Canopy Growth Corp (TSX: WEED) (NYSE: CGC) and Acreage Holdings (CSE: ACRG.u) have amended their plan of arrangement initially put in place last year. The amended agreement will see a number of modifications, including an additional cash payment to current Acreage shareholders, a debenture loan to the multi state operator, the resignation of Kevin Murphy, two new classes of Acreage formed, and finally, a decrease in the amount of shares received of Canopy Growth upon exercise of the arrangement.
Quite frankly, it’s a bit of a messy amendment.
First and foremost, the amount of Canopy Growth shares to be received upon completion of the merger at some point in the future has changed. Originally, that figure was to be a simple exchange ratio of 0.5818 Canopy shares per Acreage share held. Now, it’s not so simple.
Under the new terms, each current Acreage share is to be converted into 0.7 of a “fixed share”, and 0.3 of a “floating share.” Each Fixed share will be treated like a subordinate voting share, and will remain to be the share listed for trade on the CSE. Each fixed share will convert to a Canopy Growth share at a ratio of 0.3048 under the new terms – a premium of 120% from the current share price.
The new floating share will be applied to list on the CSE, and is subject to the terms of a new call right of Canopy Growth. Upon exercise of the call option, Canopy will acquire the floating shares at a price equal to the 30-day volume weight average trading price of the floating shares, subject to a minimum call price of US$6.41.
Upon a triggering event (i.e. federally legal status of cannabis), Canopy is to acquire all outstanding fixed shares. The company will then have the right, but not the obligation, to acquire all of the issued and outstanding floating shares. The maturity of this triggering event has also been revised to be 10 years from the date the new arrangement is implemented.
Essentially, the new agreement means that Canopy Growth is currently only required to acquire a 70% stake in Acreage, as a result of the new shares being split on a 70/30 basis.
Further, a cash payment of US$37.5 million will be made to existing shareholders of Acreage, with the figure essentially being the “fee” required to change the terms of the arrangement again.
As part of the implementation of the new arrangement, current Acreage CEO Kevin Murphy will be resigning from his role with the company, while continuing to act as Chairman of the board. Current director Bill Van Faasen will act as the interim CEO.
Canopy Growth will also be loaning Acreage up to US$100 million under a secured debenture through one of Acreage’s subsidiaries, referred to as Acreage Hempco. An initial $50 million debenture will be issued to the firm, with the other half being subject to satisfaction of certain conditions. The debenture will bear interest at a rate of 6.1% per annum, and matures in 10 years. The debt is not convertible, and will be used for the funding of Acreage’s hemp division.
The amended agreement is subject to 66.7% shareholder approval, via a meeting to take place in August.
Canopy Growth last traded at $16.71 on the NYSE.
Information for this briefing was found via Sedar, Canopy Growth and Acreage Holdings. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
