As expected, Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) shareholders voted on Friday, April 12, 2024, to approve the creation of a new class of Exchangeable Shares of Canopy Growth. The move advances Canopy Growth’s entry into the U.S. THC market, which is expected to be approximately $50B in 2026.
Acquisitions on the move
Canopy USA said it expects to move immediately triggering the acquisition of U.S. assets. Those assets include Acreage Holdings, Inc., Mountain High Products, Wana Wellness, and The Cima Group (collectively known as “Wana”), and Lemurian, Inc. known as Jetty. The Wana and Jetty acquisitions are expected to be completed in the second quarter of fiscal year 2025. The Acreage acquisition is expected to be completed by the end of the fiscal year 2025.
“With this successful shareholder vote complete, our Canopy USA strategy is advancing and is poised to make Canopy the first and only U.S. listed cannabis company offering shareholders unique exposure to the rapid growth of the U.S. cannabis market,” said CEO David Klein. “Canopy USA can now move quickly to acquire its U.S. assets in Wana, Jetty, and Acreage, and we expect Canopy Growth to begin highlighting Canopy USA’s financial performance to our shareholders later this year.”
Canopy Growth is expected to deconsolidate the financial results of Canopy USA and have a non-controlling interest in Canopy USA, which will be accounted for as an equity method (fair value) investment. Canopy USA expects that it will be able to reduce operating expenses for Canopy Growth concerning the monitoring of the U.S. THC portfolio of assets. In addition to that there will be cost synergies across Canopy USA, including the elimination of public company reporting costs for Acreage.
Originally the plan had been for Canopy Growth to wait until cannabis was federally legal in the U.S. before actually acquiring the companies. It was an option to buy. However, as the Canadian cannabis market has leveled off, the U.S. cannabis market continues to grow and add new states. Sales in the U.S. easily top those in Canada.
Constellation Brands
Constellation Brands, Inc. (CBI) is Canopy Growth’s largest shareholder, and that company is expected to convert its shares into Exchangeable Shares the CBI nominees that are currently sitting on the Company’s Board of Directors are expected to resign as directors of the company following the scheduled termination of the second amended and restated investor rights agreement dated April 18, 2019 among Canopy Growth, CBG Holdings LLC and Greenstar Investment Limited Partnership, wholly-owned subsidiaries of CBI (collectively, the “CBI Actions”). CBI will continue to be Canopy Growth’s largest shareholder; and
Added Klein, “Buoyed by recent comments from the President and the Vice-President, Canopy Growth continues to be cautiously optimistic that cannabis will be moved to Schedule III in the near term. Following this, we expect an immediate enhancement to the cashflow of Wana, Jetty, and Acreage resulting from the removal of the prohibition on business deductions in Section 280 which we expect to help power their growth.”
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