More than a week later, there is still a lot of confusion about not only the nature of the deal. Canopy Growth isn’t buying Acreage. Instead, subject to shareholder approvals at both companies, it will pay $2.55 per share to shareholders of Acreage Holdings in order to provide an incentive to them to enter into an eventual merger that will take place in the future once certain conditions are met. Many of the actual terms of the transaction haven’t been released, with only the press release in the public domain at this time. We think that the companies added to confusion by discussing full legalization as a triggering event that would allow the merger, when in fact it’s simply the ability of Canopy Growth to close without risking its exchange listings. This can happen without full legalization, though clearly full legalization in the United States would be sufficient as well. We also believe that many think that Canopy bought an option to acquire Acreage, but this is not accurate, as we believe that Canopy will be obligated to close the merger once the conditions have been met.
Another detail that seems to be overlooked by many in the media is that Acreage Holdings will be able to issue up to 58 million shares to raise capital or to effect mergers, and we think that this is one of the primary benefits for the company itself, which isn’t receiving the cash payment from Canopy Growth. We expect that potential acquisition candidates will have more confidence in the equity of Acreage given that it will be tethered to Canopy.
While over time we expect that Acreage will indeed be tethered to Canopy once the deal is approved by shareholders, that doesn’t appear to be the case at present. Since the close on 4/17, the day before the deal was announced, Acreage Holdings has lost 1% while Canopy Growth has increased over 16%: