Canopy Growth and Acreage agree to amend plan of arrangement to
provide potential additional upside for all shareholders
Amended arrangement provides for up-front cash payment to
Acreage shareholders and certain convertible security holders in
the aggregate amount of US$37,500,000
Amended arrangement creates two classes of Acreage shares,
including a new floating share that provides upside opportunity for
Acreage shareholders that is not tied to fixed exchange ratio
Provides capital for Hemp operations, allowing Acreage to
participate in the burgeoning CBD market
SMITHS FALLS, ON and
NEW YORK, June 25, 2020 /PRNewswire/ - Canopy Growth
Corporation ("Canopy Growth") (TSX: WEED) (NYSE: CGC) and Acreage
Holdings, Inc. ("Acreage") (CSE: ACRG.U) (OTCQX: ACRGF) (FSE: 0VZ),
today announced they have entered into an agreement (the "New
Agreement") to amend the terms of the arrangement agreement dated
April 18, 2019, as amended on
May 15, 2019, between Canopy Growth
and Acreage (the "Arrangement Agreement").
Pursuant to the Arrangement Agreement, Canopy Growth agreed to
acquire all of the issued and outstanding securities of Acreage
pursuant to a plan of arrangement under the Business
Corporations Act (British
Columbia) (the "Plan of Arrangement"), contingent upon the
occurrence of changes in U.S. federal law to permit the general
cultivation, distribution, and possession of marijuana (the
"Triggering Event") and subject to the satisfaction or waiver of
certain conditions to closing as set out in the Arrangement
Agreement.
Acreage and Canopy Growth entered into the New Agreement to
better align the terms of the Plan of Arrangement with broader
market and economic factors, provide Acreage shareholders with an
initial up-front payment 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.
KEY TRANSACTION HIGHLIGHTS & BENEFITS:
- Provides Up-Front Cash Payment. Canopy Growth will pay
Acreage shareholders and certain convertible security holders an
aggregate of US$37,500,000
(approximately US$0.30 per Existing
Share (defined below) 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).
- Attractive Valuation Premium. Acreage shareholders' new
Fixed Shares (defined below), each of which represents 70% of an
Existing Share, will be entitled to receive 0.3048 of a Canopy
Growth Share (defined below) for each Fixed Share held,
representing a premium of approximately 120% to the June 24, 2020 closing price of the Existing
Shares (defined below) on the Canadian Securities Exchange (the
"CSE").
- Provides Potential Upside with Floating Shares. 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 (defined below) 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 US$6.41
per Floating Share.
- Alignment with Economic and Financial Market Conditions.
Considering the challenging economic environment and increasingly
tighter and volatile financial market conditions, particularly for
cannabis companies, Acreage determined that the New Arrangement
represents the best available prospect that is compliant with the
terms of the Arrangement Agreement to maximize potential value for
Acreage shareholders.
"The United States is going to
be a core market for Canopy Growth and this New Agreement
solidifies our path forward with Acreage," said David Klein, Chief Executive Officer of Canopy
Growth. "I am excited to bring our relationship with Acreage back
to centre stage in our U.S. strategy and look forward to a time
when the laws in the United States
permit us to finalize this transaction as we march toward bringing
our exciting beverage products to the US."
