Mr. David Klein of Canopy Growth reports

CANOPY GROWTH & ACREAGE HOLDINGS AGREE TO MODIFY PLAN OF ARRANGEMENT AS CANOPY GROWTH'S U.S. EXPANSION CONTINUES

Canopy Growth Corp. and Acreage Holdings Inc. have entered into an agreement to amend the terms of the arrangement agreement dated April 18, 2019, as amended on May 15, 2019, between Canopy Growth and Acreage.

• Canopy Growth and Acreage agree to amend plan of arrangement to provide potential additional upside for all shareholders.
• Amended arrangement provides for upfront cash payment to Acreage shareholders and certain convertible security holders in the aggregate amount of $37.5-million (U.S.).
• Amended arrangement creates two classes of Acreage shares, including a new floating share that provides upside opportunity for Acreage shareholders that is not tied to fixed exchange ratio.
• Provides capital for hemp operations, allowing Acreage to participate in the burgeoning CBD (cannabidiol) market.

Pursuant to the arrangement agreement, Canopy Growth agreed to acquire all of the issued and outstanding securities of Acreage pursuant to a plan of arrangement under the Business Corporations Act (British Columbia), contingent upon the occurrence of changes in U.S. federal law to permit the general cultivation, distribution and possession of marijuana and subject to the satisfaction or waiver of certain conditions to closing as set out in the arrangement agreement.

Acreage and Canopy Growth entered into the new agreement to better align the terms of the plan of arrangement with broader market and economic factors, provide Acreage shareholders with an initial upfront payment in connection with the modification of Canopy Growth's rights, including the extension of the term, and give Acreage shareholders the ability to participate in upside potential upon the triggering event.

Key transaction highlights and benefits

• Provides upfront cash payment. Canopy Growth will pay Acreage shareholders and certain convertible security holders an aggregate of $37.5-million (U.S.) (approximately 30 U.S. cents per existing share (defined below) on an as converted basis, with the final amount to be received by each holder determined based on the number of existing shares into which all of the eligible securities are convertible at the close of business on the record date for the distribution).
• Attractive valuation premium. Acreage shareholders' new fixed shares (defined below), each of which represents 70 per cent of an existing share, will be entitled to receive 0.3048 of a Canopy Growth share (defined below) for each fixed share held, representing a premium of approximately 120 per cent to the June 24, 2020, closing price of the existing shares (defined below) on the Canadian Securities Exchange (the CSE).
• Provides potential upside with floating shares. Acreage shareholders will be entitled to participate in the long-term value created by Acreage, and in the U.S. cannabis industry generally, as a result of the floating shares (defined below) which Canopy Growth may acquire in the future upon the occurrence or waiver of the triggering event at a price based upon the 30-day volume-weighted average trading price of the floating shares on the CSE relative to the trading price of the Canopy Growth shares on the New York Stock Exchange at that time, subject to a minimum of $6.41 (U.S.) per floating share.
• Alignment with economic and financial market conditions. Considering the challenging economic environment and increasingly tighter and volatile financial market conditions, particularly for cannabis companies, Acreage determined that the new arrangement represents the best available prospect that is compliant with the terms of the arrangement agreement to maximize potential value for Acreage shareholders.

"The United States is going to be a core market for Canopy Growth and this new agreement solidifies our path forward with Acreage," said David Klein, chief executive officer of Canopy Growth. "I am excited to bring our relationship with Acreage back to centre stage in our U.S. strategy and look forward to a time when the laws in the United States permit us to finalize this transaction as we march toward bringing our exciting beverage products to the U.S."

  
                                  IMPLIED VALUE OF ACREAGE STOCK UPON TRIGGER EVENT
                                                             
1. Fixed share = CGC share price X exchange ratio            

CGC share price                                              $        16.71* closing price, June 24, 2020            
Exchange ratio                                                       0.3048                                          
                                                                 ----------                                          
Value of fixed share                                         $         5.09                                          
                                                                                                                     
2. Value of floating share = higher of market price or $6.41 per share                                               
                                                                                                                     
Assume minimum floating value (1)                            $         6.41                                          
                                                                                                                     
3. Value to current ACRG shareholders = 0.7 X value of fixed share + 0.3 X value of floating share                  
                                                                                                                     
ACRG share class                                              No. of shares                Price                Value

Current shares (SVS)                                                      1       $         2.32       $         2.32
                                                                                                                     
Fixed share (0.3048 exchange ratio)                                     0.7       $         5.09       $         3.57
Floating share (assume $6.41)                                           0.3       $         6.41       $         1.92
Value per current ACRG share                                                                           $         5.49
Current ACRG share price                                                                               $         2.32
% upside from current ACRG price                                                                                 137%
                                                                                                                     
(1) Six-dollar-forty-one-cent minimum floating share price applies only if Canopy chooses to exercise the call 
    provision terms as written in the amended agreement.


