Canopy USA's Acquisition Of Acreage Could Mean Staggering Losses For Some Shareholders

Acreage Holdings, Inc. ACRG ACRG.B.U)) ACRHF ACRDF)) said it anticipates that Canopy USA, LLC –Canopy Growth Corporation‘s WEED CGC strategy for capturing the U.S. cannabis market will complete its acquisition of Acreage by mid-December, 2024.

The move could leave holders of Acreage’s Class E shares (fixed shares) with nothing. That is, if Canopy’s stock price price remains below $5 when the deal closes, Acreage pointed out in a Monday press release.

Why?

The convertible note offering completed in June caused significant dilution of Acreage's fixed shares, leaving them without any worth at Canopy’s current share price.

"As a result of the material impact of the Offering it is anticipated that the current holders of Fixed Shares will receive zero value upon closing of the Acquisitions," Acreage said.

Canopy's shares traded 5.06% lower at $3.9401 per share at the time of writing on Tuesday morning. Acreage shares plunged more than 90% on Monday in reaction to the news.

The company also said holders of floating shares will get 0.045 of a Canopy share for each of their floating shares, which is a fixed exchange rate.

Read Also: Acreage Announces $10M Private Placement Of Units Ahead Of Acquisition By Canopy

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According to editor-in-chief of Cultivated Daily, Jeremy Berke, optimism around U.S. legalization of cannabis was imminent five years ago when the deal was announced.

"When the deal was announced, analysts, investors, and attorneys thought legalization in the US was right around the corner — and there would be millions to be made in fees for cross-border transactions," Berke said.

However, the anticipated boom in legalization and cross-border deals are still pending, leading to disappointment in the industry, he continued.

"Both US and Canadian companies have seen their valuations fall into the gutter as investors have looked to put their money elsewhere," Berke said, adding that Acreage was particularly hit by setbacks in the New York cannabis market in which it is substantially invested.

Acreage reported a 30% decrease in consolidated revenue in the third quarter and a wider net loss of s $22.2 million, up from a loss of $7.9 million in the previous year’s quarter. Adjusted EBITDA came in positive at $0.6 million, representing a drop from $6.6 million in the third quarter of 2023.

Background

The Canadian cannabis giant first announced its plans to acquire Acreage for $3.4 billion in 2019. Initially, the deal was to be undertaken should the U.S. legalize marijuana on a federal level. That deal was later restructured.

In 2022 Canopy Growth created a new U.S.-domiciled holding company, Canopy USA, LLC.

The move sought to streamline the company’s entry into the US market by allowing it to acquire Acreage as well as two other cannabis companies – Wana Brands and Jetty – while also holding a minority stake in TerrAscend. Corp.TSND TSNDF,

Canopy USA completed its acquisition of Wana in October, and roughly 75% of the shares of cannabis edibles producer, Lemurian, Inc. (Jetty) as announced in June 2024.

Canopy Growth's newly appointed CEO Luc Mongeau, who succeeds David Klein effective Jan. 6, 2025, will continue his legacy by expanding the company's influence in the U.S.

"I am honored to lead Canopy Growth into this exciting next chapter, and I am confident that our vision, dedication to our consumers, and the commitment of our team members will continue to position us for long-term success and value creation," Mongeau said in a Tuesday statement.

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