Cannabis ETFs Spike On Jazz-GW Pharma Deal

Cannabis stocks have been the biggest winners to start 2021 buoyed by hopes of wider legalization and near-term decriminalization as well as the growing adoption of marijuana in more states. The recent comments from several prominent politicians regarding cannabis reform legislation added to the strength.

In fact, several Democratic senators released a joint statement early this week signaling plans of pursuing new legislation to reform regulations in the United States. The latest deal activity in the space has strengthened the bullish case for these stocks. This is especially true as Jazz Pharmaceuticals (JAZZ - Free Report) agreed to buy cannabinoid drug company GW Pharmaceuticals (GWPH - Free Report) for $7.2 billion in cash and stock.

Deal in Focus

Per the terms of the deal, Jazz will pay $220 per American depositary share of GW Pharmaceuticals, including $200 in cash and $20 in Jazz ordinary shares. This represents a premium of about 50% over GWPH's closing price on Feb 2, and 60% over its 30-day volume-weighted average price. The deal is valued at $6.7 billion net of GW cash.
  
The combined company will be a leader in neuroscience with a global commercial and operational footprint. The deal will bolster GWPH’s efforts in developing, manufacturing and commercializing regulatory approved therapeutics that address a range of diseases, including epilepsy-related seizures associated with Lennox-Gastaut Syndrome, Dravet Syndrome and Tuberous Sclerosis Complex. Jazz’s lead product, Epidiolex, is the first plant-derived cannabinoid medicine approved by the U.S. Food and Drug Administration to treat epilepsy-related seizures.

The transaction will also enhance product diversification through the addition of a third high-growth commercial franchise for critical unmet patient needs within sleep disorders, oncology, and epilepsies.

The deal has been approved by the board of directors of both companies and is expected to close in the second quarter of 2021. However, it is subject to approval by GW Pharma shareholders, sanction by the High Court of Justice of England and Wales, and other customary closing conditions. The combination is expected to accelerate double-digit, top-line revenue growth and will be accretive in the first full year of combined operations and substantially accretive thereafter. Jazz's strong cash flow profile provides the capability to rapidly deleverage to a target net leverage of less than 3.5X by the end of 2022.

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