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Canopy Reworks Proposed Acreage Holdings Deal, Now Worth $900 Million

June 30, 2020

Canopy Growth and Acreage Holdings have slashed the value of their proposed acquisition deal. Put in place a little over a year ago, the original agreement would have seen Canopy Growth pay $3.4 billion to acquire New York-based Acreage Holdings—contingent upon federal cannabis legalization in the U.S.—instantly giving it a major presence in the market.

But Acreage has been hit hard by the sustained capital crunch that has roiled the industry over the last year and has pursued a series of loans to shore up its finances, accepting unfavorable terms in exchange for liquidity. Just this month, the company took a $15 million short-term loan from an unidentified investor that matures in four months and carries an astounding 60% yearly interest rate. Acreage put up facilities in Florida, Illinois, and New Jersey as collateral, and would owe an additional $6 million if it defaulted. The move followed the announcement of a separate plan to raise $60 million through debt financing and by selling equity to a private investor. The consensus opinion is that Acreage spread itself thin across too many markets without developing any of them deeply enough, leaving it overextended.

Canopy’s acquisition is now valued at approximately $900 million, according to Cowen analyst Vivien Azer. The new deal begins with an upfront cash payment of $37.5 million from Canopy to Acreage shareholders. The rest of the deal includes the creation of multiple new kinds of shares, in which “fixed shares” of Acreage, which represent 70% of existing Acreage shares, can be converted into approximately 30% of a Canopy Growth share. Ultimately, the conversions create a value of $5.49 for current Acreage shares, 137% better than the actual share price of $2.32 given in the announcement. Canopy would take control of Acreage by acquiring all these shares upon federal legalization in the U.S.—Danny Sullivan

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