Canadian cannabis producer Canopy Growth Corp. no longer waiting to pull the trigger on the acquisition of three companies he planned to buy only when marijuana becomes federally legal in the United States
CEO David Klein said in a pre-announcement interview that Canopy would form a new entity, Canopy USA LLC, to buy the companies – Acreage Holdings Inc., Jetty Extracts and Wana Brands – in which he has interests. options to take control in the event of American legalization. The deal, which is subject to a shareholder vote, will make Canopy profitable and allow it to create an American “brand house” that can expand into new states and use each company’s intellectual property even without the change. Federal legal that the agreements were subject to, he said.
“By triggering full ownership of Acreage and bringing Jetty, Wana and Acreage together under one umbrella, we are getting to more aggressively take control of our destiny in the United States and make these businesses perform better than ‘They aren’t today,’ Klein said.
The agreement includes special provisions that Canopy says will allow it to avoid violating the federal prohibition on cannabis in the United States. . Canopy USA will have its own board of directors and Canopy will have no voting rights. According to David Klein, Canopy has had conversations with the TSX and Nasdaq and is working with exchanges to ensure continued compliance with listing rules and regulations.
Canopy Growth shares rose 10% in premarket trading in New York. The company had a market value of $1.1 billion as of Monday.
Additionally, Brewer Corona and Modelo Constellation Brands Inc., Canopy’s largest shareholder and backer, may change its common stock investment to exchangeable stock. That would keep its 35.7% stake unchanged while protecting Constellation from more direct involvement with the still federally banned substance, Klein said.
Klein added that moving Constellation’s stake into exchangeable shares will make the company “more comfortable and allow them to participate in the upside of what Canopy is doing.” The deal is structured to allow Constellation to convert its stake in Canopy Growth back into Class A common stock at any time, Klein said.
A spokesperson for Constellation said the conversion of Constellation’s common stock into exchangeable stock will allow it “to realize the potential benefit of our investment in Canopy.”
The deal also gives Constellation a way to escape the impact of falling stock values on its own earnings. A spokesperson for Constellation said that by waiving its mandates, it eliminates the impact on its earnings and “will further reinforce our intention not to deploy additional investments in Canopy.”
Canopy’s initial deal for Acreage in 2019 gave it an innovative purchase option on US legalization, which has since been emulated by other companies and by Canopy itself. A year ago, Canopy paid nearly $300 million in cash for the option to acquire Wana Brands upon legalization. This year, it paid $69 million for a similar option to purchase Jetty Extracts. The deal does not include another U.S. company in which Canopy has a stake, TerrAscend Corp.
The latest deal is notable because it gives Canopy an American foothold in a business that remains federally illegal. Constellation’s involvement is also noteworthy as major consumer product companies have mostly kept their distance from US-based marijuana companies.
Shareholders and analysts have questioned whether Canopy could enter the U.S. market as part of a slightly lower federal legal change to full drug legalization — such as a rescheduling or passage of the so-called SAFE Banking Act. that would give American marijuana companies more leeway. work with banks.
The company’s strategic shift comes as Canadian pot stocks suffer – and Canopy is no exception. Constellation announced in its last quarterly report that it was taking a charge of $1.1 billion from its stake in Canopy. Marijuana stocks have seen an industry-wide decline due to the perception that legalization is taking too long. Even US President Joe Biden’s announcement this month that a federal review of the drug is underway failed to reverse the stock market losses.
Canopy USA will be governed by a four-person board. Acreage, Jetty and Wana will continue to be led by their existing management teams. Klein said Canopy is considering creating a class of tradable shares available to all investors, not just Constellation. This would allow those concerned about regulatory ramifications to participate in the space, with the aim of encouraging greater ownership by institutional investors.
Cassels Brock & Blackwell, Paul Hastings and Dentons were the legal advisers on the deal.