From Next Investor's Email - continued .
Let’s first recap the merger and see what successful cannabis entrepreneur Bruce Linton, who will take on the role of Chairman for the new entity, thinks of it.ASX: CPH
What we might see from CPH’s planned merger
CPH is planning to merge with a Canadian listed psychedelics company Red Light Holland (CSE:TRIP | OTC:TRUFF).
You can read our commentary on CPH’s planned transactionhere.
The merged entity would be called “The HighBrid Lab” and maintain its Canadian Stock Exchange (CSE) listing under the ticker TRIP (the same as Red Light Holland is now).
Bruce Linton, from Canopy Growth founder and CEO, is planning to head up the merged entity as Executive Chairman.
In a recent interview, Linton explained the key reasoning behind the merger.You can view the full Linton interview here.
This was probably our favourite video describing the impact of the planned merger and how this is a good result for CPH investors.
Here’s our insights from the Linton video:
Biggest insight #1 - US market opens up for CPH products as a result of merger
Through the merger, CPH will be listed on the CSE, which means CPH will be able to sell its products into the US.
Linton reckons,“If Creso stayed on their own on the ASX, they couldn’t enter the US THC market. Which means that there’s an opportunity that they can’t exploit because of who regulates what they do as a trading entity. So when you put the two together … ... a CSE listing could have an enormous impact on CPH’s sales opportunities moving forward.”
We think this merger could be a game changer for CPH, giving it access to bigger North American cannabis and psychedelics markets - from both a sales and investor access point of view.
Biggest insight #2 - more acquisitions coming?
In the video above, we think Linton seemed to hint at more acquisitions on the horizon.
As part of CPH’s planned merger with Red Light Holland the new entity will also bring in Executive Vice President and Chief Strategy Officer William Lay.
William Lay is an ex Canopy Growth M&A Director, having overseen/managed over $5BN in cannabis M&A transactions in the past…
To us it looks like he has been tasked with doing similar M&A deals for HighBrid Lab alongside Linton.
The merged entity is expected to have a pro-forma equity value of $347 million, with a fairly healthy cash balance of approximately C$45 million for deal making.
So we are starting to read between the lines and see what Hybrid Lab might be looking to do over the coming months.
Despite the advantages of the intended merger, there’s an air of necessary cautiousness here, as the last time a CPH entered a big acquisition discussion with PharmaCielo (which was about to happen, until the medical cannabis market tanked and the deal fell over, causing CPH’s shares to bottom out and many investors to get burnt).
We also think some investors might be concerned about transferring their shares over to a Canadian broker as well, which has caused some selling pressure in the stock.
ASX: CPH
CPH’s record quarter of revenue growth
On its own CPH has already started its revenue machine - And a merged entity should create larger revenue opportunities...
CPH’s revenue currently comes from two sources:
- CPH’s Canadian cannabis growing facility, Mernova (~A$1M in total sales last quarter).
- CPH’s Swiss animal and human health products (~ A$670,000 in total sales last quarter).
Strong sales growth CPH is delivering on now should hopefully fuel ongoing growth after the planned merger.
Before that takes place, we are expecting a few more decent catalysts on the horizon - hopefully more sales, and the completion of CPH’s Halucenex psychedelics acquisition.