  

Terms of the new arrangement

Under the terms of the new agreement, subject to obtaining the requisite approvals as outlined below, the plan of arrangement will be amended in order to provide for the following:

• An upfront cash payment to Acreage shareholders and certain convertible security holders in the aggregate amount of $37.5-million (U.S.) (approximately 30 U.S. cents per existing share on an as-converted basis, with the final amount to be received by each holder determined based on the number of existing shares into which all of the eligible securities are convertible at the close of business on the record date for the distribution);
• The creation of two new classes of shares in the capital of Acreage with each existing Acreage subordinate voting share being converted into 0.7 of a fixed share and 0.3 of a floating share (with proportionate adjustments for the existing proportionate voting shares and existing multiple voting shares);
• The new subordinate voting shares will have the same attributes as the existing shares and will continue to be listed on the CSE. The fixed shares will be subject to the terms of the existing call option in favour of Canopy Growth at an amended exchange ratio equal to 0.3048 (reduced from 0.5818 per existing full subordinate voting share in the arrangement agreement) of a common share of Canopy Growth to be received for each fixed share held, representing a premium, if Canopy Growth acquired the fixed shares as at the date hereof, of approximately 120 per cent to the closing price of the existing shares on June 24, 2020;
• The new floating shares, which Acreage will apply to have listed on the CSE, will be subject to the terms of a new call right in favour of Canopy Growth, exercisable following the occurrence or waiver of the triggering event at a price equal to the 30-day volume-weighted average trading price of the floating shares on the CSE, subject to a minimum call price of $6.41 (U.S.) per floating share, payable in either cash or Canopy Growth shares at Canopy Growth's option. If Canopy Growth does not exercise its option to acquire the floating shares before it expires, the minimum price will no longer be valid and the floating shares will continue to trade on the CSE;
• An aggregate share pool of up to 32.7 million fixed shares and floating shares that allows for continued capital raises as well as share-based incentive compensation.

Following the occurrence of the triggering event and subject to the satisfaction or waiver of the conditions set out in the arrangement agreement (as modified by the new agreement and including the revised covenants contained therein with respect to the business of Acreage), Canopy Growth will acquire all of the issued and outstanding fixed shares of Acreage to form a pre-eminent global cannabis company, which is expected to create long-term value for shareholders. At such time, Canopy Growth will also have the right, but not the obligation, to acquire all of the issued and outstanding floating shares. If the triggering event does not occur within 10 years from the date the new arrangement is implemented, Canopy Growth's rights to acquire both the fixed shares and floating shares will terminate.

Leadership transition

In connection with the implementation of the new arrangement, Kevin Murphy has announced today that he is resigning as chief executive officer of Acreage and a search for his successor will commence immediately.

Mr. Murphy will continue to act as chairman of the board of directors of Acreage and contribute to the strategic direction of the company. Director Bill Van Faasen, former chairman, chief executive officer and president of the Blue Cross Blue Shield of Massachusetts, will serve as Acreage's interim chief executive officer until a permanent replacement has been identified.

"On behalf of the entire Acreage board, I sincerely thank Kevin for his passion and commitment to building a leading cannabis enterprise across the United States," said Douglas Maine, chair of the Acreage special committee. "Kevin is a visionary entrepreneur and positioned Acreage for success in the U.S. cannabis industry. As we move forward with a renewed commitment by Canopy Growth and build upon the vision for the U.S., we are optimistic about the long-term growth prospects for our shareholders."

"I am excited about this new agreement and the creation of a pre-eminent and truly global cannabis company upon the occurrence of the triggering event. I believe the eventual federal permissibility of cannabis in the United States is inevitable and this new agreement continues to allow our shareholders to become a part of a leading cannabis company following such changes. Moreover, as the largest shareholder of Acreage, I believe this new arrangement allows all Acreage shareholders to participate in potential upside to their investments through the fixed exchange component of Canopy Growth stock and importantly the new floating shares," said Mr. Murphy.

Corporate updates

As the cannabis sector in the United States continues to develop, Acreage will continue to focus its operations on its core profitable markets. In pursuit of growth opportunities in these markets, following the date of the new agreement, Acreage will be permitted to issue up to 32.7 million shares, comprising up to 12.4 million floating shares (including 3.7 million floating shares for share-based incentive compensation) and up to 20.3 million fixed shares.

