Acreage Holdings Archives - Green Market Report

Debra BorchardtSeptember 16, 2021
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Acreage Holdings, Inc. (OTC: ACRHF, ACRDF) is selling its four Oregon dispensaries to Chalice Brands Ltd. (CSE:CHAL) (OTCQB:CHALF). The divestiture is part of Acreage’s strategy to target only core states versus trying to be the largest MSO in the most states.  The deal is valued at $6.5 million. Acreage’s four Oregon retail dispensaries are branded as Cannabliss & Co. and the sale will end the company’s presence in the state. The company said in a statement that the Oregon stores were negatively affecting the company’s bottom line and utilizing management resources.

“This is a fantastic opportunity for Chalice to edge closer to our goal of achieving our targeted market share in the state of Oregon while entering the Eugene market, and immediately enables the deployment of our Chalice products to more stores. Adding the Cannabliss retail stores increases our footprint from twelve to sixteen stores, represents nearly a 130% increase in retail footprint for this year alone. The Cannabliss team has done a tremendous job in Portland, Eugene, and Springfield, Oregon in building historic businesses and a strong reputation for friendly customer service – exactly aligned with what Chalice looks for in a partner,” said Chalice CEO Jeff Yapp. Chalice believes it can turn around the Cannabliss stores, which have apparently lost market share.

Chalice retail footprint increases from twelve to sixteen stores in Oregon, making this nearly a 130% increase in the current fiscal year. Cannabliss is expected to carry Chalice Brands products immediately once the services agreements are completed providing the opportunity to increase total gross margins gradually from approximately 42% to at least 52% within a year. Vertical sales of Chalice branded products are expected to be approximately 25% of products sold within a year. With the Cannabliss acquisition, Chalice said it will strengthen its customer base in the Oregon market, while also significantly increasing vertical margin contribution through the distribution of its Bald Peak flower, Chalice, Private Stash, RXO, and Elysium Fields branded products into the Cannabliss stores.

“The sale of our Oregon operations represents another strategic step in our previously announced operating strategy,” stated Peter Caldini, Acreage Holdings CEO. “As we previously communicated, Acreage remains focused on our three key strategic objectives – driving profitability, strengthening our balance sheet, and accelerating our growth in our core markets.”

Oregon dispensaries include two in Portland, one in Eugene, and one in Springfield. Two of the store locations are in buildings that are on the national registry of historic places – Sorority House in Eugene and Firestation 23 in Portland. The Firestation 23 location was the first adult-use dispensary to open in the city of Portland and was Oregon’s first medical marijuana dispensary.

“This deal structure demonstrates our disciplined approach to capital allocation, as we avoid dilution while growing both our top line and profitability. The positive cash flow generated by this acquisition will partially fund the deferred payment, providing an immediate opportunity to enhance value for Chalice shareholders. With the addition of these four retail assets,  Chalice continues to cement our leadership position in Oregon as we execute on our stated market share objectives for 2021,” noted John Varghese, Executive Chairman of the Company

Terms

Under the terms of the Asset Purchase Agreement, upon regulatory approval Acreage will divest the assets of its four Cannabliss retail stores (inclusive of a working capital surplus of US $500,000) – located in Portland, Eugene, and Springfield, Oregon – for total consideration of US $6,500,000, consisting of a US $250,000 cash payment at the time of signing and a 10-month secured promissory note for US $6,250,000 bearing interest of 6% for the first 5 months and 10% for the remaining 5 months.


StaffAugust 10, 2021
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After the market closed on Monday, Acreage Holdings, Inc. (OTC: ACRHF, ACRDF) reported its financial results for the second quarter of 2021 ending June 30, 2021. The unaudited results showed that consolidated revenue increased 63% to $44.2 million, versus the same period in 2020 and a sequential increase of 15% compared to the first quarter of 2020. This beat the Yahoo Finance average estimate for revenue of $34 million.  The net loss attributable to Acreage in the second quarter of 2021 was $2.6 million, an improvement from the net loss attributable to Acreage of $37.2 million for the same period in 2020.

