Canopy Growth to Acquire Acreage Holdings in $3.4-Billion Deal—Contingent on U.S. Federal Legalization of Cannabis.
Canopy Growth announced April 18 that it had bought the rights to acquire Acreage Holdings, a U.S. cannabis company with a 20-state footprint. The $3.4-billion purchase price begins with a $300-million cash payment to secure that acquisition—contingent upon the potential U.S. federal legalization of cannabis.

If—or when—it gets to that point, the resulting combined business would create a “global cannabis powerhouse,” as the Canopy press release notes, and it’s hard to dispute that.

Photo by Stacey Lyon
Linton
“Today we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists,” said Canopy Chairman and Co-CEO Bruce Linton.

The deal will require shareholder approval from both companies, and votes are expected in June 2019. There is also, of course, the matter of regulatory approval from the Supreme Court of British Columbia. Furthermore, Canopy Growth is a publicly listed company on both the Toronto Stock Exchange and the New York Stock Exchange and, as such, is subject to securities regulations; the company may not take an ownership stake in another company whose plant-touching business is considered federally illegal.

Hence the contingency in this mammoth deal.

The Companies

Canopy Growth has become the largest cannabis company in the world (based on market capitalization) through steady growth and strategic acquisitions within the global cannabis space. Recent acquisitions include: ebbu, AgriNextUSA and, most recently, Spanish cannabis producer Cafina.

In January, the company released its Q3 earnings report for its 2019 fiscal year: Canopy Growth boasted a 283-percent revenue increase. “Spend it and dominate,” Linton told CNBC earlier this year, describing his company’s approach to expansion, acquisition of global assets and analysis of regulatory trends—especially in the U.S.

The target of its latest acquisition, Acreage Holdings, has similarly been making moves in the fragmented North American cannabis industry. The company has established itself in 20 U.S. states through strategic transactions. Just this week, Acreage closed its acquisition of Form Factory and announced its purchase of Deep Roots Medical in Nevada.

When we featured Acreage Holdings at the time of its announcement that former House Speaker John Boehner was joining its advisory board, CEO Kevin Murphy told Cannabis Business Times: “We’d like to build a robust balance sheet for us to go out and be an aggressive aggregator of further assets in the United States. Our goal is to be one of the major players in the world of cannabis.”

Today’s Deal

CNBC reported that Canopy and Acreage management teams had been “in talks” over this deal for at least the past two weeks. The news broke late on April 17; by mid-morning on April 18, the $3.4-billion deal was formally announced, and cannabis stocks surged.

To secure the rights to this potential transaction, a $300-million upfront cash payment will be made to Acreage’s shareholders (those holding subordinate, proportionate and multiple voting shares), as well as unit holders and USCo2 holders. This payment equals $2.55 per subordinate voting share.

Upon the exercise of the deal (and U.S. federal legalization of cannabis), holders of subordinate voting shares of Acreage will receive 0.5818 of a common share of Canopy for every Acreage share held. Acreage Holdings trades publicly on the Canadian Securities Exchange.

The deal will also set up a licensing agreement between the two companies. Acreage will have access to Canopy’s Tweed and Tokyo Smoke brands (as well as others), once the deal is confirmed.

But for now, the two companies “will continue to operate independently,” according to the press release.

In its second solicitation for a consultant to guide the state’s oversight of recreational marijuana, regulators pick Freedman and Koski, which challenged a previous award to a competitor. The former managers of Colorado’s recreational marijuana program have landed a $189,000 contract to launch Maine’s adult-use cannabis market. Freedman & Koski Inc., which challenged a previous award of the contract, got the highest score of the seven agencies that submitted proposals, earning a 91 out of 100, seven points higher than runner-up BOTEC Analysis of Los Angeles.

Freedman & Koski has vowed to complete its work in six weeks. Lawmakers and regulators are trying to hammer out oversight rules for the state’s recreational marijuana industry, which has yet to launch despite a 2016 referendum legalizing adult-use of marijuana. “We are very happy to get the good news, and we’re looking forward to spending a lot of time in Maine in the near future,” said Andrew Freedman, who was Colorado’s first state marijuana coordinator before leaving to found Freedman & Koski.

Freedman & Koski wasn’t the lowest bidder – BOTEC offered to do the work for $40,000 less. Concerns about BOTEC’s “unrealistic” claim that it could deliver rules by May 10 and a failure to include key advocacy groups in the rulemaking process appeared to sway the three-person review team in Freedman & Koski’s favor, according to state score sheets.

