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Investment Ideas Canadian pot stocks surge with industry eyeing more alcohol tie-ups

Canadian pot stocks surged for a second straight session Monday amid speculation more alcohol companies will strike deals with marijuana growers as Canada marches closer to legalization.

Shares of Nanaimo, B.C.-based Tilray Inc. jumped as much as 23 per cent to $54.16, a record high, while peer Cronos Group Inc. soared 30 per cent on the Nasdaq, the biggest intraday gain since January. Aphria Inc. rose as much as 20 per cent in Toronto, while Aurora Cannabis increased 8.4 per cent.

Diageo Plc, the maker of Guinness beer, is holding discussions with at least three Canadian cannabis producers about a possible deal, BNN Bloomberg Television reported last week. Earlier this month, Constellation Brands Inc., the brewer of Corona, announced it will spend $3.8 billion to increase its stake in Canopy Growth Corp., the largest deal in Canada’s nascent marijuana industry. Molson Coors Brewing Co. is also starting a joint venture with Hydropothecary Corp. to develop cannabis drinks in Canada.

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More alcoholic beverage companies are likely to strike deals with Canadian marijuana producers now that Diageo is looking to enter the space, Cowen & Co. analyst Vivien Azer said Monday in a note. Tilray is “an attractive partner” for an alcohol company due to its broad portfolio of consumer brands, many of which are commercially available in the U.S., she said. Tilray, which was taken public by Cowen in July, now has a market value of almost $5 billion.

“We expect more alcoholic beverage companies to announce deals with Canadian LPs over the course of the year,” Azer said in the note.

The BI Canada Cannabis Index rose 4.1 per cent, its ninth straight gain and is heading for the longest rally ever. The index, which has a combined value of $80-billion, has slumped 31 per cent in 2018 amid concerns the emerging market was overvalued.

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