Canopy Growth Forms New Holding Company to Speed US Entry

Formation of Canopy USA will trigger previously announced acquisitions of three companies.

Canadian cannabis producer Canopy Growth Corp. (TSX: WEED) (NASDAQ: CGC) has agreed to absorb a trio of companies within its newly formed holdings entity, Canopy USA.

Under the deals, which still need approvals from shareholders, Canopy USA will acquire all of Acreage Holdings (OTC: ACRHF), as well as Jetty Extracts and Wana Brands, in a longstanding bid to gain entry into the U.S. cannabis industry.

“As the growth of the U.S. cannabis market continues rapidly at the state level, this strategy enables us to take control of our own destiny and capitalize on the once-in-a-generation opportunity in the largest cannabis market in the world,” said Canopy CEO David Klein.

Canopy’s core business will not immediately benefit from the new stream of sales since plant-touching companies in Canada cannot grow or sell marijuana in the U.S. because of the federal prohibition.

Still, President Joe Biden recently signaling a review on how the drug is classified could provide a pathway to allow Canopy to operate in the U.S.

Canopy fashioned a deal three years ago to buy Acreage for $3.4 billion once the U.S. legalizes marijuana federally. With the issue mostly stuck in limbo, the new move fast-tracks the closing with Canopy USA completing the takeover, the company said.

“This strategy and positioning are true differentiators, which we expect to enable our investors and brands to realize value in the near term while positioning Canopy for profitable growth and a fast start upon U.S. federal permissibility,” Klein said.

Canopy USA will have its own management and board, on which Canopy Growth Corp. won’t have voting rights.

The news comes as somewhat of a surprise, as many deals have stalled or fallen apart completely in 2022.

Last year, the industry was rapidly consolidating as optimism from rising sales grew and more U.S. states moved to legalize the crop.

Now, consolidation has become a lifeline for struggling operators facing hard times as the industry continues to see tighter projections and cash flow crunches.

The volume of mergers and acquisitions activity this year fell 80.2% from 2021, according to Oct. 14 data from Viridian Capital Advisors. Additionally, $4.72 billion worth of deals are still being considered with 145 deals having closed this year already, versus $23.82 billion in transaction value and 271 closings last year.

Canopy had last month said that it would be offloading its cannabis stores across Canada in search of a “path to profitability.”

The once-top-producing Canadian giant posted a more than C$2 billion loss in the second quarter earlier this year, which it attributed to rising competition, lower prices and shrinking sales.

Shares of Canopy Growth, which has a market value of $1.1 billion, were up 23% on Tuesday as of press time.

Adam Jackson

Adam Jackson covers the cannabis industry for The Green Market Report. He previously covered the Missouri statehouse for The Columbia Missourian and has written for The Missouri Independent. He most recently covered retail, restaurants, and other consumer companies for Bloomberg Business News. You can find him on Twitter @adam_sjackson and email him at adam.jackson@crain.com.


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