05:53:03 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Acreage Holdings Inc
Symbol ACRG
Shares Issued 21,443,042
Close 2019-04-18 U$ 22.35
Market Cap U$ 479,251,989
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Canopy pays $300M (U.S.) for option on Acreage Holdings

2019-04-18 09:25 ET - News Release

See News Release (C-WEED) Canopy Growth Corp

Mr. Bruce Linton of Canopy Growth reports

CANOPY GROWTH ANNOUNCES PLAN TO ACQUIRE LEADING U.S. MULTI-STATE CANNABIS OPERATOR, ACREAGE HOLDINGS

Canopy Growth Corp. and Acreage Holdings Inc. have entered into a definitive arrangement agreement that grants Canopy Growth the right to acquire 100 per cent of the shares of Acreage, with a requirement to do so at such time as cannabis production and sale becomes federally legal in the United States, subject to obtaining the requisite prior approval of the shareholders of each of Acreage and Canopy Growth, respectively, as well as the approval of the Supreme Court of British Columbia.

Following the approval of Canopy Growth and Acreage shareholders as well as the Supreme Court of British Columbia, under the terms of the arrangement agreement, Acreage holders (as defined herein) will receive an immediate aggregate total payment of $300-million (U.S.), or approximately $2.55 (U.S.) per Acreage subordinate voting share (the upfront cash premium) based on the currently outstanding subordinate voting shares of Acreage and conversion of certain convertible securities described herein. In addition, upon the exercise of the right, holders of subordinate voting shares of Acreage will receive 0.5818 of a common share of Canopy Growth for each Acreage subordinate voting share held (the exchange ratio) at the time of closing of the transaction. Upon exercise of the right, the total consideration payable pursuant to the transaction is valued at approximately $3.4-billion (U.S.) on a fully diluted basis, represents a premium of 41.7 per cent over the 30-day volume-weighted average price of the Acreage subordinate voting shares on the Canadian Securities Exchange ending April 16, 2019 (based on the exchange ratio, upfront cash premium and the 30-day volume-weighted average price of Canopy shares as at April 16, 2019).

The companies will also execute a licensing agreement granting Acreage access to Canopy Growth's award-winning lineup of brands such as Tweed and Tokyo Smoke, along with other intellectual property. Once the right is exercised, Acreage will become part of a leading global cannabis company with access to markets beyond the United States. Until then, the two companies will continue to operate independently.

"Today, we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally permissible pathway exists," said Bruce Linton, chairman and co-chief executive officer of Canopy Growth. "By combining Acreage's management team, licences and assets with Canopy Growth's intellectual property and brands, there will be tremendous value creation for both companies' shareholders."

"From the first day we created our company, providing exceptional customer care and delivering shareholder value have been our top priorities. This transaction will help accomplish both," said Acreage Holdings chairman, chief executive officer and president Kevin Murphy. "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 are making it much more difficult for a multistate operator to achieve its full potential, including the enormous amount of cash required to scale. Our board of directors, management team and I are pleased to deliver significantly increased liquidity to our shareholders and put ourselves in an even stronger position to deliver continued and significant upside."

Once the right is exercised, the combined infrastructure, intellectual property, brands and organizational resources are expected to create a global cannabis powerhouse, with an anticipated leadership position in every targeted international market for legal cannabis sales, including the United States, Canada, and select markets across Latin America, Europe and Asia Pacific.

Additional information:

  • Canopy Growth earned national visibility in the United States when it listed its common shares on the New York Stock Exchange, becoming the first cannabis company to do so. Canopy Growth's U.S. hemp operations are being established in parallel to the Acreage entrance strategy and will include hemp cultivation, extraction, processing and packaging products for sale across the United States, where permissible by regulations.
  • Acreage is a leading multistate operator in U.S. cannabis. It owns or has managed services agreements in place for cannabis-related licences across 20 states (giving it the right to develop), including 87 dispensaries and 22 cultivation and processing sites. Its board of directors includes Brian Mulroney, former Canadian Prime Minister, and John Boehner, former Speaker of the U.S. House of Representatives.
  • Upon exercising the right, the combined operations of Acreage and Canopy Growth would immediately create the undisputed leader in U.S. cannabis, the only relevant market where Canopy Growth does not yet have a major presence.
  • According to the arrangement, Acreage will be able to issue up to 58 million Acreage subordinate voting shares (implied valuation of $1.4-billion (U.S.) based on Canopy's closing share price at the exchange ratio), together with a further 5,221,905 Acreage subordinate voting shares in respect of certain potential acquisitions, which, if the right is exercised, shall become future Canopy shares, which, combined with an expectation of enhanced liquidity, should further accelerate Acreage's ability to finance organic and accretive rapid expansion.
  • Canopy Growth and Constellation Brands Inc. -- Canopy Growth's largest shareholder and Fortune 500 beverage alcohol leader -- will, as part of the arrangement, extend the terms of certain warrants and restructure other rights. See Constellation's press release dated April 18, 2019.
  • Acreage president George Allen will depart the company effectively immediately. Acreage chairman and chief executive officer Kevin Murphy will assume the duties of president.

