Canopy Growth nears deal to acquire Acreage Holdings

Canopy Growth nears deal to acquire Acreage Holdings
Canopy Growth Corp. is nearing a deal to buy Acreage Holdings Inc. in what would be the first major cross-border cannabis merger, according to people familiar with the matter.

The purchase could be announced as soon as this week, said the people, who asked not to be identified because the discussions are private. Talks are ongoing and may still fall apart, the people said. Canopy’s shares added 9 per cent in post-market trading in New York. Acreage gained 15 per cent in Toronto before the market closed.

The deal would be a major milestone for Canopy, the world’s largest cannabis company, and New York-based Acreage, which boasts former U.S. House Speaker John Boehner and former Canadian Prime Minister Brian Mulroney as directors.

Acreage went public on the Canadian Securities Exchange in November and is now among the largest U.S.-based pot firms. Acreage has cultivation, processing and dispensing licenses or agreements with holders in 19 states. It also manages a chain of retail stores called The Botanist.

Representatives for Smiths Falls, Ontario-based Canopy and Acreage declined to comment.

Canada focus

While Canada has been at the centre of investment banking for cannabis companies since the drug was legalized there in October, the legal market for marijuana is larger in the U.S., where sales were north of $10 (U.S.) billion last year. That’s pushed Canadian companies including Canopy to seek access to the massive pool of American weed consumers.

Canopy becomes first pot stock to join S&P/TSX 60 index, replacing Goldcorp

However, federal prohibition in the U.S. has created finance and merger hurdles by restricting how money can move across the border. Canopy is listed on the New York Stock Exchange and the Toronto Stock Exchange, which have so far prohibited listings from companies that are violating American federal law.

Canopy also has a high-profile investment from Constellation Brands Inc., the alcohol giant that makes Modelo and Corona beer. Constellation announced in August it was investing about $4 billion into the marijuana company, boosting its existing stake to 37 per cent in a deal that set off a flurry of financial activity in the burgeoning industry. Constellation has the option of taking majority control of Canopy in the future.

Work around

One structure Canopy could employ to stay onside with exchange rules is exchangeable shares, or an ownership stake that doesn’t become active until federal prohibition is lifted. There’s a precedent for such an arrangement with Canopy’s stake in TerrAscend Corp., which has cannabis operations in the U.S. Those shares can’t be transferred or monetized and aren’t entitled to voting rights or dividends, but can be converted into common shares if U.S. federal law changes.

Canopy has been one of the top performing stocks in Canada this year, surging 56 per cent and boosting its market value to $19.6 billion (Canadian).
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