Canopy Growth Corporation amend the terms of the arrangement agreement dated April 18, 2019, as amended on May 15, 2019, between Canopy Growth and Acreage Holdings.
Pursuant to the Arrangement Agreement, Canopy Growth agreed to acquire all of the issued and outstanding securities of Acreage pursuant to a plan of arrangement under the Business Corporations Act (British Columbia), contingent upon the occurrence of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana and subject to the satisfaction or waiver of certain conditions to closing as set out in the Arrangement Agreement.
Acreage and Canopy Growth entered into the new agreement to better align the terms of the Plan of Arrangement with the broader market and economic factors, provide Acreage shareholders with an initial up-front payment in connection with the modification of Canopy Growth’s rights, including the extension of the term, and give Acreage shareholders the ability to participate in upside potential.
KEY TRANSACTION HIGHLIGHTS & BENEFITS:
- Provides Up-Front Cash Payment. Canopy Growth will pay Acreage shareholders and certain convertible security holders an aggregate of US$37,500,000 (approximately US$0.30 per Existing Share (defined below) on an as converted basis, with the final amount to be received by each holder determined based on the number of Existing Shares into which all of the eligible securities are convertible at the close of business on the record date for the distribution).
- Attractive Valuation Premium. Acreage shareholders’ new Fixed Shares (defined below), each of which represents 70% of an Existing Share, will be entitled to receive 0.3048 of a Canopy Growth Share (defined below) for each Fixed Share held, representing a premium of approximately 120% to the June 24, 2020 closing price of the Existing Shares (defined below) on the Canadian Securities Exchange (the “CSE”).
- Provides Potential Upside with Floating Shares. Acreage shareholders will be entitled to participate in the long-term value created by Acreage, and in the U.S. cannabis industry generally, as a result of the Floating Shares (defined below) which Canopy Growth may acquire in the future upon the occurrence or waiver of the Triggering Event at a price based upon the 30-day volume-weighted average trading price of the Floating Shares on the CSE relative to the trading price of the Canopy Growth Shares on the NYSE at that time, subject to a minimum of US$6.41 per Floating Share.
- Alignment with Economic and Financial Market Conditions. Considering the challenging economic environment and increasingly tighter and volatile financial market conditions, particularly for cannabis companies, Acreage determined that the New Arrangement represents the best available prospect that is compliant with the terms of the Arrangement Agreement to maximize potential value for Acreage shareholders.
“The United States is going to be a core market for Canopy Growth and this New Agreement solidifies our path forward with Acreage,” said David Klein, Chief Executive Officer of Canopy Growth. “I am excited to bring our relationship with Acreage back to centre stage in our U.S. strategy and look forward to a time when the laws in the United States permit us to finalize this transaction as we march toward bringing our exciting beverage products to the US.”
TERMS OF THE NEW ARRANGEMENT
Under the terms of the New Agreement, subject to obtaining the requisite approvals as outlined below, the Plan of Arrangement will be amended (the “New Arrangement”) in order to provide for the following:
- an up-front cash-payment to Acreage shareholders and certain convertible security holders in the aggregate amount of US$37,500,000 (approximately US$0.30 per Existing Share on an as converted basis, with the final amount to be received by each holder determined based on the number of Existing Shares into which all of the eligible securities are convertible at the close of business on the record date for the distribution);
- the creation of two new classes of shares in the capital of Acreage with each existing Acreage subordinate voting share (an “Existing Share”) being converted into 0.7 of a Fixed Share and 0.3 of a Floating Share (with proportionate adjustments for the existing proportionate voting shares and existing multiple voting shares);
- the new subordinate voting shares (the “Fixed Shares”) will have the same attributes as the Existing Shares and will continue to be listed on the CSE. The Fixed Shares will be subject to the terms of the existing call option in favour of Canopy Growth at an amended exchange ratio equal to 0.3048 (reduced from 0.5818 per existing full Subordinate Voting Share in the Arrangement Agreement) of a common share of Canopy Growth (each whole common share, a “Canopy Growth Share”) to be received for each Fixed Share held, representing a premium, if Canopy Growth acquired the Fixed Shares as at the date hereof, of approximately 120% to the closing price of the Existing Shares on June 24, 2020;
- the new floating shares (the “Floating Shares”), which Acreage will apply to have listed on the CSE, will be subject to the terms of a new call right in favour of Canopy Growth, exercisable following the occurrence or waiver of the Triggering Event at a price equal to the 30-day volume weighted average trading price of the Floating Shares on the CSE, subject to a minimum call price of US$6.41 per Floating Share, payable in either cash or Canopy Growth Shares at Canopy Growth’s option. If Canopy Growth does not exercise its option to acquire the Floating Shares before it expires, the minimum price will no longer be valid and the Floating Shares will continue to trade on the CSE;
- an aggregate share pool of up to 32,700,000 Fixed Shares and Floating Shares that allows for continued capital raises as well as share-based incentive compensation.
Following the occurrence of the Triggering Event and subject to the satisfaction or waiver of the conditions set out in the Arrangement Agreement (as modified by the New Agreement and including the revised covenants contained therein with respect to the business of Acreage), Canopy Growth will acquire all of the issued and outstanding Fixed Shares of Acreage to form a pre-eminent global cannabis company, which is expected to create long-term value for shareholders. At such time, Canopy Growth will also have the right, but not the obligation, to acquire all of the issued and outstanding Floating Shares. If the Triggering Event does not occur within 10 years from the date the New Arrangement is implemented, Canopy Growth’s rights to acquire both the Fixed Shares and Floating Shares will terminate.
In connection with the implementation of the new arrangement, Kevin Murphy has announced that he is resigning as Chief Executive Officer of Acreage and a search for his successor will commence immediately.
Murphy will continue to act as Chairman of the board of directors of Acreage and contribute to the strategic direction of the company. Director Bill Van Faasen, former Chairman, CEO and President of The Blue Cross Blue Shield of Massachusetts, will serve as Acreage’s Interim Chief Executive Officer until a permanent replacement has been identified.
“On behalf of the entire Acreage Board, I sincerely thank Kevin for his passion and commitment to building a leading cannabis enterprise across the United States,” said Douglas Maine, Chair of the Acreage Special Committee. “Kevin is a visionary entrepreneur and positioned Acreage for success in the U.S. cannabis industry. As we move forward with a renewed commitment by Canopy Growth and build upon the vision for the U.S., we are optimistic about the long-term growth prospects for our shareholders.”