Adjusted EBITDA in the second quarter of 2021 was $8.1 million compared to a loss of $6.5 million in the same period in 2020. Adjusted EBITDA as a percentage of consolidated revenue was 18.3% for the second quarter of 2021. This marks the second consecutive quarter of positive adjusted EBITDA for the company and validates management’s refocused strategic plan.

“I am once again pleased with our financial performance in the second quarter as we reported our second consecutive quarter of positive Adjusted EBITDA*,” said Peter Caldini, Chief Executive Officer of Acreage. “Additionally, our revenue growth accelerated to 63% year over year, and our gross margin remained strong at 54.0%. On an operating basis, our team continues to be focused on both driving profitability and accelerating our growth in our core markets.”

Total operating expenses for the second quarter of 2021 fell 39% to $30.6 million from the corresponding period of fiscal 2020. Excluding equity-based compensation expenses, losses and write-downs and depreciation and amortization expenses, all of which are non-cash in nature, total operating expenses for the second quarter of 2021 decreased $3.6 million or 17% compared to the corresponding period of fiscal 2020.

The company ended the quarter with $37.8 million in cash and restricted cash. During the second quarter of 2021, the company closed on the previously announced sale of its Florida operations for total proceeds of $60 million. The cash provided by this sale, including the proceeds from the subsequent sale of notes receivable received from the buyer of the Florida operations as consideration, and together with restricted cash, were used to repay $44.1 million in debt during the quarter.


Debra BorchardtMarch 10, 2021
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Acreage Holdings, Inc.  (OTCQX: ACRHF, ACRDF) reported financial results for the fourth quarter and full-year ended December 31, 2020, after the market close on Tuesday. The fourth-quarter revenue for Acreage increased 50% to $31.5 million, while the net loss was $36.9 million. The stock was lately down over 3% to $6.71.

The full-year revenue increased 55% to $114.5 million, while the net loss for the year was a whopping $286 million. The operating expenses for the year fell from $56 million in 2019 to $50 million in 2020. However, the impairment losses were $188 million in 2020. In addition to that, the company spent roughly $91 million in 2020 on equity-based compensation plans according to the company’s presentation. Acreage also laid off 11 employees last week.

“I am pleased Acreage continued to improve its financial and operational fundamentals during the fourth quarter and throughout the entire year of 2020,” said Peter Caldini, Chief Executive Officer of Acreage. “It is clear our refocused efforts on delivering profitability and generating long-term shareholder value are beginning to pay off. I am excited to continue this journey with an energized team that I am confident will reestablish Acreage as a leading, and profitable, MSO in the U.S. cannabis industry.”

Highlights

The company said it began adult-use sales at its medical dispensary in Worcester MA and opened a new adult-use store in Shrewsbury MA. The company also began ault-use sales in South Portland ME and began consolidating those results. Acreage also said it completed the initial 10,000 sq. ft. expansion of a cultivation facility in PA.

The Acreage-owned same-store sales grew 27%, marking the eighth consecutive quarter of double-digit same-store sales improvements. Same-store sales growth for managed entities rose by 71% during the fourth quarter.

Geographically, in the fourth-quarter Acreage sales increased 18% in the New England market, 91% in the Mid-Atlantic, 124% in the Midwest, but fell 18% in the West.

Last month Acreage announced its subsidiary, High Street Capital Partners was selling Acreage Florida, Inc. to Red White and Bloom Brands, Inc.  (OTCQX: RWBYF) for $60 million.

