Canadian licensed cannabis producer Canopy Growth (Canopy Growth Stock Quote, Chart TSX:WEED, NYSE:CGC) turned heads last month when it agreed to buy US multi-state operator Acreage Holdings if and when marijuana gets the go-ahead at the federal level, a legislative and social change which still could take years, if ever, to arrive.
But Canopy CEO Bruce Linton says his company will be buying Acreage even if the US doesn’t legalize cannabis, pointing out that the language of the Acreage deal allows for a range of scenarios that could trigger the purchase.
“The way we phrased it was that we did not need it to be federally legal, we needed it to be federally permissible. I like the word permissible because it’s not so specific,” said Linton, in conversation with BNN Bloomberg Thursday.
“They’re contemplating in [Washington, DC] right now to make it a state right, which means that if Colorado chooses to have recreational and medical then it would be federally fine and if other states say that they can’t have any marijuana then that would also be federally fine. That kind of structure would probably get us there,” he says.
Canopy and Acreage just released a joint statement on the proposed deal which gives Canopy the right to purchase Acreage for US$3.4-billion and also comes with a US$300-million cash payment to Acreage if shareholders approve the deal at a vote set for June 19. Although Acreage’s share price initially shot up to $30 on the news, the stock has slipped back below $20, with some investors having reportedly voiced their displeasure concerning the plan, saying the deal effectively puts a cap on Acreage’s share price at a time when cannabis stocks have shown an ability to post huge gains over a short time span.
The new Canopy-Acreage statement reiterates that the terms of the deal represent a 40-per-cent premium to Acreage’s 30-day volume weighted average price, while, for his part, Linton says that the deal would give Acreage shareholders greater confidence that they’ll come out winners in the fast-evolving US cannabis marketplace.
“It creates the certainty that Acreage is going to be a leading and dominant player, and this is a very aggressive environment [in the US]. There are many MSOs and many more are coming. So, yes, it does put them on a track to have a conversion and they will convert into our stock, but it makes it quite a bit more certain that they’re going to be successful,” Linton says.
“The reason we selected Acreage was that they have this board with a great deal of reputational risk if anything goes funny. And so we knew for sure that they were going to be extremely well-governed because in the period of time between now and when we bring them over we can’t go over and tell them how to run their business. They have to run it in a proper and accountable way,” he says.
Acreage’s share price is down 15 per cent since the deal was announced on April 18, although the sector as a whole has lost ground over that period. Canopy’s share price over the same time space is up 5.5 per cent.