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Why Auscann Group Holdings Ltd shares are up 29% this week

It certainly has been a great week for the Auscann Group Holdings Ltd (ASX: AC8) share price.

In afternoon trade the medicinal cannabis company’s shares are 5% to 51 cents, bringing their week-to-date return to over 29%.

Why are its shares flying high this week?

It isn’t just AusCann which is flying high this week. A good number of its pot stock peers are posting strong gains as well.

The Cann Group Ltd (ASX: CAN) share price is up 15%, Creso Pharma Ltd (ASX: CPH) is 4% higher, Hydroponics Company Ltd (ASX: THC) is a sizeable 20% higher, and MGC Pharmaceuticals Ltd (ASX: MXC) is up 16%.

While MGC Pharmaceuticals is higher due to a supply agreement with a Korean cosmetics company, the others have climbed higher due to developments in North America.

This week it was revealed that Canadian cannabis giant, and one of AusCann’s major shareholders, Canopy Growth Corp has attracted the attention of one of the world’s biggest alcoholic beverage companies.

Constellation Brands, the US$42 billion company behind the Corona beer brand, has agreed to buy a 9.9% stake in Canopy Growth Corp for C$245 million.

According to its press release, Constellation Brands sees the cannabis market as a significant consumer category in the future.

What next?

Other alcoholic beverage companies are tipped to follow Constellation Brands’ lead and gain exposure to the industry also.

It appears as though some traders are speculating that one of Australia’s producers could be a potential target.

While I believe that Canadian producers are more likely to be targeted for geographical reasons and the fact that recreational use will soon be legalised in the country, there is a good chance that Australian growers will benefit from increased demand for produce from the North American market.

This could potentially put some of our local pot stocks in a position to generate revenue sooner than expected. But despite this positive, I still think it is a little too soon to make an investment and suggest investors watch on from the safety of the sidelines.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.