One of the biggest deals in the cannabis industry underwent radical dilution last week, a move that reflects the amount of change the world of legal marijuana has undergone in the past year.
Announced in April 2019, the original $ 3.4 billion deal closed between Ontario-based Canopy Growth (NYSE :), (TSX 🙂 and New York-based Acreage Holdings (OTC: ) was a renewed strategic alliance that gave the Canadian company, the world's largest cannabis grower, quick and seamless access to the lucrative U.S. market as U.S. lawmakers legalized marijuana at the federal level.
The plan was a huge deal, reflected in the big price tag. The amount was deemed to be the cost of acquiring Acreage in a two-pronged approach to entry into the US market. It was a deal that Acreage shareholders embraced.
But much has changed since then.
NYSE Canopy Growth Shares
Last week, Canopy reiterated that it is still striving to be a player in the US market, but at a much lower cost. Canopy restructured the deal last week so that it now pays only $ 843 million for the acreage when the deal is triggered, once federal authorities have fully legalized the pot in the United States.
The new price was determined by a complex formula. It is far from the terms of the original deal.
Under the terms of the first strike by Acreage and Canopy last year, Areaal's shareholders would receive an initial payment of $ 300 million, or approximately $ 2.55 per share. That portion of the deal was renegotiated to $ 37.5 million – or about $ 0.30 per share.
In the second part of the original deal, Canopy would acquire all of Acreage's shares, while Acreage's shareholders would receive just over half. a share of Canopy – 0.5818 of a share, to be precise – for every share of Area they owned. When all was said and done, Area shareholders would own approximately 12% of Canopy.
The revised terms divide Area's common stock into what it calls "fixed" and "floating" shares, Area's shareholders will end up with just over a third of a Canopy share – 0.3048 of a share .
OTC Shares Owned by Shares
In addition, Canopy would provide a $ 100 million loan to Acreage that announced its US-based hemp operations
Under the new terms Acreage's CEO Kevin Murphy resigns, but he remains on as chairman of the board of directors.
The market reacted quickly to the news. Last Friday, the day after the new deal was revealed, both companies' shares posted a loss. Canopy shares fell by nearly 4%, while acreage lost by about 10%.
Canopy hit 2.45% on Monday to close at $ 16.34, but is still trading around six weeks of lows. In Toronto, the stock closed 2.52% yesterday to close at C $ 22.365 ($ 16.34).
Area Holding shares held steady on Monday, closing at $ 2.59 in New York, while losing just over 1% in Toronto to close at C $ 2.56 ($ 1.87) .