The loan

In connection with the new agreement, Canopy Growth has agreed to loan a wholly owned subsidiary of Acreage (Acreage Hempco) up to $100-million (U.S.) pursuant to a secured debenture. Canopy Growth will loan Acreage Hempco an initial $50-million (U.S.) on and subject to completion of the new arrangement. The remaining $50-million (U.S.) will be subject to the satisfaction of certain conditions by Acreage Hempco. The debenture will bear interest at a rate of 6.1 per cent per annum. The debenture will mature 10 years from the date the new arrangement is implemented or such earlier date in accordance with the terms of the debenture and all interest payments made pursuant to the debenture are payable in cash by Acreage Hempco. The debenture is not convertible and is not guaranteed by Acreage. The net proceeds are expected to be used by Acreage Hempco for general corporate purposes and the financing of its U.S. hemp division. The funds cannot be used, directly or indirectly, in connection with or for any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States.

Required approvals

The new arrangement will require approval by holders of at least 66-2/3rds per cent of the existing shares present in person or represented by proxy, voting together as a single class at a special meeting expected to take place in August, 2020. Additionally, pursuant to: (i) Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions, the new agreement requires approval by a majority of disinterested holders of the existing shares present in person or represented by proxy at the meeting; and (ii) OSC Rule 56-501 -- Restricted Shares, minority approval (as such term is defined therein) is required for the creation and distribution of the fixed shares and floating shares, which will be considered restricted securities within the meaning of 56-501. Certain directors and officers of Acreage holding approximately 84.6 per cent of the voting rights attached to the existing shares have entered into voting support agreements pursuant to which they have agreed, among other things, to vote in favour of the resolution to approve the new arrangement. In addition to shareholder approval, the new arrangement is subject to applicable approvals by the Supreme Court of British Columbia and the CSE, and certain other regulatory and closing conditions. Listing of the fixed shares and floating shares will be subject to satisfaction of the CSE's listing requirements.

Acreage board recommendation

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

In connection with making its recommendation to the Acreage board, the Acreage special committee received a fairness opinion from Eight Capital that, as of the date of the opinion, and subject to the assumptions, limitations and qualifications on which such opinion is based, the consideration to be received by Acreage shareholders pursuant to the new arrangement is fair, from a financial point of view, to the Acreage shareholders.

Advisers

Cassels Brock & Blackwell LLP and Paul Hastings LLP acted as legal counsel to Canopy Growth. Ernst & Young LLP (EY) acted as tax advisers to Canopy Growth. DLA Piper (Canada) LLP and Cozen O'Connor acted as legal counsel to Acreage. Foros acted as financial adviser to the Acreage board and Eight Capital acted as financial adviser to the Acreage special committee. Wildeboer Dellelce LLP acted as legal counsel to the Acreage special committee.

Additional details will be provided to Acreage shareholders in the proxy statement to be mailed to Acreage shareholders in connection with the meeting.

Here is to future growth.

About Canopy Growth Corp.

Canopy Growth is a world-leading diversified cannabis, hemp and cannabis device company, offering distinct brands and curated cannabis varieties in dried, oil and softgel capsule forms, as well as medical devices through Canopy Growth's 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.

About Acreage Holdings Inc.

Headquartered in New York, Acreage is a vertically integrated, multistate operator of cannabis licences and assets in the U.S. Acreage is dedicated to building and scaling operations to create a seamless, consumer-focused branded cannabis experience. Acreage debuted its national retail store brand, The Botanist, in 2018 and its award-winning consumer brands, The Botanist and Live Resin Project, in 2019.

Pursuant to the current plan of arrangement, the Acreage articles were amended to provide Canopy Growth with an option to acquire all of the existing shares, with a requirement to do so, upon the occurrence or waiver of the triggering event, subject to the satisfaction or waiver of the conditions set out in the arrangement agreement. Acreage continues to operate as a stand-alone entity and conducts its business independently, subject to compliance with certain covenants contained in the arrangement agreement. Pursuant to the current plan of arrangement, upon the occurrence or waiver of the triggering event, Canopy Growth will, subject to the satisfaction or waiver of certain conditions to closing set out in the arrangement agreement, acquire each of the existing shares (following the automatic conversion of the Class B proportionate voting shares and Class C multiple voting shares of Acreage into existing shares) in exchange for the payment of 0.5818 of a Canopy Growth share per existing share (subject to adjustment in accordance with the terms of the arrangement agreement), until such time as amended in accordance with the new arrangement. For more information about the current plan of arrangement and the acquisition please see the respective information circulars of each of Acreage and Canopy Growth dated May 17, 2019, which are available on Canopy Growth's and Acreage's respective profiles on SEDAR.

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