With cannabis legitimized, a number of clearly defined trends have emerged. For instance, dealmaking has been on the rise and acquisitions have picked up. Recently, retail focused cannabis company Green Growth Brands (GGB) announced its formal offer to acquire all the issued and outstanding shares of Aphria (APHA). The formal bid is consistent with GGB’s initially proposed informal all-share offer of 1.5714 shares of Green Growth stock for each outstanding Aphria share. The all-stock deal would value Aphria at $9.40 per share.

Cormark analyst Jesse Pytlak points out that the lack of a takeout premium together with shareholders having to accept less liquid paper is likely to be a significant hurdle in GGB being able to garner support for the offer, despite the potential strategic benefits to the transaction. The analyst also believes that certain institutional shareholders of APHA are likely unable to own the equity of a cannabis company with direct US exposure, adding a further obstacle.

“While GGB has accumulated approximately 3 MM of APHA shares, the formal offer did not indicate any support from existing shareholders, contrasting GGB’s previous belief that it had secured support from APHA shareholders representing approximately 10% of outstanding shares. Based on the breadth and diversity of APHA’s shareholder base, we also see little potential for GGB to be able to secure support agreements from a concentrated number of shareholders that would have outsized representation,” Pytlak noted.”We see no compelling reason for APHA shareholders to tender to the current offer. While we can appreciate GGB’s interest in APHA and believe that the offer serves to highlight the quality of APHA’s Canadian market positioning and asset base, GGB is clearly being opportunistic and we think the bid undervalues the company.”

Pytlak reiterates a Buy rating on Aphria shares, with a price target of $15, which represents a potential upside of 56% from where the stock is currently trading. (To watch Pytlak’s track record, click here)

The word on the Street rings largely bullish on this cannabis player, with TipRanks analytics demonstrating APHA as a Buy. Out of 6 analysts polled in the last 3 months, 4 are bullish on Aphria stock, while 2 remain sidelined. (See APHA’s price targets and analyst ratings on TipRanks)