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Table 1. Implied
Value of Acreage Stock Upon Trigger Event
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1. Fixed Share =
CGC Share Price X Exchange Ratio
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CGC Share
Price
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$
16.71
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* Closing Price, June
24, 2020
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Exchange
Ratio
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0.3048
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----------
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Value of Fixed
Share
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$
5.09
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2. Value of
Floating Share = Higher of Market Price or $6.41 Per
Share
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Assume Minimum
Floating Value 1
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$
6.41
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3. Value to
Current ACRG Shareholders = 0.7X Value of Fixed Share + 0.3X Value
of Floating Share
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ACRG Share
Class
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# of
Share
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Price
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Value
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Current Shares
(SVS)
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1
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$
2.32
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$
2.32
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Fixed Share (0.3048
Exchange Ratio)
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0.7
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$
5.09
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$
3.57
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Floating Share
(Assume $6.41)
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0.3
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$
6.41
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$
1.92
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Value Per Current
ACRG Share
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$
5.49
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Current ACRG Share
price
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$
2.32
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% Upside from
Current ACRG Price
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137%
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1 $6.41
Minimum Floating Share price applies only if CGC chooses to
exercise the call provision terms as written in the amended
agreement
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TERMS OF THE NEW ARRANGEMENT
Under the terms of the New Agreement, subject to obtaining the
requisite approvals as outlined below, the Plan of Arrangement will
be amended (the "New Arrangement") in order to provide for the
following:
- an up-front cash-payment to Acreage shareholders and certain
convertible security holders in the aggregate amount of
US$37,500,000 (approximately
US$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);
- the 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);
- the new subordinate voting shares (the "Fixed Shares") will
have the same attributes as the Existing Shares and will continue
to be listed on the CSE. The Fixed Shares will be subject to the
terms of the existing call option in favour of Canopy Growth at an
amended exchange ratio equal to 0.3048 (reduced from 0.5818 per
existing full Subordinate Voting Share in the Arrangement
Agreement) of a common share of Canopy Growth (each whole common
share, a "Canopy Growth Share") to be received for each Fixed Share
held, representing a premium, if Canopy Growth acquired the Fixed
Shares as at the date hereof, of approximately 120% to the closing
price of the Existing Shares on June 24,
2020;
- the new floating shares (the "Floating Shares"), which Acreage
will apply to have listed on the CSE, will be subject to the terms
of a new call right in favour of Canopy Growth, exercisable
following the occurrence or waiver of the Triggering Event at a
price equal to the 30-day volume weighted average trading price of
the Floating Shares on the CSE, subject to a minimum call price of
US$6.41 per Floating Share, payable
in either cash or Canopy Growth Shares at Canopy Growth's option.
If Canopy Growth does not exercise its option to acquire the
Floating Shares before it expires, the minimum price will no longer
be valid and the Floating Shares will continue to trade on the
CSE;
- an aggregate share pool of up to 32,700,000 Fixed Shares and
Floating Shares that allows for continued capital raises as well as
share-based incentive compensation.
Following the occurrence of the Triggering Event and subject to
the satisfaction or waiver of the conditions set out in the
Arrangement Agreement (as modified by the New Agreement and
including the revised covenants contained therein with respect to
the business of Acreage), Canopy Growth will acquire all of the
issued and outstanding Fixed Shares of Acreage to form a
pre-eminent global cannabis company, which is expected to create
long-term value for shareholders. At such time, Canopy Growth will
also have the right, but not the obligation, to acquire all of the
issued and outstanding Floating Shares. If the Triggering
Event does not occur within 10 years from the date the New
Arrangement is implemented, Canopy Growth's rights to acquire both
the Fixed Shares and Floating Shares will terminate.
LEADERSHIP TRANSITION
In connection with the implementation of the New Arrangement,
Kevin Murphy has announced today
that he is resigning as Chief Executive Officer of Acreage and a
search for his successor will commence immediately.
Mr. Murphy will continue to act as Chairman of the board of
directors of Acreage (the "Acreage Board") and contribute to the
strategic direction of the company. 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.
CORPORATE UPDATES
As the cannabis sector in the United
States continues to develop, Acreage will continue to focus
its operations on its core profitable markets. In pursuit of growth
opportunities in these markets, following the date of the New
Agreement, Acreage will be permitted to issue up to
32,700,000 Shares, comprised of up to
12,400,000 Floating Shares (including 3,700,000 Floating
Shares for share-based incentive compensation) and up to 20,300,000
Fixed Shares.
THE LOAN
In connection with the New Agreement, Canopy Growth has agreed
to loan a wholly owned subsidiary of Acreage ("Acreage Hempco"), up
to US$100 million pursuant to a
secured debenture (the "Debenture"). Canopy Growth will loan
Acreage Hempco an initial US$50
million on and subject to completion of the New
Arrangement. The remaining US$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 Debenture will mature 10 years from the
date the New Arrangement is implemented or such earlier date in
accordance with the terms of the Debenture and all interest
payments made pursuant to the Debenture are payable in cash by
Acreage Hempco. The Debenture is not convertible and is not
guaranteed by Acreage. The net proceeds are expected to be used by
Acreage Hempco for general corporate purposes and the funding of
its U.S. hemp division. The funds cannot be used, directly or
indirectly, in connection with or for any cannabis or
cannabis-related operations in the United
States, unless and until such operations comply with all
applicable laws of the United
States.
