Canopy Growth’s Domination Plan Aims for Acreage

BY DR Lloyd Covens

It is only a “right” to purchase–and it is predicated on US cannabis legalization by 2027– but Canada behemoth Canopy Growth Corp. made a $3.4Bill.  bid for Acreage Holdings, signaling its’ full-fledged US invasion.    With former Speaker John Boehner on its’ board, and an aggressive CEO in Kevin Murphy, Acreage is currently valued at a market cap of $1.93 billion … and more than willing to accept a cash $300Mil advance from CGC.

Once again, sprinting past other Canadian licensees with big piles of cash (ie., Cronos Group and Aurora), Constellation/Canopy showed again they have no plans to moderate their aggressive global MJ push. Canopy has already committed $400-$500Mill. to develop high-tech industrial hemp processing centers in New York, New Hampshire and 3-4 other US states.

Upon completion, Constellation Brands position in Canopy would be diluted to around 37% (having invested nearly $4Bill in CGC last year) but the beer/alcohol maker will now be freed to buy CGC shares on the open market, including a majority position.

Concerns of jeopardizing CGC’s place on the Toronto and New York major exchanges (where no US cannabis-touching company may be listed) were addressed by holding a final transaction until US legalization, but now allowing Acreage access to CGC’s TWEED and Tokyo Smoke brands, as well as certain CGC intellectual property.

Acreage CEO Kevin Murphy echoed the need for patience.   “When the right is exercised having access to Canopy Growth’s deep resources will enable us to innovate, develop and distribute quality cannabis brands across the U.S. and continue expanding our U.S. footprint. At the same time, a confluence of factors is making it much more difficult for a multi-state operator to achieve its full potential, including the enormous amount of cash required to scale.”

Acreage is now active in 20 states, through direct and partnership deals to grow, retail and manufacture in US markets.  It also operates The Botanist retailer.  Not to be slowed by the big acquisition news, Acreage also announced a $120Mil. stock acquisition of Nevada’s “Deep Roots.”  The Mesquite, NV operation runs a wholesale business where is serves 80% of Nevada’s retail market with processed and manufactured MJ products.  Deep Roots also owns 7 Nevada retail licenses.

North American stock markets responded favorably, then returned to prior-day share price after the deal’s announcement.  CGC holds a market cap of $14.7Bil., with Acreage shares yielding a $1.93Bil market cap.   The deal is likely to be structured using a “non-active ownership stake,” similar to Canopy’s investment in TerrAscend Corp., wrote Christopher Carey, analyst at Bank of America Merrill Lynch.   Canadian firm TerrAscend is co-owned by CGC and Canopy Rivers, through which Canopy Growth is “providing resources and investment to new market entrants and building a portfolio of stable investments in the sector.”  CGC also holds a U.S. investment in Slang Worldwide, which is not cannabis-touching, and a majority of Denver MJ formulation idea-bank, EBBU.

Looking for new potential deals–and a merged spot at number 2 — may be handful of Canadians– including Tilray(Privateer), Cronos Group(Marlboro), Aurora Cannabis,  HEXO,  Aphria, Flowr Corp.  and Organigram— all helped by the legal Canadian market supporting billions in outside investment.  For U.S. firms, including those listed on the Canadian Stock Exchange, the prospects of a similar takeover suitor might now await US-public firms including Green Growth Brands, iAnthus Holdings,  Harvest Health, Truleve Cannabis, Green Thumb Industries, CannaRoyalty, CuraLeaf and Cresco Labs.  U.S. publicly-traded CBD leaders like CV Sciences, Charlotte’s Web and Elixinol may all become more attractive with the first cross-country acquisition deal now a reality.

–Based in Denver, Dr. Lloyd Covens, DBA is a seasoned cannabis industry journalist and the publisher of West420 NewsWeekly. Writing his doctorate on diffusion of innovations, Covens has been an expert journalist/researcher for 20 years chronicling new technology, global television and renewable energy advancements. He has reported on developments in the cannabis and hemp industry with weekly reports since 2014 covering the western U.S. for legal medical cannabis, recreational sales and hemp production. Covens is also the creator of the annual CO Hemp CBD Conference held in Pueblo, Colorado.

 

 

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