 


Debra BorchardtFebruary 25, 2021
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Acreage Holdings, Inc. (OTCQX: ACRDF, ACRHF) announced its subsidiary, High Street Capital Partners was selling Acreage Florida, Inc. to Red White and Bloom Brands, Inc.  (OTCQX: RWBYF) for $60 million. Acreage Florida is licensed to operate medical marijuana dispensaries, a processing facility, and a cultivation facility in the state of Florida. The deal also includes the sale of property in Sanderson, Florida. The stock was dropping over 6% to lately sell at $7.39.

The transaction will be an up-front cash payment of $5 million upon execution of the definitive agreement and an additional $20 million in cash, $7 million in the buyer’s common stock, and $28 million in promissory notes upon closing the transaction. Acreage said it expects to close the deal during the second quarter of 2021.

Brad Rogers, Chief Executive Officer of RWB, said, “Our core strategy has always been to focus on a limited number of markets within which to operate at scale, and Florida has always been one of those targeted markets. Today we have our path to entry into the third-largest market by revenue in the US and are excited with what we can do with the brands we have amassed as well as the skill to execute on our vision.” The company also recently announced an acquisition in Illinois, expanding its presence in the States with limited cannabis licenses. Upon closing of the deal, RWB will have a presence through licensed operations and/or the licensing of its brands in six states.

“The sale of our Florida operations is a significant step in our previously announced operating strategy to focus on those core markets that we believe will accelerate our path to profitability and position us for significant long-term growth and cash generation,” said Peter Caldini, Chief Executive Officer of Acreage Holdings. “The cash proceeds will significantly bolster our balance sheet and position us to accelerate our cultivation expansion projects and open additional dispensaries to support our growth into key adult-use cannabis states such as Illinois and New Jersey.”

Last summer, Acreage had announced it was scaling back from its initial plan to be the cannabis company in the most states to one that was more focused on core-markets in just nine states in the Northeast, Mid-Atlantic, and Midwest. The company said it currently has active operations and licenses in 13 states and continues to pursue divestitures of its remaining non-core state operations and licenses.

In November, Acreage reported revenue of $31.7 million for the third quarter, a 42% increase compared to the same period in 2019. It also was a 17% increase compared to the second quarter this year. Partner revenue was $17 million, which was a drastic increase of 79% compared to the second quarter of 2020. Acreage Holdings reported a net loss of $35.7 million, while adjusted net loss attributable to Acreage was $14.3 million.

 

 


Debra BorchardtOctober 7, 2020
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Acreage Holdings, Inc.  (OTCQX: ACRHF, ACRDF) announced that both its new Class D “floating” shares (OTCQX: ACRDF) and Class E “fixed” shares (OTCQX: ACRHF) will commence trading on the OTCQX Best Market on October 7, 2020, and graduating from Pink Sheet status. For shareholders, it’s the latest step in the tangled relationship between Canopy Growth (NYSE: CGC) and Acreage.

Acreage Holdings has never followed a simple path for its shareholders. The company’s initial stock ACRG.U was confusing in that it was traded on the Canadian exchanges but using American currency – hence the .U in the symbol. Most cannabis companies just had dual listings with Canadian stock using the Canadian currency and an American listing using U.S. currency. Then the company agreed to a most unusual deal with Canopy Growth, where Canopy would buy Acreage when the U.S. federally legalized cannabis – called the “triggering event.” That deal was recently amended and resulted in the creation of two new share classes.

OTC Share History

In the original deal, Canopy would buy all of Acreage. In the new deal, Canopy decided it didn’t want to be locked into a fixed deal. Canopy will buy only 70% of Acreage at a fixed price, but the remaining 30% will float with the market. The idea behind the floating shares was that the Canopy shareholders should be able to participate in any upside in the stock, should that happen. Canopy is not committed to buying the 30% of the company. It has the option to buy these shares if the triggering event happens or they decide to waive that condition.

The original symbol for Acreage on the OTC Markets Group was ACGRF. There are now two new symbols ACRHF, which are the fixed shares and ACRDF, which are the floating shares.

