Market Watch is reporting that contrary to news reports on Wednesday, Canopy Growth has not bought Acreage Holdings outright. But Canopy is prepared to pay a hefty sum for the right to buy Acreage when, and if, marijuana is legalized at the federal level in the United States.
The $3.4 billion deal was finalized Thursday morning in New York. The two companies will continue to operate as independent companies until marijuana is legalized. The deal, when implemented, will also grant Acreage access to Canopy’s vault of brands including Tweed. In the deal, Canopy will acquire 100 percent of the shares of Acreage.
“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,” Canopy co-CEO Bruce Linton said in a press release.
Canopy Growth Announces Plan to Acquire Leading U.S. Multi-State Cannabis Operator, Acreage Holdings AcreageHoldings CanopyGrowthzshl0FE0Th
— AcreageHoldings (@AcreageCannabis) April 18, 2019
“By combining Acreage’s management team, licenses 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, CEO and President Kevin Murphy, in a press release.
“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.”
Acreage is a multi-state operator in cannabis in the U.S. The company has managed services agreements in place for cannabis-related licenses across 20 states (giving it the right to develop), including 87 dispensaries and 22 cultivation and processing sites.
Acreage also has a couple of well-known names on its Board of Directors, including former Canadian Prime Minister Brian Mulroney and former Speaker of the U.S. House of Representatives, John Boehner.
Acreage President, George Allen will depart the company effective immediately. Acreage Chairman and CEO Kevin Murphy will assume the duties of President, according to the press release.
Canadian banks are still the center of financial dealings in cannabis, primarily because pot is legal in Canada, yet according to Bloomberg, the marijuana market is already bigger in the U.S. despite being illegal at the federal level. Ken Shea, an analyst at Bloomberg Intelligence, notes that this has put massive pressure on Canadian cannabis companies to get into the American market.
“They know the U.S. is the biggest prize of all,” he said.
The announcement still raises questions
First, and foremost, marijuana production, sales, and consumption is illegal according to federal law in the U.S. And until the National Banking Act is revised, banks accepting deposits or granting loans to cannabis businesses could make them vulnerable to a Department of Justice suit – not to mention getting on the wrong side of the FDA.
We must not forget the stock exchanges in the two countries. They have their own set of rules and regulations that must be followed.
“Until now, the Nasdaq has not been willing to list companies that have U.S. ‘plant touching’ cannabis operations,” said cannabis lawyer David Feldman, a partner at Duane Morris, according to CNBC. “What’s interesting is that they didn’t tie this to Nasdaq, they tied it to legalization.”
“It is interesting that they are limiting it to legalization, rather than completing the acquisition when TSX and Nasdaq are prepared to allow the listing,” he added.