Way more detail

The transaction will be carried out by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia) and will require the approval of shareholders of both Canopy Growth and Acreage at special meetings expected to take place in June, 2019. In addition to shareholder approval, the transaction is subject to applicable regulatory, court and stock exchange approvals and certain other closing conditions.

Pursuant to the terms of the transaction, the Acreage subordinate voting shares, which may be acquired holders of proportionate voting shares of Acreage, holders of multiple voting shares of Acreage, and holders of units in High Street Capital Partners LLC and shares of Acreage Holdings WC Inc. (the USCo2 holders), on conversion or exchange thereof, as applicable, will be subject to the right and entitled to the upfront cash premium.

Under the terms of the agreement, Canopy Growth will pay the upfront cash premium to the holders of Acreage subordinate voting shares, Acreage proportionate voting shares and Acreage multiple voting shares, as well as Acreage unitholders and the USCo2 holders. There will be an upfront cash premium paid to the Acreage holders based on the currently outstanding securities of Acreage.

Following the federal legalization of cannabis in the United States (the triggering event) and certain other conditions to closing, each Acreage proportionate voting share and Acreage multiple voting share will automatically convert into Acreage subordinate voting shares in accordance with their terms, and, thereafter, each Acreage subordinate voting share will be automatically exchanged for Canopy shares based on the exchange ratio. On closing of the transaction, Acreage unitholders will have the right to convert their units, and USCo2 holders will have the right to convert their shares, into Canopy shares based on the exchange ratio. Acreage unitholders will be required to convert into Canopy shares three years following the closing of the transaction. If the triggering event is not satisfied or waived within 90 months from the payment of the upfront cash premium, the agreement will terminate.

After giving effect to the transaction, assuming conversion of all securities of Acreage following a triggering event, Acreage holders will hold approximately 12.1-per-cent ownership in Canopy Growth (on a pro forma basis) and up to 16.6 per cent if permitted acquisitions are completed prior to the triggering event. Pursuant to the transaction, Acreage is permitted to issue up to an additional 58 million Acreage subordinate voting shares (or the equivalent number of convertible securities), together with a further 5,221,905 Acreage subordinate voting shares (or the equivalent number of convertible securities) in respect of certain potential acquisitions by Acreage.

Constellation Brands amendments

Completion of the transaction is conditional on the approval by holders of Canopy shares of the issuance of the Canopy shares pursuant to the transaction and certain amendments to the existing warrants held by a subsidiary of Constellation Brands. Due to the scope of the proposed transaction, Canopy Growth and Constellation Brands have amended the investor rights agreement as outlined as follows:

  • The extension of the expiry date for certain warrants held by Constellation Brands: In addition to the 18.9 million warrants associated with the November, 2017, Canopy investment, Constellation also currently has 139.7 million warrants in Canopy, which upon shareholder approval would become exercisable over a period of five to eight years from Nov. 1, 2018, compared with the previous three-year period. This includes 88.5 million tranche A warrants, which are exercisable at a price per share of $50.40, and 51.2 million tranche B warrants, of which 38.4 million, or 75 per cent, are exercisable at a price per share of $76.68. The remaining 25 per cent of the original tranche B warrants will become tranche C warrants and will be exercisable at Canopy's five-day volume-weighted average price of the common shares on the Toronto Stock Exchange immediately prior to exercise. If Canopy exercises its right to acquire the shares of Acreage and Constellation were to exercise all of its outstanding Canopy warrants, Constellation's ownership in Canopy is not expected to exceed 50 per cent.
  • If Constellation exercises tranche A warrants in full, Canopy has committed to repurchase the lesser of 25 per cent of its issued shares to Acreage or a dollar amount equal to 25 per cent of the implied enterprise value of Acreage within 24 months of the date of Constellation's warrant exercise.
  • Constellation would be permitted to purchase up to 20 million Canopy shares in the open market prior to the warrants being exercised or terminated, provided that for each share purchased by Constellation, the number of tranche B warrants is decreased by one.
  • Constellation will continue to maintain its current level of representation on Canopy's board of directors.