ACRGF  Old symbol. Delisted. No longer trading

ACRHF  Fixed shares. 70% of Acreage that Canopy is obligated to buy at .30xx

ACRDF  Floating shares. 30% of Acreage that Canopy has the option to buy at 30-day VWAP (volume-weighted average price) or $6.41, which is higher.

Which Is Better?

Shareholders understandably can’t figure out which one is better. For now, it looks like retail investors prefer the fixed share class. They know that Canopy will buy these shares. The floaters are only an option to buy. Canopy could change its mind and not buy the other 30% rendering these shares mush less valuable..

Analysts, though, have been using the floating shares for their basis of valuation. So, when an investor reads an analyst report, it is based on the floaters, not the fixed shares. This is a rare disconnect for investors. The company is the same so that analysis is intact, however, any figures related to the market price will be referencing the floating shares – not the fixed shares.

New Loan

In the midst of all these changes, Acreage also managed to close a financing transaction with an institutional lender for $33 million and used a portion of the proceeds to retire its short-term $11 million secured convertible note. The loan is unsecured, matures in three years, and bears a 7.5% annual interest rate.

“Access to low-cost capital, even in a very challenging capital market environment for cannabis, has always been a core part of our strategy,” said Bill Van Faasen, Interim CEO of Acreage. “The retirement of the potentially dilutive, short-term convertible debt, and the additional cash infusion bolsters our balance sheet enabling us to continue to deliver on our shareholder commitments to accelerate our path to profitability.”

Viridian Advisors wrote in its weekly tracker, “We believe that some other loan feature is likely to have been involved because we find it difficult to believe that investors would have loaned money to Acreage on an unsecured basis at 7.5%. The Viridian Credit Tracker ranks Acreage #10 out of the 14 U.S. Cultivation & Retail sector companies with market caps over $100 million. The company ranks at the bottom in both profitability and liquidity and #9 on our leverage ranking. Acreage’s last debt raise in June was done at an effective cost of over 50% and, although recent news regarding the distribution of Canopy beverages is undoubtedly credit-positive for Acreage, it’s still quite a stretch to get to 7.5%. So, it seems likely that there are some convertibility/warrants, a significant OID, a large premium due at maturity, or some other investor-friendly features that were not disclosed in the press release.”

 


Debra BorchardtOctober 1, 2020
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Canopy Growth Corporation (NYSE:CGC) and Acreage Holdings, Inc. (OTC: ACRHF, ACRDF) announced today that following the implementation of their amended arrangement, Acreage developed a plan to market Canopy Growth’s THC beverages in the legal adult-use markets in the U.S.

Beginning with Illinois and California in summer 2021, Acreage said it will launch Canopy Growth’s THC beverages into markets as well as in its own dispensaries. Acreage said it will access existing distribution channels through its strategic corporate relationships of both Acreage and Canopy. At this time there are no beverages in the marketplace from the company. The website says that it has “Developed a proprietary process that distills whole flower cannabis into a clear liquid. We are using this liquid as an active ingredient in a wide variety of THC and CBD beverages, offering consumers an alternative to traditional drinks.”

“We have had an incredibly successful introduction into the Canadian cannabis-infused beverage industry with over 1.5 million cans of our THC-infused RTD beverage sold to date,” shared Canopy Growth CEO, David Klein. “We introduced a new product category to cannabis consumers that we knew had the potential to disrupt one of the most mature industries and since launching in Canada, Canopy Growth now owns 5 of the top 6 SKUs in the beverage category with a 74% market share. We are excited for Canopy’s beverages to be introduced to the U.S. market and know from recent BDSA reports that the United States represents a market that achieved roughly $60M in beverage sales in 2019.”

Constellation Brands (NYSE:STZ), which has a big stake in Canopy Growth reported its earnings for the second quarter with revenue falling 3% to $2.26 billion. The losses from its position in in Canopy were $31 million. On a reported basis, earnings for Constellation edged up to $2.76 a share vs. $2.72 a year earlier. Despite bars and restaurants being closed in the U.S. due to the pandemic, the company said that liquor store sales made up for the closures. The pandemic though is causing slowdowns in Mexico.