REQUIRED APPROVALS
The New Arrangement will require approval by holders of at least
66⅔% of the Existing Shares present in person or represented by
proxy, voting together as a single class at a special meeting
expected to take place in August 2020
(the "Meeting"). Additionally, pursuant to: (i) Multilateral
Instrument 61-101 – Protection of Minority Security Holders in
Special Transactions, the New Agreement requires approval by a
majority of disinterested holders of the Existing Shares present in
person or represented by proxy at the Meeting; and (ii) OSC Rule
56-501 – Restricted Shares ("56-501"), "minority approval"
(as such term is defined therein) is required for the creation and
distribution of the Fixed Shares and Floating Shares, which will be
considered "restricted securities" within the meaning of 56-501.
Certain directors and officers of Acreage holding approximately
84.6% of the voting rights attached to the Existing Shares have
entered into voting support agreements pursuant to which they have
agreed, among other things, to vote in favor of the resolution to
approve the New Arrangement. In addition to shareholder approval,
the New Arrangement is subject to applicable approvals by the
Supreme Court of British Columbia
and the CSE and certain other regulatory and closing
conditions. Listing of the Fixed Shares and Floating Shares
will be subject to satisfaction of the CSE's listing
requirements.
ACREAGE BOARD RECOMMENDATION
The Acreage Board, on the unanimous recommendation of a special
committee of independent directors of Acreage (the "Acreage Special
Committee"), has unanimously approved the New Agreement and
recommends that Acreage shareholders vote in favour of the
resolution to approve the New Arrangement.
In connection with making its recommendation to the Acreage
Board, the Acreage Special Committee received a fairness opinion
from Eight Capital that, as of the date of the opinion, and subject
to the assumptions, limitations, and qualifications on which such
opinion is based, the consideration to be received by Acreage
shareholders pursuant to the New Arrangement is fair, from a
financial point of view, to the Acreage shareholders.
ADVISORS
Cassels Brock & Blackwell LLP
and Paul Hastings LLP acted as legal counsel to Canopy Growth.
Ernst & Young LLP (EY) acted as tax advisors to Canopy Growth.
DLA Piper (Canada) LLP and Cozen
O'Connor acted as legal counsel to Acreage. Foros acted as
financial advisor to the Acreage Board and Eight Capital acted as
financial advisor to the Acreage Special Committee. Wildeboer
Dellelce LLP acted as legal counsel to the Acreage Special
Committee.
Additional details will be provided to Acreage shareholders in
the proxy statement to be mailed to Acreage shareholders in
connection with the Meeting.
Here's to Future Growth.
About Canopy Growth Corporation
Canopy Growth
(TSX:WEED, NYSE:CGC) is a world-leading diversified cannabis, hemp
and cannabis device company, offering distinct brands and curated
cannabis varieties in dried, oil and Softgel capsule forms, as well
as medical devices through Canopy Growth's subsidiary, Storz &
Bickel GMbH & Co. KG. From product and process innovation to
market execution, Canopy Growth is driven by a passion for
leadership and a commitment to building a world-class cannabis
company one product, site and country at a time.
Canopy Growth's medical division, Spectrum Therapeutics, is
proudly dedicated to educating healthcare practitioners, conducting
robust clinical research, and furthering the public's understanding
of cannabis, and has devoted millions of dollars toward
cutting-edge, commercializable research and IP development.
Spectrum Therapeutics sells a range of full-spectrum products using
its colour-coded classification Spectrum system as well as single
cannabinoid Dronabinol under the brand Bionorica Ethics.
Canopy Growth operates retail stores across Canada under its award-winning Tweed and Tokyo
Smoke banners. Tweed is a globally recognized cannabis brand which
has built a large and loyal following by focusing on quality
products and meaningful customer relationships.
From our historic public listing on the Toronto Stock Exchange
and New York Stock Exchange to our continued international
expansion, pride in advancing shareholder value through leadership
is engrained in all we do at Canopy Growth. Canopy Growth has
established partnerships with leading sector names including
cannabis icons Snoop Dogg and Seth
Rogen, breeding legends DNA Genetics and Green House Seeds,
and Fortune 500 alcohol leader Constellation Brands, to name but a
few. For more information visit www.canopygrowth.com.
