SMITHS FALLS, Ontario – After posting a $2-billion loss for the second quarter, Canopy Growth Corporation is sideloading its American assets into a separate holding company that will be domiciled in the United States. Operating at arm’s length from the parent company, Canopy USA LLC will exercise Canopy Growth’s previously secured options to acquire Acreage Holdings, Wana Brands, and Jetty Extracts immediately instead of waiting for the U.S. to federally legalize as originally planned, allowing the company to monetize fallow investments.
“As the growth of the U.S. cannabis market continues rapidly at the state level, this strategy enables us to take control of our own destiny and capitalize on the once-in-a-generation opportunity in the largest cannabis market in the world,” said Canopy Growth Chief Executive Officer David Klein. “We expect to unleash the full power of Canopy’s scalable and ideally positioned U.S. cannabis ecosystem to unlock potential expansion opportunities. This strategy and positioning are true differentiators, which we expect to enable our investors and brands to realize value in the near term while positioning Canopy for profitable growth and a fast start upon U.S. federal permissibility.”
Under a very complicated deal originally hashed out in 2019 and later amended at least twice, Canopy paid $37.5 million for the right to buy 70 percent of Acreage’s shares at a fixed exchange rate of 0.3048 of a Canopy share per Acreage share. Canopy USA will exercise that right and a recently renegotiated, court-approved agreement to acquire the remaining 30 percent of Acreage’s shares at 0.45 of a Canopy share per Acreage share. Acreage is a vertically integrated multistate operator (MSO) with The Botanist retail locations primarily in the Northeast, including Pennsylvania, New Jersey, and New York.
Upon completion of the Acreage deal, Canopy USA will exercise its options to acquire Wana and Jetty.
In October 2021, Canopy paid $297.5 million in cash to option a 100-percent interest in Wana and affiliated companies. Canopy USA will acquire each Wana entity with an additional cash-and-stock combination payment. Wana is an edibles brand that is vertically integrated in Colorado and has a growing licensing division across thirteen additional states and Canada.
Canopy optioned 75 percent of Jetty in May 2022 for $69 million in cash and stock (primarily stock). The company also claimed the option to acquire the outstanding 25 percent for an undisclosed sum in cash and stock. Canopy USA intends to act on both options. Located in California, Jetty produces solventless extracts and develops clean vape technology.
When all the acquisitions have been finalized, Canopy USA’s operations will span twenty-one states: Arizona, Arkansas, California, Colorado, Connecticut, Florida, Illinois, Maine, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, and Pennsylvania.
In addition, Canopy USA controls a conditional ownership position of approximately 13.7 percent in MSO TerrAscend Corp., which has vertically integrated operations in California, Michigan, New Jersey, and Pennsylvania, and as well as licensed cultivation and processing operations in Maryland. Canopy USA has no plans to act upon exchangeable shares, warrants, or options in TerrAscend at this time.
Canopy Growth holds non-voting and non-participating shares in the capital of Canopy USA but will not hold a direct interest in Acreage, Wana, Jetty, or TerrAscend. The non-voting shares are convertible into common shares. Canopy Growth also has two designees on the four-person board of managers of Canopy USA.
As part of the reorganization, Canopy Growth also restructured its arrangement with American beverage alcohol conglomerate Constellation Brands, which in October took a $1.1-billion write-down on the $4 billion it has invested in Canopy Growth since 2017. Constellation owns about 35.7 percent of the company and will convert its common shares into exchangeable shares.
Constellation CEO and President Bill Newlands said the move will allow the company “to maintain [our] ability to realize the potential upside of our investment” while the beer, wine, and spirits giant focuses on its core business.
Constellation also will give up its seats on Canopy Growth’s board of directors and its warrants to acquire additional common shares.