Canopy Growth Corporation and Acreage Holdings, Inc. entered into a definitive arrangement agreement that grants Canopy Growth the right to acquire 100 percent of the shares of Acreage, with a requirement to do so at such time as cannabis production and sale becomes federally legal in the United States, subject to obtaining the requisite prior approval of the shareholders of each of Acreage and Canopy Growth, respectively, as well as the approval of the Supreme Court of British Columbia. The transaction is valued at approximately US$3.4 billion on a fully-diluted basis.
“Today we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists,” said Bruce Linton, Chairman and co-CEO, Canopy Growth. “By combining Acreage’s management team, licenses and assets with Canopy Growth’s intellectual property and brands, there will be tremendous value creation for both companies’ shareholders.”
Following the approval of Canopy Growth and Acreage shareholders as well as the Supreme Court of British Columbia, under the terms of the arrangement agreement, Acreage Holders will receive an immediate aggregate total payment of US$300 million or approximately US$2.55 per Acreage Subordinate Voting Share based on the currently outstanding Subordinate Voting Shares of Acreage and conversion of certain convertible securities described below. In addition, upon the exercise of the Right, holders of subordinate voting shares of Acreage will receive 0.5818 of a common share of Canopy Growth for each Acreage Subordinate Voting Share held at the time of closing of the Transaction. Upon exercise of the Right, the total consideration payable pursuant to the Transaction is valued at approximately US$3.4 billion on a fully-diluted basis, represents a premium of 41.7% over the 30-day volume weighted average price of the Acreage Subordinate Voting Shares on the Canadian Securities Exchange (the “CSE”) ending April 16, 2019 (based on the Exchange Ratio, Up-Front Cash Premium and the 30-day volume weighted average price of Canopy Shares as at April 16, 2019).
The Companies will also execute a licensing agreement granting Acreage access to Canopy Growth’s award-winning line-up of brands such as Tweed and Tokyo Smoke, along with other intellectual property. Once the Right is exercised, Acreage will become part of a leading global cannabis company with access to markets beyond the U.S. Until then, the two companies will continue to operate independently.
“From the first day we created our company, providing exceptional customer care and delivering shareholder value have been our top priorities. This transaction will help accomplish both,” said Acreage Holdings Chairman, CEO and President Kevin Murphy. “When the right is exercised having access to Canopy Growth’s deep resources will enable us to innovate, develop and distribute quality cannabis brands across the U.S. and continue expanding our U.S. footprint. At the same time, a confluence of factors are making it much more difficult for a multi-state operator to achieve its full potential, including the enormous amount of cash required to scale. Our Board of Directors, management team and I are pleased to deliver significantly increased liquidity to our shareholders and put ourselves in an even stronger position to deliver continued and significant upside.”
Once the Right is exercised, the combined infrastructure, intellectual property, brands and organizational resources are expected to create a global cannabis powerhouse, with an anticipated leadership position in every targeted international market for legal cannabis sales, including the U.S., Canada, and select markets across Latin America, Europe and Asia-Pacific.
- Canopy Growth earned national visibility in the United States when it listed its common shares on the New York Stock Exchange, becoming the first cannabis company to do so. Canopy Growth’s U.S. hemp operations are being established in parallel to the Acreage entrance strategy, and will include hemp cultivation, extraction, processing, and packaging products for sale across the United States, where permissible by regulations.
- Acreage is a leading multi-state operator in U.S. cannabis. It owns or has managed services agreements in place for cannabis-related licenses across 20 states (giving it the right to develop), including 87 dispensaries and 22 cultivation and processing sites. Its Board of Directors includes former Canadian Prime Minister Brian Mulroney and former Speaker of the U.S. House of Representatives, John Boehner.
- Upon exercising the Right, the combined operations of Acreage and Canopy Growth would immediately create the undisputed leader in U.S. cannabis, the only relevant market where Canopy Growth does not yet have a major presence.
- According to the Arrangement, Acreage will be able to issue up to 58,000,000 Acreage Subordinate Voting Shares (implied valuation of US$1.4 billion based on Canopy’s closing share price at the Exchange Ratio), together with a further 5,221,905 Acreage Subordinate Voting Shares in respect of certain potential acquisitions, which if the Right is exercised shall become future Canopy Shares, which, combined with an expectation of enhanced liquidity should further accelerate Acreage’s ability to fund organic and accretive rapid expansion.
- Canopy Growth and Constellation Brands, Inc. (“Constellation Brands”) – Canopy Growth’s largest shareholder and Fortune 500 beverage alcohol leader – will, as part of the Arrangement extend the terms of certain warrants and restructure other rights. See Constellation’s press release dated April 18, 2019 “Constellation Brands Enters Into Agreement with Canopy Growth Corporation to Modify Warrants and Other Rights”.
- Acreage President, George Allen will depart the company effectively immediately. Acreage Chairman and CEO Kevin Murphy will assume the duties of President.
Under the terms of the Agreement, Canopy Growth will pay the Up-Front Cash Premium to the holders of Acreage Subordinate Voting Shares, Acreage Proportionate Voting Shares and Acreage Multiple Voting Shares as well as Acreage Unit Holders and the USCo2 Holders (collectively, the “Acreage Holders”). There will be an Up-Front Cash Premium paid to the Acreage Holders based on the currently outstanding securities of Acreage.
With these Amendments, Constellation continues using its cash flow to generate a return for its shareholders while Canopy Growth continues to deploy the USD $4 billion investment made by Constellation in November 2018.
The Transaction is subject to, among other things, approval from the CSE, the Toronto Stock Exchange and the New York Stock Exchange, the Supreme Court of British Columbia and certain other regulatory approvals and closing conditions. The Agreement contains representations, warranties and covenants, including a termination fee in the amount of US$150 million payable by Acreage in the event that the Transaction is terminated in certain circumstances. The Agreement also includes certain non-solicitation covenants subject to the right of Acreage to accept a superior proposal in certain circumstances, with Canopy Growth having a five-business day right to match any such superior proposal received by Acreage.