Mr. David Klein of Canopy reports
CANOPY GROWTH TO ACQUIRE THE SUPREME CANNABIS COMPANY
Canopy Growth Corp. and The Supreme Cannabis Company Inc. have entered into a definitive arrangement agreement under which Canopy will acquire all of Supreme Cannabis's issued and outstanding common shares in a transaction valued at approximately $435-million on a fully diluted basis.
Under the terms of the arrangement agreement, Supreme Cannabis shareholders will receive 0.01165872 of a Canopy common share and 0.01 cent in cash in exchange for each Supreme Cannabis share held. The transaction provides Supreme Cannabis shareholders with a premium per Supreme Cannabis share of approximately 66 per cent based on the closing prices of the Supreme Cannabis shares and Canopy common shares on the Toronto Stock Exchange as of April 7, 2021.
The transaction is expected to provide several benefits to both Canopy and Supreme Cannabis shareholders. Notably, following completion of the acquisition, Canopy will possess a strengthened brand portfolio including one of Canada's leading premium brands, 7Acres. Brand growth is anticipated with distribution supported by Canopy's robust sales and distribution network as well as superior consumer insights and R&D (research and development) capabilities. In addition to receiving a market premium, Supreme Cannabis shareholders will also benefit from Canopy's U.S. CBD (cannabidiol) business and conditional positioning for continued exposure to the U.S. market expansion. Further value will be derived through the scalable Kincardine, Ont., production facility, which has a demonstrated record of producing premium flower at low cost.
Key transaction highlights:
Solidifies Canopy's leadership position in the Canadian recreational market, well positioned for growth: The transaction combines Canopy's pre-eminent position with Supreme Cannabis's top 10 position in Canada to create a pro forma Canadian recreational market share of 13.6 per cent, including 7Acres holding Canada's No. 1 premium flower brand position, No. 1 in PAX vapes and top five in prerolled joints:
Combined pro forma market share estimated to be 23.3 per cent of the premium flower segment in Ontario and 21.4 per cent in British Columbia.
- Adds premium brands to Canopy's portfolio: The addition of Supreme Cannabis's premium brands, 7Acres and 7Acres Craft Collective, complements Canopy's current consumer offering and will strengthen Canopy's brand portfolio, with both brands expected to continue to grow with further investment and expansion. Supreme Cannabis's Blissco and Truverra brands also add breadth to Canopy's market presence in both the recreational and medical markets.
- Brings a premium, low-cost and scalable cultivation facility to Canopy's production capabilities: Supreme Cannabis's hybrid greenhouse cultivation facility at Kincardine, Ont., has a demonstrated capability of consistently producing premium flower from sought-after strains at low cost with significant potential for scaling.
Secures an immediate attractive premium for Supreme Cannabis shareholders: The transaction provides Supreme Cannabis shareholders with a premium per Supreme Cannabis share of approximately 66 per cent based on the closing prices of the Supreme Cannabis shares and Canopy common shares on the TSX as of April 7, 2021.
- Participation by Supreme Cannabis shareholders in the future of Canopy: The Supreme Cannabis shareholders will receive Canopy common shares pursuant to the transaction and will have access to Canopy's consumer insights, advanced R&D and innovation capabilities, as well as the opportunity to participate in the future growth of the U.S. market based on the company's conditional positioning for rapid market entry. Posttransaction, Canopy's industry-leading balance sheet and cash position of approximately $2.5-billion positions the company for further expansion and product development.
- Opportunity to achieve potential cost synergies estimated at
approximately $30-million within two years: Canopy anticipates posttransaction cost synergy opportunities across both cost of goods sold and sales, general and administrative expenses, as it optimizes and integrates Supreme's operations and shared services.
"As we continue to expand our leading brand portfolio, we're excited to reach more consumers through Supreme's premium brands and high-quality products, further solidifying Canopy's market leadership," said David Klein, chief executive officer of Canopy. "Supreme's deep commitment to superior genetics, top-tier cultivation and strict quality control, paired with Canopy's leading consumer insights, advanced R&D and innovation capabilities, is expected to create a powerful combination that aligns with our strategic focus to generate growth with premium quality products across key categories."
