up with last year’s swallow of former competitor Aphria).

As for Green Thumb, perhaps investors were soon struck by the fact that the HEXO/Tilray tie-up only affects the Canadian market for now. After all, “thanks” to antiquated U.S. federal narcotics laws, foreign companies are not allowed to directly sell their wares in this country.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Green Thumb Industries. The Motley Fool recommends HEXO Corp. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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