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Canopy Growth Corp
Symbol WEED
Shares Issued 393,351,485
Close 2021-10-14 C$ 16.97
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Canopy Growth arranges $297.5M (U.S.) deal for Wana

2021-10-14 10:28 ET - News Release

Mr. David Klein reports

CANOPY GROWTH ANNOUNCES PLAN TO ACQUIRE WANA BRANDS, THE #1 CANNABIS EDIBLES BRAND IN NORTH AMERICA

Canopy Growth Corp. and Mountain High Products LLC, Wana Wellness LLC and The Cima Group LLC have entered into definitive agreements providing Canopy Growth with the right, upon federal permissibility of THC (tetrahydrocannabinol) in the United States, to acquire 100 per cent of the outstanding membership interests of Wana, the No. 1 cannabis edibles brand in North America by market share.

Wana manufactures and sells gummies in the U.S. state of Colorado and licenses its intellectual property to partners, which manufacture, distribute and sell Wana-branded gummies across the U.S., including California, Arizona, Illinois, Michigan and Florida, giving Wana a total footprint of 12 U.S. states currently, and across Canada. Wana expects to have licence agreements in place in more than 20 U.S. states, including in future adult-use markets in New York and New Jersey, prior to the end of calendar 2022.

Strategic benefits:

  • Strengthens Canopy Growth's U.S. ecosystem: Wana's leadership position and continuing expansion across the U.S. bolsters Canopy Growth's product, brand and geographic exposure to the U.S. cannabis market upon federal permissibility;
  • Dominant edibles category: the gummies category is one of the fastest-growing segments in both the U.S. and Canadian cannabis markets accounting for more than 71 per cent of all edibles purchased. Based on Canopy Growth's consumer research, edibles are expected to continue to serve as the primary point of entry for new consumers into the THC category and as such having a leadership position in the gummy category is critical;
  • Market leadership in the edibles product category: Wana is the leading cannabis edibles brand in North America based on market share, with the largest multimarket presence of any independent edibles brand across the U.S. gummy market, and No. 1 share of the Canadian gummy market, respectively;
  • Increases exposure to U.S. cannabis market upon federal permissibility: upon exercising its right to acquire Wana, Canopy Growth will own and operate Wana's vertically integrated facility in Colorado as well as its rapidly growing licensing division, which currently covers 11 states and is expected to cover more than 20 states by the end of calendar year 2022. This expands upon the coverage provided by the company's existing right to acquire Acreage Holdings Inc., a U.S. multistate operator, and the company's conditional ownership interest in TerrAscend Corp., another U.S. multistate operator;
  • Profitable and highly scalable business model: Wana has a profitable business with a record of generating strong revenue growth and category-leading gross and earnings before interest, taxes, depreciation and amortization margins. Wana's proven licensing model provides an opportunity to scale the brand ahead of U.S. federal permissibility;
  • Further strengthens Canopy Growth's leading house of brands: Wana is the No. 1 cannabis edibles brand in North America and will complement Canopy Growth's diversified product portfolio across the recreational cannabis industry.

Source: Headset data for tracked U.S. states. Edibles includes forms such as beverages, chocolates and other ingestibles.

Source: Wana data and internal proprietary market share tool that utilizes point of sales data supplied by a third party data provider, government agencies and Canopy Growth's retail store operations across the country, 13 weeks ended Sept. 13, 2021.

"As we establish Canopy Growth as the world's leading cannabis company, acquiring the No. 1 cannabis edibles brand in North America will serve to strengthen our market position in both Canada and the United States," said David Klein, chief executive officer, Canopy Growth. "The right to acquire Wana secures another major, direct pathway into the U.S. THC market upon federal permissibility, and in Canada we'll be adding the top-ranked cannabinoid gummies to our industry-leading house of brands. We're confident in the future growth of the edibles category and the tremendous opportunities with Wana."

"Today's announcement reflects the culmination of more than a decade of hard work, dedication and vision put forth by our employees and partners, as well as an unwavering commitment to the plant and our customers," said Nancy Whiteman, CEO and co-founder of Wana Brands. "We have long considered what the next phase of our growth might look like, and this deal is not only a great testament to our focus on bottom-line growth and fiscal diligence, but also to the value we believe Wana can bring to Canopy and its shareholders now and in the future. We have met many partners along the way over the past 11 years, but none have felt like the best and right fit until today. We are incredibly humbled and honored to be part of what Canopy Growth is building in terms of the future of this industry."

Transaction details

The agreements are structured as three separate option agreements whereby Canopy Growth has a call option to acquire 100 per cent of the membership interests in each Wana entity. As consideration for entering into the agreements, Canopy Growth will make an upfront cash payment in the aggregate amount of $297.5-million (U.S.).

Upon exercise of the right to acquire each Wana entity, Canopy Growth will make a payment equal to 15 per cent of the fair market value of such Wana entity at the time the option is exercised. As additional consideration for the right to acquire each Wana entity, Canopy Growth may make additional deferred payments in respect to each Wana entity as of the 2.5- and five-year anniversaries of the upfront payment, less certain deductions. At the option of Canopy Growth, the call option payments and the deferred payments may be satisfied in cash, shares or a combination thereof at the company's sole discretion.

Until such time as Canopy Growth exercises its right to acquire each Wana entity, Canopy Growth will have no economic or voting interest in Wana, Canopy Growth will not control Wana, and the company and Wana will continue to operate independently.

Counsel

Cassels Brock & Blackwell LLP is acting as Canadian legal counsel to Canopy Growth. Paul Hastings LLP is acting as U.S. legal counsel to Canopy Growth. Bryan Cave Leighton Paisner LLP is acting as legal counsel to Wana ownership.

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, it 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. Its 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 its award-winning Tweed and Tokyo Smoke banners, it reaches its adult-use consumers and have built a loyal following by focusing on top-quality products and meaningful customer relationships. Canopy Growth has entered into the health and wellness consumer space in key markets including Canada, the United States and Europe through BioSteel sports nutrition and This Works skin and sleep solutions; and has introduced additional hemp-derived CBD (cannabidiol) products to the United States through its First & Free and Martha Stewart CBD brands. Canopy Growth has an established partnership with Fortune 500 alcohol leader Constellation Brands.

About Wana Brands

Included in the 2020 Inc. 5000 list at No. 2,074 and boasting a three-year growth rate of 203 per cent, Wana Brands is the No. 1 edibles brand in North America. Wana leads the industry in quality, consistency and potency, providing a range of different options that enable customers to select the specific cannabis experience they want. Wana products offer diverse product forms, a wide range of CBD/THC ratios, as well as a variety of different dosages, onset times and duration of effects. Wana products are available in 12 US states and nine Canadian provinces, among others imminently coming on-line.

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