"This transaction is a testament to the value created by all the teams at Supreme and will be beneficial to all of our stakeholders," added Beena Goldenberg, president and chief executive officer of Supreme Cannabis. "We have been successful at delivering great products that achieved strong customer loyalty, and operating at levels of efficiency that are industry leading. We have also built a highly sought-after premium brand in 7Acres. Combining Supreme Cannabis with Canopy -- a Canadian market leader with exposure to the United States -- presents a significant value creation opportunity for both companies. We look forward to working with Canopy to complete this transaction."
The transaction will be effected by way of a court-approved plan of arrangement under the Canada Business Corporations Act, requiring the approval of at least two-thirds of the votes cast by the shareholders of Supreme Cannabis voting at a special meeting of shareholders to consider the transaction expected to be held in June, 2021. Canopy has entered into voting support agreements with certain of Supreme Cannabis's directors and officers pursuant to which they have agreed, among other things, to vote their Supreme Cannabis shares in favour of the transaction.
In addition to shareholder and court approvals, the transaction is subject to applicable regulatory approvals including, but not limited to, TSX approval and approval under the Competition Act (Canada) and the satisfaction of certain other closing conditions customary in transactions of this nature. The arrangement agreement includes customary provisions, including non-solicitation, fiduciary-out and right-to-match provisions as well as a termination fee of $12.5-million payable by Supreme Cannabis to Canopy in certain specified circumstances.
Assuming timely receipt of all necessary court, shareholder, regulatory and other third party approvals and the satisfaction of all other conditions, closing of the transaction is expected to occur by end of June, 2021.
A full description of the transaction will be set forth in the management information circular of Supreme Cannabis, which will be mailed to Supreme Cannabis shareholders and filed with the Canadian securities regulators on the System for Electronic Document Analysis and Retrieval (SEDAR).
Approvals and recommendation
The transaction was approved by the board of directors of each of Canopy and Supreme Cannabis, and Supreme Cannabis's board of directors recommends that Supreme Cannabis shareholders vote in favour of the transaction.
Each of BMO Capital Markets and Hyperion Capital provided the Supreme Cannabis board of directors with an opinion, dated April 7, 2021, to the effect that, as of the date of such opinion, the consideration payable pursuant to the transaction is fair, from a financial point of view, to the Supreme Cannabis shareholders, in each case, based upon and subject to the respective assumptions, limitations, qualifications and other matters set forth in such opinions.
Advisers and counsel
Cassels Brock & Blackwell LLP is acting as strategic and legal adviser to Canopy.
BMO Capital Markets is acting as exclusive financial adviser to Supreme Cannabis and provided a fairness opinion to the Supreme Cannabis board of directors. Hyperion Capital Inc. provided an independent fairness opinion to the board of directors of Supreme Cannabis. Borden Ladner Gervais LLP is acting as legal counsel to Supreme Cannabis.
About Canopy Growth Corp.
Canopy Growth is a world-leading diversified cannabis and cannabinoid-based consumer product company, driven by a passion to improve lives, end prohibition and strengthen communities by unleashing the full potential of cannabis. Leveraging consumer insights and innovation, the company offers product varieties in high-quality dried flower, oil, softgel capsule, infused beverage, edible and topical formats, as well as vaporizer devices by Canopy Growth and industry leader Storz & Bickel. The company's global medical brand, Spectrum Therapeutics, sells a range of full-spectrum products using its colour-coded classification system and is a market leader in both Canada and Germany. Through Canopy's award-winning Tweed and Tokyo Smoke banners, it reaches its adult-use consumers and has built a loyal following by focusing on top-quality products and meaningful customer relationships.
About Supreme Cannabis Company Inc.
Supreme Cannabis is a global diversified portfolio of distinct cannabis companies, products and brands. Since 2014, the company has emerged as one of the world's most premium producers of recreational, wholesale and medical cannabis products.
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