Canopy Growth CEO Linton says this is what U.S. legalization will look like

Canopy Growth (Canopy Growth Stock Quote, Chart TSX:WEED) raised more than a few eyebrows last week with its agreement to buy US cannabis company Acreage Holdings, a deal which hinges on pot becoming federally legal in the United States.

But if there’s anything to be learned about the emerging cannabis space, it’s that fortune favours the bold. In this case, we’re talking about Canopy CEO and world-conqueror Bruce Linton, who says change at the federal level in the US is coming soon.

Announced last Thursday, Canopy’s $3.4-billion deal for New York-based Acreage, which has cannabis operations and interests across 19 states, involves a US$300-million up-front payment along with Acreage shareholders receiving —if and when cannabis is legalized— 0.5818 shares of Canopy for each Acreage share, effectively a 41.7-per-cent premium at current prices.

The move is seen as an attempt by Canopy, which dual lists on the TSX and NYSE, to break into the US cannabis market without running afoul of US exchange regulators or banks on the issue of cannabis federal Schedule 1 status. The deal will see the two companies entering a licensing agreement whereby Acreage will have access to Canopy’s brands and IP during the period leading up to the potential change at the federal level.

For Linton’s part, choosing Acreage as his US entry point came down to finding a company with which he could feel comfortable handing over the Canopy brand, which includes the Tweed line of products.

“We got really comfortable with Acreage and we’ve been working with them since January,” says Linton, to BNN Bloomberg on Tuesday. “There are Tweed stores in Canada and I will expect that under [the proposed agreement] there will be Tweed stores in the US. This will be an evolution. But what we cannot do is we cannot govern that company, we can’t review their budget or sit on their board. They need to run the company and use our materials as they see fit, which is a big reason we like Acreage. It’s a very competent management team with a very strong board so that we know that they’re run and governed properly.”

Linton says Canopy’s push into the US has always been part of his vision, which sees Canada and its first-mover legalization of recreational marijuana as prime testing ground for such a launch into the international realm.

“Remember, there are only 36 million of us,” he says. “Canada is a policy environment where we get to innovate, we regulate and we run a great business, but if you just stay in Canada you’re doomed because the rest of the world has a lot more people.”

“What we have to do is take everything we’ve learned and transport it to the bigger markets. That’s why we’re in Europe and that’s why we did this in America,” he says.

The proposed deal with Acreage comes with a 90-month deadline, meaning that if no movement occurs at the federal level before mid-2026, both companies can walk away. But Linton says he’s confident the change to US law will come sooner rather than later, even if it won’t look like cannabis legalization as it has occurred in Canada.

“I don’t think that the feds are actually going to legalize it. I think what they’re going to do is some kind of enact authority where they’ll pass to the state: if the state wants to have medical, they can have medical, if the state wants to have medical and rec, they can, but the feds won’t tell every state that they’re the same,” Linton says.

“I think that they’re going to do that over the next couple, few years,” he says. “It could be sooner, but our whole point with Acreage is that we will work with them to create a way more dominant multi-state operator so that when that ‘making it federally permissible’ occurs, we can step in.”