“We see THC-infused beverages as a game-changer in U.S. cannabis, and we are excited to launch Canopy Growth’s unique beverage offerings to our core markets offering the greatest growth potential next year,” said Bill Van Faasen, Interim CEO of Acreage Holdings. “We are already working on our beverage production capabilities, and look forward to tapping the wealth of experience and research Canopy can offer following its successful entry in the category last year.”

Amended Agreement

Canopy and Acreage recently amended their previous agreement in which Canopy would acquire Acreage once the U.S. legalizes cannabis at the federal level (Triggering Event). The deal was originally valued at $3.4 billion. Instead, Acreage shareholders got an initial up-front payment of $37.5 million in connection with the modification of Canopy Growth’s rights, including the extension of the term, and give Acreage shareholders the ability to participate in upside potential upon the Triggering Event.

There are now Acreage “Fixed” shares and Acreage “Floating” shares which is causing a great deal of confusion amongst investors. The basic gist of the difference is that the fixed shares represent the 70% that Canopy is obligated to buy at .30xx and the floating shares are the 30% they have an option to buy at 30 day vwap or $6.41, whichever is higher.


Debra BorchardtJuly 10, 2020
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Law 360 reported that the Massachusetts’ Cannabis Control Commission handed down hefty fines to three cannabis companies doing business in the state. 4Front Ventures Corp. (FFNTF) and Garden remedies were fined for using pesticides on plants, while Acreage Holdings Inc. (OTC:ACRGF) was fined for failing to disclose its relationship with two license holders.

4Front Ventures

4Front Ventures fined $350,000 settlement over pesticides used at its Georgetown, Massachusetts, facility. According to Law360, the settlement included a statement that 4Front Ventures admitted hydrogen peroxide, baking soda, and other pesticides were used at the facility, which is not approved for use on marijuana. The commission reportedly said that the company received test results that showed the plants contained a banned pesticide in June or July 2019 but didn’t alert the commission until August. Company CEO Leo Gontmakher said the company has made changes to ensure the violations do not happen again. “Patients were protected and no one was harmed,” Gontmakher said.

Garden Remedies

A $200,000 settlement was reached with cannabis company Garden Remedies over its Fitchburg, Massachusetts, facility. Like 4Front, Garden Remedies also noted in its settlement that it acknowledged using unapproved pesticides and altering its financial records to hide the purchase.

Company CEO Karen Munkacy said in a statement that the company has fired the employees involved in the falsified documents and ended its relationship with the vendor that provided the pesticides in question.

“While the product we used is permitted to be used in cannabis cultivation in many other states and is not an externally applied pesticide that puts anyone in danger, it is not permitted in Massachusetts and the situation was mishandled,” Munkacy said. “The company and I will continue to strive to ensure that ethical and regulatory violations never again occur.”

Acreage Holdings

Law360 also reported that The Botanist, an Acreage Holdings subsidiary agreed to pay a $250,000 fine for failing to disclose its parent company’s controlling relationship with two medical marijuana licensees. Massachusetts had passed a law when its program was established that limited license holders to just three so that there would be no monopolies and more companies would share in the industry.

Acreage Holdings came under fire for bragging that it had numerous licenses in the state. The commission’s investigation found that Acreage’s contracts with two affiliate medical marijuana treatment centers in the Bay State gave it a controlling relationship over them. Despite the ruling, the commission can approve two provisional retail licenses for The Botanist Inc.

“We want to express our thanks to the CCC for their professional approach as we worked through today’s resolution,” Acreage general counsel James Doherty said in a statement. “We’re looking forward to focusing all of our energies on what we do best, which is deliver great products to the citizens of Massachusetts.”

