Rising High: Canopy Growth To Acquire The Supreme Cannabis Company In $435M Deal

In this week's "Rising High," The Fly's recurring series focused on cannabis stock news, The Fly looks at acquisitions, earnings and proxy advisory firm recommendations.


Canopy Growth (CGC) and The Supreme Cannabis Company (SPRWFannounced Thursday they have entered into a definitive arrangement agreement under which Canopy will acquire all of Supreme Cannabis' issued and outstanding common shares in a transaction valued at approximately $435M on a fully-diluted basis. Under the terms of the agreement, Supreme Cannabis shareholders will receive 0.01165872 of a Canopy common share and $0.0001 in cash in exchange for each Supreme Cannabis share held. The transaction provides Supreme Cannabis shareholders with a premium per Supreme Cannabis share of approximately 66% based on the closing prices of the Supreme Cannabis shares and Canopy common shares on the Toronto Stock Exchange as of April 7. Assuming timely receipt of all necessary court, shareholder, regulatory and other third-party approvals and the satisfaction of all other conditions, closing of the transaction is expected to occur by end of June.

"As we continue to expand our leading brand portfolio, we're excited to reach more consumers through Supreme's premium brands and high-quality products, further solidifying Canopy's market leadership," said David Klein, CEO of Canopy. "Supreme's deep commitment to superior genetics, top-tier cultivation and strict quality control, paired with Canopy's leading consumer insights, advanced R&D and innovation capabilities, is expected to create a powerful combination that aligns with our strategic focus to generate growth with premium quality products across key categories."


Organigram Holdings (OGIannounced Tuesday it has acquired all of the issued and outstanding shares of The Edibles & Infusions Corporation for consideration of C$22M, plus up to an additional C$13M in shares payable upon the EIC business achieving certain earnout milestones. The EIC acquisition further broadens Organigram's continuum of product offerings and provides an operational footprint in Western Canada. EIC was co-founded by AgraFlora Organics International (AGFAF) and James Fletcher, who is the CEO of Cavalier Candies. The company currently expects first sales of EIC manufactured soft chews in 4Q21 subject to the timing of receipt and commissioning of certain ancillary equipment, completion of quality assurance documentation and hiring of requisite staff.

Additionally on Wednesday, BMO Capital analyst Tamy Chen upgraded Organigram to Market Perform from Underperform with an unchanged C$4.00 price target. The analyst is positive on the company's strategic collaboration with British American Tobacco (BTI), adjusting his target multiple to 10-times forward revenue from 4.5-times. Chen added that the sector has been soft over the past few weeks, which is not surprising following the post-U.S. election rally.


Trulieve Cannabis (TCNNFannounced Monday that it has entered into a definitive agreement pursuant to which Trulieve has agreed to acquire from Anna Holdings a dispensary license operating under Keystone Shops with locations in Philadelphia, Devon, and King of Prussia. The transaction will add three fully operational dispensaries in the Philadelphia area to Trulieve's retail footprint of 83 dispensaries nationally and will expand Trulieve's footprint in Pennsylvania. Kim Rivers, Trulieve CEO, stated, "Trulieve continues to bolster our national expansion efforts with acquisitions that both complement our current portfolio and strengthen our long-term strategy. The Keystone Shops are located in a densely populated area of Pennsylvania and with their staff's knowledgeable and customer-centric approach to patients, these dispensaries are valuable additions to our Pennsylvania portfolio.” Trulieve has agreed to acquire Keystone Shops for an upfront payment of $60M, comprised of $40M in Trulieve subordinate voting shares and $20M in cash. The deal does not carry a deferred payment or an earn-out period. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close during 2Q21.


Verano Holdings (VRNOF) reported 2020 revenue of $354.8M on Thursday, which compares to revenue of $119.8M last year. The company also reported net income of $245M compared to $10M in 2019 and gross profit of $224M compared to $51M in 2019. Adjusted EBITDA was $170M translating to a margin of 48% and free cash flow was $53M. On Tuesday, 4Front Ventures (FFNTF) reported 2020 loss per share of 9c on a revenue of $57.64M, which compared to 2019 loss per share of 43c on a revenue of $19M. The company also reported Systemwide Pro Forma Revenue of $88.1M and adjusted EBITDA of $5.9M. 4Front also reiterated 2021 guidance of $170M-$180M in Pro Forma Systemwide Revenue and $40M-$50M in adjusted EBITDA. On Monday, Planet 13 (PLNHF) reported Q4 loss per share of 2c on revenue of $20.14M, which compares to loss per share of 2c on revenue of $16.5M for the same period last year. The company also reported gross profit of $7.5M compared to $9.4M last year and adjusted EBITDA of $0.3M versus $2.6M last year.


 Aphria (APHAannounced Monday that both Institutional Shareholder Services and Glass Lewis recommended that holders of common shares of Aphria vote for the special resolution approving the previously announced arrangement pursuant to which, among other things, Tilray (TLRY) will acquire all of the outstanding Shares of Aphria and the shareholders will become holders of shares of Tilray. ISS said, "The strategic rationale appears sound as the proposed transaction will improve the scale and footprint of the combined entity. Importantly, the combined company is anticipated to deliver $78Mof pre-tax cost synergies across several areas including cultivation and production, product purchasing, sales and marketing, and corporate expenses within 24 months of closing.” 

Additionally on Tuesday, Stifel analyst W. Andrew Carter raised the firm's price target on Aphria  to C$22 from C$15.50 and kept a Hold rating on the shares ahead of the company's Q3 report due on Monday, April 12. While he estimates Canadian adult use shipment revenue will decline sequentially from Q2, Carter said he believes valuations for U.S. listed Canadian producers are "incognizant of the market's structural challenges and near-term headwinds." His increased price target is predicated on Aphria's proportionate share of the combined company following the pending merger. Alliance Global Partners analyst Aaron Grey also raised his firm's price target on Aphria to $26 from $20 and kept a Buy rating on the shares on Thursday. Grey believes Aphria has been impacted from inventory rationalization of provincial buyers as well as the impact of COVID on consumer purchases. While this represents a 4% sequential decline, Grey sees this more as a near-term dynamic and looks for Aphria to return to positive sales and market share trends over time, but acknowledges share gains in calendar 2021 may be more difficult than that seen in 2020 given changes in provincial purchasing habits.


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