This is the second time Maine has tried to hire a cannabis consultant. In December, the state announced it was going to hire BOTEC for the job, but Freedman & Koski appealed the state decision, claiming the evaluation team unfairly scored the proposals. The state Department of Administrative and Financial Services, which oversees both medical and recreational marijuana programs, opted to scrap that first award, admitting it would likely lose on appeal, and solicited new proposals.

That decision met with criticism from legalization advocates and those who have been waiting more than two years to jump into the recreational marijuana industry, seeing it as just another delay in Maine’s two-years-and-counting journey to legal adult-use sales. But DAFS officials note the agency has taken steps to stick to its original timeline of having a set of proposed recreational marijuana rules in front of state lawmakers for final approval this spring before the Legislature takes its summer break.

Freedman & Koski is already working in Maine, helping to develop a new testing lab system. Freedman has also testified before Maine state lawmakers. When he warned of black market diversion, lawmakers decided to cut the maximum home grow size down to only three plants. Freedman & Koski will partner with Advocates for Human Potential Inc. of Massachusetts, a behavioral health care consulting firm that stages a cannabis research and regulatory summit, and administers a successful opioid recovery program in Massachusetts.

The second solicitation drew five other bidders, aside from Freedman & Koski and BOTEC: VS Strategies of Colorado, which led that state’s legalization effort. It scored a 76. Nuciforo Law Group of Boston, headed by a former state lawmaker and attorney who co-founded a Berkshires marijuana dispensary. It scored a 69. McCabe Law, a Portland-based cannabis law firm that wanted to include local medical dispensary and caregiver voices on an advisory panel. It scored a 28.

Genus Management Group of Alameda, California, which advises a number of private cannabis businesses in California. It scored a 26. Zoned Properties and Focus Group US, whose combined bid was dubbed incomplete. Bidders have 15 days to appeal the proposed state award. If there is no appeal, the state will have to negotiate a contract with Freedman & Koski before it can start. Freedman declined to comment on the schedule of work until the contract is finalized.

A BOTEC official said Monday the company had not yet decided whether to appeal the state award. But chairman Mark A.R. Kleiman said he felt confident that his staff could’ve gotten the work done by the May deadline proposed in its application.

Penelope Overton can be contacted at 791-6463 or at:

poverton@pressherald.com

More than two years after residents voted to legalize recreational marijuana, Maine released draft rules Monday that detail how the state’s new adult-use market would be launched, monitored and regulated by the Office of Marijuana Policy.

The state released the rules in response to a Freedom of Access request by the Portland Press Herald.

The regulations, which were developed by the consulting firm of Freedman & Koski of Colorado, will not be implemented until they are presented at a public hearing and win approval from the Legislature. Other rules on testing labs and protocols will be adopted later, without legislative approval.

The state is also inviting the public to weigh in on its draft rules, which run 73 pages long, at its website.

“There has been significant public interest in the adult use rules being developed in Maine, which is why we invite the public to review these rules and offer their feedback,” Erik Gundersen, director of the state’s Office of Marijuana Policy, said Monday.

Voters approved legalization of recreational marijuana in November 2016. While limited home grow was allowed within two months, the state has struggled to launch a commercial market, having to overcome a series of legislative rewrites, gubernatorial vetoes and contractual snafus.

National marijuana consultants estimate that Maine’s market, once launched, could reach $265 million a year and employ as many as 5,400 people. Gundersen says Maine will begin accepting recreational marijuana business license applications this year, providing the draft rules are passed before lawmakers go on summer break.

APPLICATION PROCESS

The regulations lay out how would-be growers, retailers and manufacturers will obtain the state licenses needed to operate in the Maine recreational marijuana market: First, get a state conditional license, then the city or town’s approval and finally, the state will grant a one-year active marijuana license.

The state will have 90 days to review the initial application, including the criminal history records of applicants, before issuing a conditional license. The biggest hurdle facing the applicant probably will not be the state, however, but the local license conditions set by each individual host municipality.

Some communities, like South Portland, already have their adult-use license regulations in place, while others have been waiting for the state to issue its licensing regulations before deciding whether they will move ahead with adult-use marijuana within their borders. Communities that do nothing will remain marijuana free.

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All applicants, including officers, directors, managers and general partners of a business entity, must be at least 21 years of age and reside in Maine, and a majority of shares, equity ownership, and membership or partnership interests must be owned by Mainers or businesses made up entirely of state residents.

The draft rules prohibit the creation of a corporate veil to side-step this rule through purchase options.