Cannabis stocks were mostly lower Wednesday, led by Aphria Inc. after the company rejected a hostile bid from Green Growth Brands Inc. that it said significantly undervalues the company.
Aphria said the bid offers its shareholders a substantial discount to its current and future value rather than a premium, and would effectively give Green Growth a 36% interest in Aphria in exchange for share in a company with “limited operations” or other experience in the cannabis industry.
Based on the 20-day volume-weighted average price of Green Growth shares before it announced the bid on Jan. 22, the bid reflected a 23% discount to Aphria’s stock price over the same period.
“Regardless of their brazen attempts to suggest otherwise, GGB is asking Aphria shareholders to accept a substantial discount on their shares, as well as delisting from both the TSX and NYSE, resulting in a vast dilution of their ownership in Aphria,” said Aphria Chairman Irwin Simon.
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Aphria said its financial adviser, Scotiabank, agreed that the hostile bid is inadequate, from a financial point of view, to Aphria shareholders.
Adding to the pressure on the sector was the news that New York City has become the latest state to crack down on edibles that include CBD, or cannabidiol, a non-psychoactive ingredient in cannabis that is widely held to have wellness properties.
The Department of Health and Mental Hygiene is ordering restaurants under its jurisdiction not to sell food products that contain CBD, the New York Times reported.
CBD has become a popular additive thanks to claims it can help alleviate disorders such as anxiety and depression, even though there has been very little scientific research to back those claims. The recently passed Farm Bill legalized commercial hemp and there were hopes it would also legalize CBD, but instead, regulation of the substance was passed to the Food and Drug Administration, which immediately published guidelines that said it would not allow CBD to be added to food or drinks without prior approval.
That has left many companies with plans to sell CBD-infused products in limbo, at least for now. Most of the big cannabis players were planning to expand into oils and edibles, but the FDA has already raided and seized CBD products from a shop in Arizona, according to Canna Law Blog.
Rob DiPisa, co-chair of the Cannabis Law Group at law firm Cole Schotz, said the market is waiting for greater clarity on how the FDA will regulate the sector as the initial guidelines are vague.
“People were expecting the farm bill to answer all the questions, but the entire CBD industry was in a gray area and the FDA has to protect consumers,” he said.
New Age Beverages Corp.
shares were down 4%. That company has said it wants to launch a series of CBD-infused drinks by March.
Cronos Group Inc.
fell another 8%, a day after it was downgraded by GMP Securities on valuation grounds. The stock is still up 93% on the year, buoyed by excitement about the C$2.4 billion investment in the company by tobacco giant Altria Inc.
The Horizons Marijuana Life Sciences ETF was down 4.6% and the ETFMG Alternative Harvest
was down 4.9%, even after it said it has passed $1 billion in assets under management.
Additional reporting by Tomi Kilgore in New York