The cannabis sector has drastically changed since Canopy Growth (CGC) announced last year that they had agreed to acquire Acreage Holdings (OTC:ACRGF) if the United States deems cannabis federally legal. Since the news, most companies in the cannabis sector have lost a tremendous amount of their value. Today CGC has updated the market with new terms regarding the deal. The most significant changes include:
- Canopy Growth will pay Acreage shareholders, and a select amount of convertible security holders, an aggregate of $37,500,000. That is approximately $0.30 per Existing share on an as-converted basis. The number of existing shares will determine the final amount that is to be received by each holder.
- Acreage shareholders’ new Fixed shares represent 70% of Existing shares. Fixed shareholders will be entitled to receive 0.3048 of a Canopy Growth shares for each Fixed share held. That is a premium of approximately 120% at the June 24, 2020 closing price of Existing Shares on the Canadian Securities Exchange (the “CSE”).
- Acreage shareholders will be entitled to participate in the company’s long-term value as well as the growth of the U.S. cannabis industry. That is a result of Floating shares that Canopy Growth may acquire. The acquisition is dependent on the occurrence or waiver of a triggering event at a price based on the 30-day volume-weighted average trading price of the Floating shares on the CSE.
- Considering the challenging economic environment and increasingly tighter and volatile financial market conditions, particularly for cannabis companies, Acreage determined that the new arrangement represents the best available option compliant with the agreement to maximize potential value for Acreage shareholders.
David Klein, the Chief Executive Officer of CGC, had some positive remarks regarding the recent news. Klein said, “The United States is going to be a core market for Canopy Growth, and this new agreement solidifies our path forward with Acreage. I am excited to bring our relationship with Acreage back to center stage in our U.S. strategy, and look forward to a time when the laws in the United States permit us to finalize this transaction as we march toward bringing our exciting beverage products to the U.S.”
Acreage Holdings closed up 25% Thursday, so it’s safe to say that investors were happy with the new terms. Overall, we feel that the new terms still offer Acreage Holdings shareholders instant value creation in the form of an immediate cash payment and excellent long-term prospects by joining forces with CGC.
Acreage holdings are in the midst of recovery after bouncing off of March lows of just $1.47, and we believe that this stock remains highly undervalued compared to some of its competitors. With potential federal legalization on the horizon in the United States, Acreage Holdings is probably one of the best ways to bet on it. CGC, on the other hand, closed flat, down just 0.72% as shareholders were non-responsive to the news.
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CGC shares were trading at $16.18 per share on Friday morning, down $0.41 (-2.47%). Year-to-date, CGC has declined -23.28%, versus a -5.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More…
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