It seems the original agreements had been entered into while Massachusetts had a medical-only program and the regulations at the time were not so specific about control and ownership. The commission went on to clarify the rules about ownership limits at which time the commission said Acreage should have realized it had too many.

The commission did state that The Botanist “cooperated with the commission’s investigation into ownership and control interests and engaged in good-faith efforts to comply with the regulations after being notified of possible control issues.”

 


Debra BorchardtJune 26, 2020
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Following the company’s heavily discounted deal with Canopy Growth and the departure of co-founder and CEO Kevin Murphy, Acreage Holdings, Inc. (OTCQX: ACRGF) reported first-quarter 2020 reported revenue of $24.2 million, an increase of 88% increase compared to the same period in 2019, and a 15% sequential increase. The earnings were unaudited.

The revenue that was reported paled in comparison to the company’s charges, which were almost double what Acreage had told investors they could expect.  Acreage reported a one-time, non-cash pre-tax charge of $196.0 million, or $164.7 million after taxes. The company had originally told the market it could expect to see a charge between $80-$100 million. Acreage blamed the discrepancy on current fair market value in certain states and the write-down
for its services agreement in Maine, which was not initially contemplated.

The net losses were equally eye-popping at $172 million. These results explain the departure of Murphy and his replacement by Bill Van Faasen.

“With the COVID-19 pandemic affecting millions across the U.S., the cannabis industry was faced with yet another significant challenge. Our dispensary and processing and cultivation associates quickly adapted to these changing dynamics ensuring our patients and customers in need were still served with dignity and respect, while maintaining a safe environment for everyone. Additionally, I am pleased with the reacceleration of our reported and pro forma revenue as our wholesale business continues to ramp and our dispensaries continue to mature,” said Bill Van Faasen, interim Chief Executive Officer of Acreage.

The company continues to report pro forma numbers, however, many past deals in which Acreage included those pro forma numbers have been terminated or sold. At this point, the company that once claimed to be the largest cannabis business in the country only has (assuming completion of pending acquisitions), 15 operational dispensaries. Acreage has or will have management or consulting services agreements, (including pending acquisitions), with entities operating 12 dispensaries.

Murphy’s Voting Shares

Not unlike the structure that was originally established at MedMen (OTC:MMNFF), Murphy, he exercises a significant majority of the voting power in respect
of the Acreage Shares. According to the company’s May MD&A, “The Subordinate Voting Shares are entitled to one vote per share, the Proportionate Voting Shares are entitled to 40 votes per share, and the Multiple Voting Shares are entitled to 3,000 votes per share. As a result, Mr. Murphy has the ability to control the outcome of all matters submitted to the Company’s shareholders for approval, including the election and removal of directors and any arrangement or sale of all or substantially all of the assets of the Company.”

“As a shareholder, even a controlling shareholder, Mr. Murphy will be entitled to vote his shares, and shares over which he has voting control, in his own interests, which may not always be in the interests of the Company’s shareholders generally. Because Mr. Murphy holds most of his economic interest in the Company’s business through High Street, rather than through the Company, he may have conflicting interests with holders of the Acreage Shares.”

The company is hosting a call to discuss the earnings on Friday morning. The stock closed higher by 23% on Thursday to end the day at $2.88.


Video StaffJune 26, 2020

6min23011

Happy Pride weekend everyone. Celebrate safely. 

Canopy Growth Corporation (NYSE: CGC) and Acreage Holdings, Inc. (OTCQX: ACRGF) stunned markets when the two companies agreed to an unusual deal in 2019. The agreement was that when cannabis was legalized in the U.S., Canopy would buy Acreage. It was called the “triggering event.” A lot has changed since then and now the deal has changed accordingly.  Acreage shareholders will now get an initial up-front payment of $37.5 million in connection with the modification of Canopy Growth’s rights. That’s a big drop from the original price tag of $3.4 billion.  In addition to that CEO Kevin Murphy is resigning from the company.

