Canadian company Canopy Growth recently signed a $3.4 billion agreement to acquire the US medical cannabis firm Acreage Holdings. Although the deal is still contingent on stockholder agreement with a vote in June and regulatory approval by both the US and Canada — both companies have released statements that they are confident the deal will be completed. The basis of the agreement is that as soon as the US federally legalizes cannabis, Canopy Growth will assume the Acreage Holdings properties and become one of the most powerful cannabis sellers in the United States.
“Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists,” Bruce Linton, co-CEO for Canopy Growth, said in a press release. “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.”
While there should be no assumption or inference, the move is made at a time when federal legalization is looming as a possibility in the near future. The largest cannabis company in the world wants to enter into a multi-billion dollar deal with a well-known American cannabis firm.
Constellation Brands, which makes popular beer brands Corona and Modelo, owns 37 percent equity stake in Canopy Growth. There is a possibility that the company may take a controlling interest in the next few years. This means that one of the largest brewers in the world is poised to become one of the most significant cannabis producers in the United States. Constellation is already working with Canopy Growth to devise THC-infused beverages for the Canadian market.
On May 6, activist hedge fund Marcato Capital Management shared their opposition to the deal in a press release stating it would only benefit Canopy Growth. A letter sent to other shareholders urged them to vote it down in June. Marcato owns 2.7 percent of Acreage’s shares.
“Well, we haven’t met with them yet,” responded Linton, when asked about the position of Marcato, during a breakfast held overlooking the Bellagio fountain at Anthony Scaramucci’s SALT Conference in Las Vegas on May 10. “So I think their business model might be more to agitate, but I’m not sure they actually fully see the deal yet either. It’s a complicated deal to get a simple goal.”
Under the terms of the deal, Acreage shareholders will receive a $300 million payment if approved in June. The deal will then close if, or when, the US federal government legalizes cannabis, or Congress passes a bill that would protect states that legalize cannabis and allow federally chartered banks to work within the industry. The deal will be terminated in seven-and-a-half years if federally legalization or protection is stalled.
Linton told Business Insider that the chances of the deal being terminated are “like 0 percent.”
Wall Street and investors are viewing the announcement as a significant win for Canopy Growth, which has made entering the US market a priority. Canopy Growth was awarded a hemp production and processing license from the state of New York in mid-January acquiring a processing infrastructure in the US. Canopy Growth plans to invest $100 million to $150 million in the processing facility.
If Acreage’s announced acquisitions close, the company would have a production, processing, and retail presence in 20 states, surpassing all other vertically integrated dispensaries. Acreage will also have licenses to over 80 retail locations. If cannabis is legalized federally, Canopy Growth infrastructure perspective will grow, and Acreage would gain access to Canopy Growth’s brands and substantial cash balance.