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Legal cannabis looks like a bubble and Sky gets a new owner

Last week shares in Tilray, one of Canada’s leading legal cannabis producers, surged more than 78% over two days before dropping 95% from that high by this Monday and Comcast beats Fox for Sky control.


What Happened?
•  Last week shares in Tilray, one of Canada’s leading legal cannabis producers, surged more than 78% over two days before dropping 95% from that high by this Monday.  
•  The roller coaster week saw the company’s market cap jump to nearly $20bn before having all its gains – and more – wiped, with it’s value dropping below $10bn.  
•  The surge began when Tilray announced the US Drug Enforcement agency had approved it to import marijuana to the US for medical research.
•  At its peak the stock had gained over 1200% since floating in July of this year. It’s now up just 330% from that point. 
•  Cannabis stocks remain extremely volatile. Canopy Growth, which Tilray briefly overtook as the most valuable cannabis company in the world, gained 114% after Constellation Brands (the drinks company that owns Corona) increased its stake in the company from 10% to 38%. Since then the stock has experienced a 17% swing in value. 
What next?
•  A pattern of bubble-like volatility seems to be emerging in the sector, with the stock prices highly sensitive to any slight announcement or development. 
•  Cannabis stocks also surged and crashed earlier this year. The North America Marijuana Index gained over 35% in January before having all its gains wiped in February. 
•  It means announcements in coming months will likely have a big impact on the stock price of the companies, with gains often quickly wiped once euphoria around news dies down.
•  The extreme swings are proving even trickier for short sellers than for those going long: Short sellers have reportedly lost $626m since the start of August betting against cannabis stocks.
•  While many analysts are generally positive about the outlook for the sector, with stock prices on the rise, most companies are still loss making.


What happened?
•  Comcast is set to take full control of Sky by October after winning a takeover auction over the weekend by offering $40bn. 
•  The bid “materially” outflanked rival Fox (which currently owns 39%). Rupert Murdoch’s company (which itself is set to be taken over by Disney) had offered £15.67 per share compared to Comcast’s £17.28 per share.
•  Following the auction Sky’s independent directors urged shareholders to accept the deal. Comcast has since taken over 30% of the company. It needs 50% plus one share to try and force Fox to sell up, allowing it to take complete control. 
•  The result saw shares in the British broadcaster rise 9% on Monday, while those of Comcast tanked – investors are often worried when a company is willing to pay far more for an asset than a rival as it suggests overvaluation. 
What next?
•  Fox, Disney and Comcast have been angling to expand into coveted overseas markets due to competition from streaming services such as Netflix and Amazon. The deal will strengthen Comcast’s global footprint in content creation.
•  Comcast, which also owns NBC Universal, has coveted Sky since it pulled out of another mammoth bidding war, this time with Disney for Fox. The take-overs are part of wider consolidation across media giants fighting to stay relevant in the face of digital competitors. 
•  Fox (and Disney, which will take control of the company in the coming months) will now be considering whether to sell its stake in Sky to Comcast and cash in, or fight to hold onto its shares and thwart Comcast’s plans.
•  US streaming service Hulu may become a bargaining chip – Fox and Disney together own 60%, with Comcast holding 30%, meaning Fox/Disney could demand an asset swap from Comcast.

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