Canopy Growth Corp. Continues To Play Chess With The U.S. Cannabis Sector

Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) is considered to be the bellwether of the Canadian cannabis industry and has extensive Wall Street coverage. For this reason, when to company makes an announcement, the street listens.

Yesterday, Canopy Growth started off the week with a bang and announced an arrangement agreement with Canopy Rivers Inc. (TSX: RIV)(CNPOF) that we expect to be immediately accretive to all parties involved. The transaction represents a significant development and find it to be worth highlighting.

Under the agreement, Canopy Growth will acquire certain assets from Canopy Rivers for cash, common stock, and will surrender of all shares that it owns of Canopy Rivers. In return, Canopy Growth will receive exchangeable shares, warrants and debt in TerrAscend. The transaction will increase Canopy Growth’s direct conditional ownership in TerrAscend from approx. 13% to approx. 21% of the issued and outstanding shares on a fully-diluted basis

As part of the transaction, Canopy Growth’s ownership of Vert Mirabel will increase from approx. 41% to approx. 67%. According to Canopy Growth CEO David Klein, the Vert Mirabel greenhouse plays an important role in the company’s Canadian cannabis operations and we will monitor how the increased ownership benefits the business in 2021 and beyond.

The ownership interest that Canopy Growth will retire in Canopy Rivers, which currently represents approximately 27% and approximately 84% of the voting rights, is substantial. Although we believe the company is paying a rich valuation for the assets, we believe in the management team and will monitor how the story advances from here. As part of the agreement, Canopy Growth will pay Canopy Rivers $115 million in cash and issue an aggregate of 3,750,000 of common shares.

This is a significant transaction for both companies, and we will monitor how the relationship evolves in 2021 and beyond. During the last year, Canopy Growth has put an increased focus on the US cannabis industry, and we will monitor how it continues to position itself to be a beneficiary of a changing legal landscape.

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