Canopy Growth Waters Down Acreage U.S. Weed Deal

Canopy Growth Waters Down Acreage U.S. Weed Deal

Investing.com  | Jun 30, 2020 18:52

One of the biggest deals in the cannabis sector underwent a radical watering-down last week, a move that reflects the degree of change the world of legal marijuana has witnessed in the past year.

Announced in April 2019, the original $3.4-billion deal struck between Ontario-based Canopy Growth (NYSE:CGC), (TSX:WEED) and New York-based Acreage Holdings (OTC:ACRGF) was an innovated strategic alliance that would have given the Canadian company, the world’s biggest cannabis grower, a quick and seamless entry into the lucrative American market the moment US legislators legalized weed at federal level.

The plan was a huge deal, reflected in the big price tag. The amount was deemed to be the cost of acquiring Acreage in a two-pronged approach to access the US market. It was a deal that Acreage shareholders embraced.

But a lot has changed since then.

NYSE Canopy Growth Shares

Last week, Canopy reiterated it still aims to be a player in the US market, but at a much lower cost. Canopy restructured the deal last week so that it will now only pay $843 million for Acreage when the deal is triggered, once federal authorities fully legalize pot in the United States.

The new price was determined by a complex formula. It’s a far cry from the terms of the original deal.

According to terms of the initial deal struck by Acreage and Canopy last year, Acreage shareholders would receive an initial $300-million payment, which worked out at about $2.55 per share. That part of the deal was renegotiated down to $37.5 million—or about $0.30 per share.

In the second part of the original deal, Canopy would acquire all the shares of Acreage, while Acreage shareholders would receive just over half a share of Canopy—0.5818 of a share, to be exact—for each share of Acreage they held. When all was said and done, Acreage shareholders would hold about 12% of Canopy.

The revised terms divide Acreage common shares into what it terms “fixed” and “floating” shares, Acreage shareholders will end up with just over a third of a share of Canopy—0.3048 of a share.

Acreage Holding OTC Shares

In addition, Canopy would provide a $100-million loan to Acreage that will support its US-based hemp operations.

Under the new terms, Acreage CEO Kevin Murphy announced his resignation, but will stay on as chairman of the board of directors.

The market reacted quickly to the news. Last Friday, the day after the new deal was revealed, both companies’ stock recorded a loss. Canopy shares dropped almost 4%, while Acreage lost about 10%.

Canopy gained 2.45% on Monday to close at $16.34, but is still trading around six-week lows. In Toronto, the stock closed up 2.52% yesterday to close at C$22.365 ($16.34).

Acreage Holding stock held steady Monday, closing at $2.59 in New York, while losing just over 1% in Toronto to close at C$2.56 ($1.87).

Investing.com

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Canada) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.