China Targeting US Cannabis Companies for Mergers and Acquisitions; Who are the likely Targets?

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As products made with CBD, or cannabidiol, take off in the U.S., Chinese business men and women are looking cash in. Recently, China has lifted some restrictions on its industry, signalling a significant push into the market in the USA and Canada. Recently the WSJ visited China’s cannabis heartland and how how their highly sensitive industry is now attempting to turn their country into a CBD and Cannabis superpower.

As of late in China, marijuana is seen as a dangerous narcotic, and possession is strictly punished, which is not surprising from this type of regime. That hasn’t stopped the country from trying to become a powerhouse in the fast-growing industry for cannabis products. In fact, China is now churning out cannabidiol, or CBD, at an alarming rate. The start of 2020 witnessed a surge in Chinese investment into US and Canadian companies as a way to take part in the CBD and Cannabis boom in North America. This allows Chinese business men and women to align them selves and their companies with Cannabis producers in order to have an advantage over the mass competition brewing in China in the CBD industry.


Now, it appears China is taking aim at US and Canadian Cannabis companies with the aim of leveraging their production facilities in China to move into the US and Canadian cannabis market. This has already been accomplished at the small cap level, as a Canadian company was able to establish operations in China, without any significant regulation issues.


Who are the likely Targets/Candidates?

large Cap Targets:

Most investors would have you believe that large companies like Canopy Growth Corp., would be an obvious choice. However, as analysts point out, companies like Canopy are too “financially healthly” for a chinese merger or take-over. Recently, Canopy Growth reported their earnings that beat most projections. As it stands right now, Canopy Growth stands to be one of the few Cannabis companies that has a tripple A rating in terms of continunity of services and financial health factors. Because of this, they are not likely candidates.

Aurora Cannabis ( TSE:ACB) appears to to be a suitable candidate due primarily to its financial difficulties, and management unrest. This ticks both boxes Chinese investors are looking for. A top brand-able name, at a discount.

TSX:ACB Income Statement, December 23rd 2019
Aurora Cannabis (TSE:ACB)

Aurora is the only Canadian marijuana company to launch two billion-dollar takeovers. To secure both, it has relied on the same playbook: Privately negotiating with its targets’ largest shareholders, rather than going after highly sought after directors.

The other Canadidate, albeit less likely, large cap cannabis company appears to be Aphria Inc. with Market Cap over 1 billion, although slated as one of the lowest cost producers of marijuana in the industry, which is a top qualifying factor for Chinese investment as they enter the market. However it is currently at a discount for buy offers, as in the second and third quarters of 2019 Aphria slumped, dropping by about 16.8% total year-to-date, with further troubles for first quarter of 2020.


Small Cap Targets:

One of the top small cap targets appears to be a recent cannabis start-up that has secured financing and new acquisitions, while eliminating their debt completely. Integrated Cannabis Solutions (OTC:IGPK) announced last week they have successfully filed their S-1 registration statement with the SEC. This is the most significant milestone for the company to date, as it now paves the way for a significant transaction that has been on the sidelines awaiting the S1 filing.

Now, IGPK will be able to acquire the farm and purchase another 50% of the dispensary in Los Angeles. Additionally $IGPK will be in a position to expand significantly and open up to a larger and stronger shareholder base.

Further stating,

This new debt-free status has huge implications on the company, as it can now push forward with a stock-swap transaction for a operating dispensary in Los Angeles generating over $400,000 a month in sales, adding revenue to the Company in Q1 2020.

Another candidate is Canadian CBD and Cannabis company EastWest Bioscience due primarily to its already foothold in China. Recently, the company announced they have obtained a business licence to sell products into China via a partnership with Diverse Global Services (DGS), which is based in Chengdu sector of China.


EastWest Bioscience (the “Company” or “EastWest”) (TSX.V: EAST) announces that it is in the final stages of obtaining it’s Business License to sell products into the People’s Republic of China through a strategic new partnership with Diverse Global Service (DGS), based in Chengdu Area of China (Sichuan) Pilot Free Trade Zone, who are both EastWest’s consultants and brokers. Chengdu has a diverse economy highlighting the food industry, IT and automotive manufacturing. It is one of the most important economic centers in Western China.

Chengdu Qingbaijiang Railway Port Area, one of the two primary areas of the Chengdu Area of China (Sichuan) Pilot Free Trade Zone, will prioritize developing port services for international commodity distribution, de-consolidation exhibition, bonded logistics, vehicle import and financial services. The area is becoming a strategic fulcrum of international trade and a corridor which connects inland China with the Belt and Road Area. The Belt and Road Initiative (commonly known as The New Silk Road) is a global development strategy adopted by the Chinese government involving infrastructure development and investments in 152 countries.


Additionally, the fact that the company has had troubles in the last few quarters meeting demand, its currently at a discount, with a certain amount of debt up for grabs, if a company chooses to acquire it.

China and North America might be a new partnership for the Cannabis market, as it begins to establish its footing in Canada and the USA. Still, China is struggling to follow North America in terms of its regulations, however the current surge in Cannabis related mergers from China into US and Canadian companies signals a new shift in the Cannabis trade.


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Next week we look at a new and unknown Stem Cell company that just completed its reverse merger and FINRA approved name change. The Question Stands… Is the market ready for stem cell supplements? Click here to read

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