Aurora Cannabis Inc.  (NYSE: ACB) is the latest cannabis company to destroy the job argument as a reason for legalization. The Canadian cannabis company laid off 25% of Aurora’s SG&A staff, most of those to take place immediately and a roughly 30% reduction in production staff over the next two quarters. The cuts went to the highest levels including a restructuring of the executive leadership team and the recently announced retirement of President Steve Dobler. Aurora said it has initiated a plan to close operations at five facilities over the next two quarters in order to focus production and manufacturing at the Company’s larger scale and highly efficient sites.

Jushi Holdings Inc. (OTCQX: JUSHF) is planning on buying Vireo Health’s (OTC:VREOF) Pennsylvania Medical Solutions, LLC as the company looks to strengthen its position in the state’s market. Jushi will pay Vireo $16.3 million in cash, a $3.8 million seller note, and assume a $17 million facility associated with a long-term lease obligation. The $37 million deal is expected to close by the end of August 20.

GW Pharmaceuticals plc (Nasdaq: GWPH) said that the UK Home Office has reclassified Epidiolex, the company’s cannabidiol medicine as a Schedule 5 drug. A big relief to patients and pharmacists. 

TILT Holdings Inc. (OTCQB: TLLTF) reported Quarterly revenue of $42.4 million, up 27% Quarter over Quarter and 23% over Q1 2019. The company reported a positive net income of $50,925.  

Organigram Holdings Inc.  (NASDAQ: OGI) issued a very brief announcement stating that the company was facing a lawsuit and that it was changing its newly launched Trailer Park Buds brand. Organigram said it wouldn’t comment on the case, which was started in the Court of Queen’s Bench in Alberta. It is a class-action case that seeks damages from many cannabis companies including Organigram. 

A Cease Trade Orders have been issued by one or more securities commissions. 

Alternate Health Corp.  AHG  Ontario Securities Commission 
Champignon Brands Inc.  SHRM  British Columbia Securities Commission 
CIM International Group Inc.  CIM  Ontario Securities Commission 
iAnthus Capital Holdings Inc.  IAN  Ontario Securities Commission 
Ionic Brands Corp.  IONC  Ontario Securities Commission 
Sunniva Inc.  SNN  Ontario Securities Commission and British Columbia Securities Commission 

Debra BorchardtJune 25, 2020
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Canopy Growth Corporation (NYSE: CGC) and Acreage Holdings, Inc. (OTCQX: ACRGF) stunned markets when the two companies agreed to an unusual deal in 2019. The agreement was that when cannabis was legalized in the U.S., Canopy would buy Acreage. It was called the “triggering event” and was originally valued at $3.4 billion. The price has dropped considerably.

A lot has changed since then and now the deal has changed accordingly.  Acreage shareholders will now get an initial up-front payment of $37.5 million in connection with the modification of Canopy Growth’s rights, including the extension of the term, and give Acreage shareholders the ability to participate in upside potential upon the Triggering Event.

In addition to that CEO Kevin Murphy is resigning from the company.

Deal Changes

These are the major changes to the deal as outlined by the companies:

  • Canopy Growth will pay Acreage shareholders and certain convertible security holders an aggregate of $37.5 million (approximately $0.30 per Existing Share on an as-converted basis), with the final amount to be received by each holder determined based on the number of Existing Shares into which all of the eligible securities are convertible at the close of business on the record date for the distribution.
  • Acreage shareholders’ new Fixed Shares, each of which represents 70% of an Existing Share, will be entitled to receive 0.3048 of a Canopy Growth Share, representing a premium of approximately 120% to the June 24, 2020 closing price of the Existing Shares on the Canadian Securities Exchange.
  • Acreage shareholders will be entitled to participate in the long-term value created by Acreage, and in the U.S. cannabis industry generally, as a result of the Floating Shares which Canopy Growth may acquire in the future upon the occurrence or waiver of the Triggering Event at a price based upon the 30-day volume-weighted average trading price of the Floating Shares on the CSE relative to the trading price of the Canopy Growth Shares on the NYSE at that time, subject to a minimum of $6.41 per Floating Share.
  • There will be a creation of two new classes of shares in the capital of Acreage with each existing Acreage subordinate voting share (an “Existing Share”) being converted into 0.7 of a Fixed Share and 0.3 of a Floating Share (with proportionate adjustments for the existing proportionate voting shares and existing multiple voting shares)

