Canopy Growth Corporation (NASDAQ: CGC) is buying The Supreme Cannabis Company, Inc. (OTCQX: SPRWF) in a deal valued at approximately $435 million on a fully diluted basis. Supreme Cannabis shareholders will receive 0.01165872 of a Canopy common share and $0.0001 in cash in exchange for each Supreme Cannabis Share held. There is a $12.5 million termination fee. Supreme Cannabis’s portfolio of brands includes 7ACRES, 7ACRES Craft Collective, Blissco, sugarleaf, and Hiway. Supreme Cannabis addresses national and international medical cannabis opportunities through its premium Truverra brand.
“As we continue to expand our leading brand portfolio, we’re excited to reach more consumers through Supreme’s premium brands and high-quality products, further solidifying Canopy’s market leadership,” said David Klein, Chief Executive Officer of Canopy. “Supreme’s deep commitment to superior genetics, top-tier
cultivation, and strict quality control, paired with Canopy’s leading consumer insights, advanced R&D, and innovation capabilities, is expected to create a powerful combination that aligns with our strategic focus to generate growth with premium quality products across key categories.”
The combination of market leader Canopy Growth with Supreme Cannabis’ top position in Canada will lead to a pro forma Canadian recreational market share of 13.6% according to a company statement based on Headset data. This includes 7ACRES which is Canada’s number one premium flower brand, number one in PAX vapes, and Top-5 in pre-rolled joints. The company said that the combined pro forma market share is estimated to be 23.3% of the premium flower segment in Ontario and 21.4% in British Columbia. However, Canopy Growth noted that cost synergies will not be felt for another two years and those are expected to be in the $30 million range.
“This transaction is a testament to the value created by all the teams at Supreme and will be beneficial to all of our stakeholders,” added Beena Goldenberg, President, and CEO of Supreme Cannabis. “We have been successful at delivering great products that achieved strong customer loyalty and operating at levels of efficiency that are industry-leading. We have also built a highly sought-after premium brand in 7ACRES. Combining Supreme Cannabis with Canopy – a Canadian market leader with exposure to the United States – presents a significant value creation opportunity for both companies. We look forward to working with Canopy to complete this transaction.”
The deal is said to provide Supreme Cannabis shareholders with a premium per share of approximately 66% based on the closing prices of the Supreme Cannabis Shares and Canopy common shares on the TSX as of April 7, 2021.
Supreme felt the challenges of Covid in 2020 causing the company to focus on cost-cutting measures and strengthening the balance sheet. Canopy also spent a year addressing huge net losses while also looking to shore up its finances.