Auxly Cannabis Group (TSXV:XLY) (OTCQX:CBWTF) is a regular visitor to the loss column in 2019, but in July, it bucked that trend. Auxly stock was only one of a handful of cannabis shares to make significant gains.
The cannabis royalty company and grower was given a new lease on life via an investment from big tobacco.
Shares have gained roughly 30% since the announcement and look to be continuing the upswing. Currently, XLY stock sells for $1.05 CAD on the TSXV.
Auxly Stock is Soaring
Auxly Cannabis Group is the recipient of $123 million CAD from tobacco giant Imperial Brands (OTCQX:IMBBF). A global behemoth for cigarettes, Imperial is the company behind the Kool and Winston cigarette brands and boasts a market cap north of $20 billion.
For its troubles, the firm will receive a 19.9% stake in Auxly, via a convertible note. The deal is mutually beneficial; Auxly receives a much-needed injection of cash that it can immediately put to work, and Imperial now has the option of "exercising its notes or simply receiving cash back at 4% annual interest for its convertible in the future."
And it isn't just Auxly stock that has reacted well to the partnership. IMBBF stock increased by roughly 3% after the company made the announcement.
New Lease on Life
The deal gives a new lease on life to Auxly, which has struggled for much of 2019. For one, it will have access to Imperial’s intellectual property, as well as its vaping technology. Auxly Cannabis Group will also gain access to Imperial's global distribution network. Imperial offers Auxly ‘fast-track’ access to any market that it currently operates in. This means Auxly could leverage that opportunity to accelerate its growth.
Based on the stock reaction, it seems investors were waiting for a deal of this kind to rescue Auxly. With shares on the rise, yet still lowly priced at little over $1 CAD per shares, it may be a prime opportunity for the company.
Because, operational enhancement and cash injection aside, simply associating with a brand as global as Imperial Brands puts Auxly stock into a whole new category of regard.
What do you think?
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