Canopy Growth Corp (TSX: WEED) (NASDAQ: CGC) is apparently still heavily focused on the Canadian market, despite its aspirations south of the border. The company this morning announced that it has entered into a definitive agreement to acquire The Supreme Cannabis Company (TSX: FIRE) in a transaction valued at $435 million.
The transaction will see Canopy Growth acquire the premium cannabis grower in a transaction largely consisting of share-based compensation. Under the terms of the agreement, shareholders of Supreme will receive 0.01165872 of a Canopy share for each share held, as well as $0.0001 in cash. As of the time of writing, this equates to Supreme shareholders receiving $0.44 per share, roughly a 66% premium to the closing price of the equity.
Canopy has justified the transaction by stating that it will “possess a strengthened brand portfolio,” while also seeing further value come from the acquisition of more cannabis production in Canada – a market where the firm has closed multiple facilities as it looks to cut costs. The firm then attempted to justify the positive aspect for Supreme shareholders – exposure to the US CBD market and Canopy’s conditional entrance to the US cannabis market.
On a pro-forma basis, the company is expected to have a 13.6% share of the overall Canadian recreational cannabis market, as well as a 23.3% share of the premium flower segment in Ontario and a 21.4% stake of the segment in BC.
Cost synergies are expected to amount to $30 million over a two year period, with synergies (aka job cutting) expected in general and administrative expenses as well as cost of goods sold and sales.
The transaction is subject to the approval of at least two thirds of the shareholders of Supreme Cannabis at a special meeting to be held in June. A termination fee of $12.5 million is also applicable if Supreme elects to walk from the transaction for a superior offer.
The transaction is set to close by the end of June 2021.
The announcement follows Canopy’s recent acquisition of Ace Valley Brands, whom is also based in Ontario.
Canopy Growth last traded at $37.74, while Supreme Cannabis last traded at $0.265 on the TSX.
Information for this briefing was found via Sedar and Canopy Growth. 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.
