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Aphria jumps 15 percent on Altria rumors, boosting Canadian marijuana stocks as global markets plunge

By Brandon A. Dorfman
Oct 11, 2018

Aphria Inc. (TSX:APH) shares jumped over 15 percent in trading on Wednesday following reports that tobacco giant Altria Group Inc. is talking with the cannabis producer about possibly acquiring a stake in the company. The rumored deal, which could mirror Constellation Brands $4 billion investment into Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) earlier this year saw Aphria’s share prices shoot up 15 percent in late-day trading to CAD$20.06.

In fact, the news helped lift the entire Canadian marijuana sector on Wednesday, on what was an otherwise abysmal day for the markets. All major U.S. indices fell sharply during mid-week trading, with Dow Jones Industrial Average plunging more than 800 points on Wednesday. Canadian stock prices dropped as well, with the benchmark Toronto Stoch Exchange falling over 2 percent as panicked selling gripped investors.

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Despite the rough day of trading, Canadian marijuana stocks gained 4.86 points, or 0,63 percent on Wednesday as news of the potential blockbuster deal between Altria and Aphria spread.

 

Details still being finalized as both camps remain quiet

The Globe and Mail first reported on talks between the two companies earlier on Wednesday, with the site quoting an anonymous source as saying that details were still being finalized. A completed deal could take time, according to The Globe and Mail, and there is still every possibility that it could fall through before both parties come to an agreement.

Tobacco-maker Altria, the owner of Philip Morris and brands such as Marlboro, has met with Aphria’s leadership team a few times in Leamington, the most recent of which was Monday according to sources. Altria, which is headquartered in Virginia, currently has a $119 billion market cap. They, too, briefly saw stock prices jump on Wednesday as much as 2 percent, though shares ended up in the red, down .3 percent at market’s close.

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According to sources, Altria prefers a deal in the mold of the Constellation Brands agreement with Canopy Growth, as opposed to a joint venture such as the one recently announced between Molson Coors and Hexo.

Although Altria deals primarily in tobacco products, which have seen a sharp and steady decline over the years due to the harms associated with smoking, the company continues to bring in decent revenues. According to The Globe and Mail, the company’s last fiscal year recorded revenues of $25.6-billion, which were only slightly off from the previous year, with $22.6

billion coming from smokeable products.

Altria is looking to expand its portfolio away from tobacco into other, less harmful markets. According to The Globe and Mail, a spokesperson for Aphria declined to comment.

US marijuana stocks fall with global markets

Meanwhile, U.S. marijuana stocks took a hit on Wednesday, falling 4.59 points or 3.7 percent as the global markets went into freefall with investors beginning to sell across all sectors. Along with the Dow’s steep fall, the Nasdaq fell 4 percent, and the S&P 500 dropped 95 points.

Still, experts and analysts struggled to pinpoint a reason for the selloff.

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“The stock market is doing what markets do best this afternoon: panic selling without a fundamental reason,” said Chris Rupkey, chief financial economist at MUFG in an interview with Yahoo! Finance. “One thing is for certain, stocks [were] down hard [on Wednesday] as the earnings outlook is not as positive as it was.”  

Despite a solid earnings seasons, higher costs and more inflation may be affecting the economy. President Trump took note of the markets on Wednesday as well, voicing his displeasure at the Fed’s recent rate hikes to reporters.

“The Fed is making a mistake,” Trump said, according to Reuters’ Jeff Mason. “They’re so tight. I think the Fed has gone crazy. So you could say that, well that’s a lot of safety actually, and it is a lot of safety, and it gives you a lot of margin, but I think the Fed has gone crazy.”

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