Big cannabis news hit the headlines this weekend, though it was quickly removed from most media outlets. Nevertheless, rumor has it that Aleafia Health (TSX:ALEF) (OTCQX:ALEAF) will be placing a hostile bid to acquire CannTrust Holdings (TSX:TRST) (NYSE:CTST).
The news broke at the end of last week, though neither company has officially addressed the story and most articles about it have been pulled from the web. Shareholders and industry watchers are expecting more details to be released soon to confirm or deny the rumors now floating around.
As Rich notes in his impromptu video about the big cannabis news, Aleafia is supposedly looking to buy CannTrust for approximately $4 per share.
“Because of [this news], Aleafia stock exploded,” Rich explains. “So I would definitely keep Aleafia Health and CannTrust on full alert next week.”
Aleafia’s stock on the TSX jumped up to $1.25 on Friday from an open of $1.08. The price quickly returned to $1.13, however, as the stories about the takeover were pulled.
A Closer Look at the Big Cannabis News
If the rumors of the hostile bid are true, the move is no doubt precipitated by the recent scandals surrounding CannTrust.
Last month, Health Canada identified that the company was cultivating cannabis in unlicensed rooms. This led to an estimated $70 million worth of cannabis being put on hold, a series of class-action lawsuits being filed, and a report being given to Health Canada detailing the extent of CannTrust’s illicit activity.
The cannabis news went from bad to worse as emails revealed that CannTrust executives knew about the illegal cultivation and told workers to continue the activity. This eventually led the company to oust two of its senior executives.
While the cannabis industry as a whole has mostly been in the red throughout July, CannTrust stock, in particular, took a nosedive due to the scandal. CannTrust opened the month at $6.54 on the TSX and closed it at $3.09.
What the Bid Would Mean for Aleafia and CannTrust
Reportedly, the takeover bid would cost a little over $600 million. Rich warns that the deal could cause Aleafia’s shares to be diluted, but also says it could do wonders for the company’s value.
“It would be incredible for Aleafia Health to acquire CannTrust,” he says. “That would skyrocket their value overnight. If this hostile takeover bid goes through … I think there’s a chance that Aleafia goes way, way higher.”
Interestingly, just prior to the hostile bid rumors, both Aleafia and CannTrust were cited as major penny stocks to watch in the marijuana space. The two companies have also worked together in the recent past, which means Aleafia might be in a better position to make the acquisition than another, larger cannabis company like Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) or Canopy Growth Corporation (TSX:WEED) (NYSE:CGC).
For CannTrust, the takeover might be just what the company needs to taper its seemingly endless run of bad luck. While Aleafia’s stock price rose the day of the rumors, CannTrust stock continued to fall amidst news that the Ontario Securities Commission opened an investigation of its own into the company.
Rich wants to know what you think. Would the hostile bid be good for both companies? Will shareholders approve of the move if the announcement is officially made? Join the conversation in the comments below.
Featured image: Canva