Canopy Growth (WEED.TO)(CGC) is aiming to dominate the cannabis gummies market with its most recent option-based agreement to purchase Colorado-based edibles manufacturer Wana Brands.

Canopy has sealed the deal, acquiring 100 percent of the firm from three Wana owner entities. Canopy plans to make an upfront cash payment of $297.5 million, according to the agreement. When each Wana entity's rights to purchase are exercised, Canopy Growth claims it will make a payment equal to 15% of the fair market value in cash, shares, or a combination of both at its discretion. The company did not give an estimate for the whole amount expected by the transaction.

This purchase confirms Canopy has set its sights on US expansion with Canopy Growth CEO David Klein stating "Wana secures another major, direct pathway into the U.S. THC market upon federal permissibility, and in Canada we'll be adding the top-ranked cannabinoid gummies to our industry-leading house of brands."

In the United States, large marketplaces like Nasdaq and NYSE do not allow companies listed on those exchanges to directly own plant-touching cannabis assets while the drug is still federally prohibited. The firm also has a conditional ownership stake in TerrAscend (TER.CN), which operates in several US states.

Wana is a California-based edibles company that says it has the "largest distribution" in North America. The firm sells gummies and other cannabis-infused goods in 12 states and 9 Canadian markets, according to its website. Wana aims to expand to 20 states by the end of 2022. In surveyed US states, gummies account for 71% of all edibles purchased.

Wana has an agreement with London, Ontario-based edibles maker Indiva (NDVA.V). In February, those firms extended their agreement for another five years, which may be extended for three additional five-year periods. Rahul Sarugaser of Raymond James believes Indiva's roughly 50% stake in Canada's legal cannabis edibles market is “an M&A target if we've ever seen one,”.

According to Klien, acquiring Indiva would not be in keeping with the firm's efforts to reduce its Canadian production footprint. This further solidifies Canopy's efforts to move into the American market.

Klein praised Wana's founder Nancy Whiteman "I love Nancy's approach to business. She literally started this in her kitchen, and built it into a business that spans multiple states, and is profitable".

Canopy is keeping an eye on Wana's licensing strategy, anticipating it may lead to greater expansion in the United States prior to full federal legalization. The profitable private firm has a track record of achieving strong revenue growth and category-leading gross and EBITDA margins, according to Canopy.

Analysts predict that Canopy won't reach its goal of generating a profit within the next three quarters. Klein has led a major transformation since becoming CEO in January 2020, shutting down several facilities and letting hundreds of employees go as the firm confronted declining income and alarming losses.

Earlier this year Canopy Growth acquired Supreme Cannabis for $435 million, as well as vape specialist Ace Valley in a bid to provide more lucrative, higher-end items.

Opinion on Canopy Growth's Brand Acquisition Spree

Canopy growth continues to demonstrate that they are unable to establish their own brand presence in the Canadian cannabis markets. Instead of developing strong, homegrown brands that connect with consumers Canopy Growth's has failed to capitalize on their first mover advantage to establish valuable brand equity and instead has focused on an acquisition strategy.

The bright spot for the company is that their bankroll continues to provide them the flexibility to acquire companies that have been able to build a brand in the hopes that consumers don't eventually figure out the new owners.

After struggling in the Canadian market Canopy has shifted it's focus to the American market rather than attempting to right the ship and focus on brand development and establishing a presence in the Canadian market.