CEO Murphy Out

Mr. Murphy has resigned as CEO but will continue to act as Chairman of the board of directors of Acreage and contribute to the strategic direction of the company. He is listed as owning 10% of the company’s stock. Director Bill Van Faasen, former Chairman, CEO, and President of The Blue Cross Blue Shield of Massachusetts will serve as Acreage’s Interim Chief Executive Officer until a permanent replacement has been identified.

“On behalf of the entire Acreage Board, I sincerely thank Kevin for his passion and commitment to building a leading cannabis enterprise across the United States,” said Douglas Maine, Chair of the Acreage Special Committee. “Kevin is a visionary entrepreneur and positioned Acreage for success in the U.S. cannabis industry. As we move forward with a renewed commitment by Canopy Growth and build upon the vision for the U.S., we are optimistic about the long-term growth prospects for our shareholders.”

“I am excited about this New Agreement and the creation of a pre-eminent and truly global cannabis company upon the occurrence of the Triggering Event. I believe the eventual federal permissibility of cannabis in the United States is inevitable and this New Agreement continues to allow our shareholders to become a part of a leading cannabis company following such changes. Moreover, as the largest shareholder of Acreage, I believe this New Arrangement allows all Acreage shareholders to participate in potential upside to their investments through the fixed exchange component of Canopy Growth stock and importantly the new Floating Shares” said Kevin Murphy, Chair of the Acreage Board.

Canopy Loans Acreage $100 Million

In connection with the New Agreement, Canopy Growth has agreed to loan a wholly-owned subsidiary of Acreage (“Acreage Hempco”), up to $100 million pursuant to a secured debenture.  Canopy Growth will loan Acreage Hempco an initial $50 million on and subject to completion of the New Arrangement.  The remaining $50 million will be subject to the satisfaction of certain conditions by Acreage Hempco. The Debenture will bear interest at a rate of 6.1% per annum.

The United States is going to be a core market for Canopy Growth and this New Agreement solidifies our path forward with Acreage,” said David Klein, Chief Executive Officer of Canopy Growth. “I am excited to bring our relationship with Acreage back to center stage in our U.S. strategy and look forward to a time when the laws in the United States permit us to finalize this transaction as we march toward bringing our exciting beverage products to the US.”

Acreage Tumbled Quickly

Eyes were raised recently when Acreage announced that it agreed to a short term loan with an interest rate of 60%. Those terms rattled shareholders. That type of loan is akin to a payday loan and means the company must have really needed the money badly if it was willing to take those terms. The loan is secured by the company’s cannabis operations in Illinois, New Jersey, and Florida, as well as it’s U.S. intellectual property. If it can pay back the loan, In the event of default, the company is further obligated to pay to Lender an additional fee of $6 million.

Acreage was already selling assets and laying off employees after the company overextended itself in trying to become the largest cannabis company in the country. Acreage said it expects to record a pre-tax, non-cash charge of $80 to $100 million in the quarter ending March 31, 2020.

Canopy Growth’s Troubles

While Acreage has been struggling to right its ship, Canopy isn’t in much better shape. The company announced declining revenues and massive losses for the fourth quarter ending March 31, 2020. The net revenue in the quarter dropped by 13% sequentially to $107 million as the company blamed lower Canadian recreational revenue. Canopy Growth also delivered a staggering net loss of $1.3 billion in the quarter which was attributed to impairment and restructuring charges.


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