With these amendments, Constellation continues using its cash flow to generate a return for its shareholders while Canopy Growth continues to deploy the $4-billion (U.S.) investment made by Constellation in November, 2018.

Acreage board recommendation

The board of directors of Acreage, on the unanimous recommendation of a special committee of independent directors of Acreage, has unanimously approved the transaction and recommends that shareholders of Acreage vote in favour of the resolution to approve the transaction.

The Acreage board and the special committee have obtained a fairness opinion from each of Canaccord Genuity Corp. and Infor Financial Inc. that, as of the date of the respective opinions and subject to the assumptions, limitations and qualifications on which such opinions are based, the consideration to be received by Acreage holders pursuant to the transaction is fair, from a financial point of view, to the Acreage holders.

Acreage shareholder approval

The transaction requires approval by at least 66-2/3rds per cent of the holders of the Acreage subordinate voting shares, Acreage proportionate voting shares and Acreage multiple voting shares. Additionally, pursuant to Multilateral Instrument 61-101, Protection of Minority Security Holders in Special Transactions, the transaction requires approval by at least a majority of disinterested holders of the Acreage subordinate voting shares, Acreage proportionate voting shares and Acreage multiple voting shares, each voting separately as a class.

Certain Acreage directors and officers have entered into voting and support agreements, pursuant to which they have agreed, among other things, to vote in favour of the transaction. The directors and officers of Acreage have also agreed to certain lock-up terms with respect to their current holdings of Acreage securities.

Canopy board recommendation

Greenhill & Co. Canada Ltd. acted as financial adviser to Canopy Growth and provided an independent fairness opinion to the board of directors of Canopy Growth that the exchange ratio payable pursuant to the transaction is fair, from a financial point of view, to Canopy Growth. Upon receipt of the fairness opinion from Greenhill, the transaction and the amendments were unanimously approved by the Canopy board, other than directors who abstained from voting on the transactions as a result of the amendments. All board members support the transaction and the amendments.

Canopy shareholder approval

The issuance of the Canopy shares in connection with the transaction and certain of the amendments will require the approval of a simple majority of the disinterested shareholders of Canopy Growth present at a special meeting.

Additional transaction terms

The transaction is subject to, among other things, approval from the CSE, the Toronto Stock Exchange and the New York Stock Exchange, the Supreme Court of British Columbia, and certain other regulatory approvals and closing conditions. The agreement contains representations, warranties and covenants, including a termination fee in the amount of $150-million (U.S.) payable by Acreage in the event that the transaction is terminated in certain circumstances. The agreement also includes certain non-solicitation covenants subject to the right of Acreage to accept a superior proposal in certain circumstances, with Canopy Growth having a five-business day right to match any such superior proposal received by Acreage.

Additional details of the transaction and the amendments will be provided to shareholders of Canopy Growth and Acreage in information circulars to be mailed to shareholders.

Advisers

Cassels Brock & Blackwell LLP and Paul Hastings LLP acted as legal counsel to Canopy Growth. PricewaterhouseCoopers LLP (Canada) acted as finance adviser to Canopy Growth. Ernst & Young LLP acted as tax advisers to Canopy Growth. DLA Piper (Canada) LLP and Cozen O'Connor acted as legal counsel to Acreage. Canaccord Genuity acted as financial adviser to Acreage and Infor Financial acted as financial adviser to the special committee of Acreage. Canaccord Genuity and Infor Financial provided a fairness opinion to the Acreage board and the Acreage special committee, respectively. Stikeman Elliott LLP acted as legal counsel to the Acreage special committee.

About Canopy Growth Corp.

Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and soft-gel capsule forms. Canopy Growth offers medically approved vaporizers through its subsidiary, Storz & Bickel GMbH & Co. KG. From product and process innovation to market execution, Canopy Growth is driven by a passion for leadership and a commitment to building a world-class cannabis company one product, site and country at a time. Canopy Growth has operations in over a dozen countries across five continents.

About Acreage Holdings Inc.

Headquartered in New York, Acreage is the largest vertically integrated, multistate owner of cannabis licences and assets in the United States with respect to the number of states with cannabis-related licences, according to publicly available information. Acreage owns licences to operate or has management services agreements in place with licence holders to assist in operations in 20 states (including pending acquisitions) with a population of approximately 180 million Americans and an estimated 2022 total addressable market of more than $17-billion in legal cannabis sales, according to Arcview Market Research.

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