Shares of CannTrust Holdings Inc (TSE:TRST) (OTCMKTS:CNTTF) (FRA:C9S) soared today, as investors shift focus to the mid-major market following news MedReleaf Corp (TSE:LEAF) (OTCMKTS:MEDFF) is undergoing acquisition talks. Although the out-performance wasn’t limited to CannTrust, they easily outpaced the rest of the sector.

We spotlighted this emerging trend in Midas Letter yesterday with a piece titled Canopy Growth Corp (TSE:WEED) Freezes As MedReleaf Buyout Ramifications Pondered. One of the main takeaways from reported MedReleaf acquisition talks is that mid-cap companies could be the ultimate beneficiaries of such action, as Big Cannabis attempt to maintain scale with one another:

Mid/large-cap cannabis stocks held up notably better than their small cap counterparts. We expect interest in select names will heighten should MedReleaf get taken over—mainly as Big Cannabis attempts to maintain scale with more reasonably-valued consolation prizes. Consolidation would be the natural conclusion to the legalization endgame we’ve been expecting all along.

Obviously, many investors picked up on this narrative today. Especially CannTrust, which continued to surge since the MedReleaf news became public on May 2.

Company Last Change % Change Volume CannTrust Holdings Inc. 8.44 0.79 10.33% 762.77k MedReleaf Corp. 23.29 1.04 4.67% 1.21m The Hydropothecary Corporation 4.49 0.17 3.94% 3.20m Cannabix Technologies Inc 1.88 0.02 1.08% 68.53k Cannabis Wheaton Income Corp. 1.5 0.01 0.67% 671.44k

CannTrust finished higher by $0.84 to $8.49/share (↑10.98%). Volume rang in at 762,765 shares traded—about twice the daily 3-month average. The company’s recent news that it had partnered with NexgenRx to provide medical cannabis benefit access and adjudication services to NexgenRx plan members was certainly well-timed. Such collaborations are exactly what the remaining field will be looking to acquire should MedReleaf get taken out. Remember, CannTrust is already an exclusive global pharma partner with Apotex Inc., the 7th largest generic drug maker in the world. Both companies are diligently innovating and developing products that will make it easier for patients to use medical cannabis.

While it’s unclear whether CannTrust is thought of by Big Cannabis as a takeover target, it sure looks that way. With an impressive medical products portfolio, supply chain, repeat medical prescription pipeline and established (or imminently establishing) international distribution channels in Australia and Europe, CannTrust could be the top consolation prize in the medical refined goods sweepstakes. They’re also scheduled to add an additional 40,000 kilograms of annual yield in the Niagara region later this summer, which is an ideal Golden Horseshoe/Southern Ontario distribution hub.

CannTrust Holdings Inc. CEO Brad Rogers talks about the company’s deal with Apotex Inc. Brad also reveals CannTrust’s low all-in cost per gram and highly automated cultivation process.

Let’s not also forget that CannTrust one of the few cannabis companies in the black right now. Net income chimed in at $6,885,430 in FY 2017, derived from $20,697,764 in revenue. The latter was a ↑472.33% increase YoY—and legalization hasn’t even commenced. Any buyout here would be costly (likely around $1 billion or so in mostly stock), but should be accretive to earnings. For companies looking to establish or expand their international and domestic medical footprint, CannTrust may make sense.

We shall see what happens next. But judging by the market’s reaction following the MedReleaf news, we believe our thesis will prove prescient once again.