Canopy Growth Corp Is About To Become An Industry Juggernaut

Last week, we reported that Canadian cannabis giant Canopy Growth Corp (CVE:CGC) was acquiring German pharmaceutical distributor MedCann GmbH Pharma and Nutraceuticals. We looked at the acquisition in some detail, but our primary conclusion was this: Canopy Growth is leveraging its recent share price gains to acquire entities in all stock deals, and that this suggested the company was just getting started with the MedCann deal.Fast forward a week, and Canopy Growth just validated this thesis.The company has just announced that it is set to acquire fellow Canadian cannabis giant, Mettrum Health Corp (CVE:MT), in a deal that will consolidate the two companies into an industry leading entity in the Canadian medical marijuana space.Here's our take on the deal, and what it means for shareholders going forward.First, a quick look at the terms of the deal. Under the agreement, Mettrum shareholders will pick up 0.7132 common shares of Canopy Growth for each common share of Mettrum, amounting to C$8.42 per Mettrum common share based on Canopy Growth's TSX close on November 30, 2016. At close, Canopy Growth and Mettrum shareholders will own somewhere in the region of 77.7% and 22.3%, respectively, of the pro forma company.The terms look pretty fair on both sides, and it's tough to understate the dominant position the resulting entity will have in the Canadian cannabis market on close. Total combined production square footage will come in at more than 665K sq. ft. Based on the September 30 filings from both companies, the combined entity will have just shy of 40K medical marijuana patients. In total, this count comes in around 85K in Canada, so Canopy Growth will command just under 50% of the total Canadian medical marijuana market.This is going to be a large growth area going forward, and the cost savings that the combined entity will benefit from based on economies of scale in production, infrastructure etc., are going to great some near term quantitative benefit, but there's another advantage for Canopy Growth here: the company is fortifying its position ahead of recreational legalization.Cannabis is governed at a Federal level in Canada, and the legal recreational market is set to open at some point late 2017, early 2018. We’ve seen what can happen to even the smallest companies in the US, when just a few states open up to recreational legalization. There's not a company with such a dominant medical presence in the US right now, but if there was, it would be flying. When Canada opens up, its dominant cannabis producer and distributor is set for serious gains, and Canopy Growth holds that title right now (at least it will, at acquisition close).And the company isn’t done there. It's got $68 million cash on hand post-acquisition, and it's looking to pick up other companies using this cash near term.So what's next?The deal is going to be put to vote at a special shareholder meeting in January. Of course, there's always a chance that shareholders will shoot it down, but we think that's very unlikely given the ramifications of an approval. Once approved, it's just a case of dotting and crossing and Canopy Growth will take its position as Canada's biggest medical marijuana company.All said, we've got a well capitalized company with a solid revenue base, which is set to grow on acquisition close, and a strategy that is going to see it dominate medical marijuana in Canada near term. Factor in the potential industry expansion as recreational cannabis becomes legal in 2018 and beyond, and it's tough to see anything but growth over the next five years or so for Canopy.We will be updating our subscribers as soon as we know more. For the latest updates on CGC, sign up below!Disclosure: We have no position in Canopy Growth Corp and have not been compensated for this article.