Canopy Growth agrees to buy Acreage Holdings in $3.4B deal

Daniel Fowler
April 22, 2019

Nonetheless, the acquisition news of Acreage Holdings sends an important signal about the possibility of the USA market opening up to cannabis legalization in the near future.

The transaction could be announced as soon as later on Wednesday, the source said, but cautioned there is no certainty that the two parties will agree to any deal.

Acreage went public on the Canadian Securities Exchange in November and has licenses or agreements with holders in 19 US states, while also managing a chain of retail stores.

By doing so, Canopy Growth basically leveraged the whole U.S. cannabis market with just $300 million dollars.

Currently, Canopy's listings on the New York Stock Exchange and the Toronto Stock Exchange prevent it from entering the USA pot market because both exchanges explicitly prohibit companies under their umbrellas from violating any US federal laws.

Once Canopy exercises its right to buy Acreage, it will have access to Canopy's markets beyond the United States, the companies said, adding that they operate independently until then.

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The companies said they will also execute a licensing agreement granting Acreage access to Canopy Growth's brands including Tweed and Tokyo Smoke, along with other intellectual property.

In October 2017, Constellation signed a deal to acquire a almost 10 per cent stake in Canopy for $245 million. On the positive side, the deal extends the exercise period for Constellation to five to eight years from three years previously, "suggesting less "cash out the door", for the Corona beer distributor. Meanwhile, Canopy Growth is possibly one of the largest legal weed operators in the world, with its 4.3 million square feet of licensed capacity representing 35 percent of Canada's entire weed industry. Ken Shea, an analyst at Bloomberg Intelligence, notes that this has put massive pressure on Canadian cannabis companies to get into the American market.

Acreage is an attractive target for Canopy as it has the broadest geographic footprint among the USA multi-state operators and is among the most politically connected, said Cowen analyst Vivien Azer.

Acreage listed on the Canadian Securities Exchange past year, and has seen its market value soar to hit $2.6 billion, making it one of the largest US -based pot companies on the exchange.

"These relationships will likely prove helpful in pushing for a change in USA laws surrounding cannabis", she said in a note.

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