About Acreage Holdings, Inc.
Headquartered in
New York City, Acreage is a
vertically integrated, multi-state operator of cannabis licenses
and assets in the U.S.. Acreage is dedicated to building and
scaling operations to create a seamless, consumer-focused branded
cannabis experience. Acreage debuted its national retail store
brand, The Botanist in 2018 and its award-winning consumer brands,
The Botanist and Live Resin Project in 2019.
Pursuant to the current Plan of Arrangement, the Acreage
articles were amended to provide Canopy Growth with an option to
acquire all of the Existing Shares, with a requirement to do so,
upon the occurrence or waiver of the Triggering Event, subject to
the satisfaction or waiver of the conditions set out in the
Arrangement Agreement. Acreage continues to operate as a
stand-alone entity and conducts its business independently, subject
to compliance with certain covenants contained in the Arrangement
Agreement. Pursuant to the current Plan of Arrangement, upon the
occurrence or waiver of the Triggering Event, Canopy Growth will,
subject to the satisfaction or waiver of certain conditions to
closing set out in the Arrangement Agreement, acquire (the
"Acquisition") each of the Existing Shares (following the automatic
conversion of the Class B proportionate voting shares and Class C
multiple voting shares of Acreage into Existing Shares) in exchange
for the payment of 0.5818 of a Canopy Growth Share per Existing
Share (subject to adjustment in accordance with the terms of the
Arrangement Agreement), until such time as amended in accordance
with the New Arrangement. For more information about the current
Plan of Arrangement and the Acquisition please see the respective
information circulars of each of Acreage and Canopy Growth dated
May 17, 2019, which are available on
Canopy Growth's and Acreage's respective profiles on SEDAR at
www.sedar.com.
Notice Regarding Forward Looking Statements
This news
release contains "forward-looking statements" within the meaning of
the United States Private Securities Litigation Reform Act of 1995
and "forward-looking information" within the meaning of applicable
Canadian securities legislation. Often, but not always,
forward-looking statements and information can be identified by the
use of words such as "plans", "expects" or "does not expect", "is
expected", "estimates", "intends", "anticipates" or "does not
anticipate", or "believes", or variations of such words and phrases
or state that certain actions, events or results "may", "could",
"would", "might" or "will" be taken, occur or be achieved.
Forward-looking statements or information involve known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Canopy Growth, Acreage
or their respective subsidiaries to be materially different from
any future results, performance or achievements expressed or
implied by the forward-looking statements or information contained
in this news release. Examples of such statements include
statements with respect to the timing and outcome of the New
Arrangement, the anticipated benefits of the New Arrangement,
amount of the up-front payment payable per Existing Share, the
anticipated timing of the Meeting, the occurrence or waiver of the
Triggering Event, the Acquisition, the satisfaction or waiver of
the closing conditions set out in the Arrangement Agreement, the
satisfaction of the conditions set out in the New Agreement, the
ability of Acreage to complete certain financing transactions,
dispose of certain non-core assets and undertake a sale leaseback
transaction, the expectation that the United States Is going to be
a core market for Canopy Growth, the implied value of the Fixed
Shares and Floating Shares, the formation of a pre-eminent global
cannabis company, Acreage's continued focus on its operations on
its core profitable markets, the anticipated renegotiation of the
credit facility with IP Investment Company, LLC, the creation of
long-term value for Acreage shareholders and the use of proceeds
under the Debenture. Risks, uncertainties and other factors
involved with forward-looking information could cause actual
events, results, performance, prospects and opportunities to differ
materially from those expressed or implied by such forward-looking
information, including the occurrence of changes in U.S. federal
laws regarding the cultivation, distribution or possession of
marijuana; assumptions as to the time required to prepare and mail
Meeting materials to Acreage shareholders; the ability of the
parties to receive, in a timely manner and on satisfactory terms,
the necessary regulatory, court and shareholder approvals; the
ability of the parties to satisfy, in a timely manner, the other
conditions to the completion of the New Agreement; the likelihood
of the Triggering Event being satisfied or waived by the outside
date; the ability of Canopy Growth and Acreage to satisfy, in a
timely manner, the conditions to closing following the satisfaction
or waiver of the Triggering Event; in the event that the New
Agreement is not adopted, the likelihood of completion of the
Acquisition on the current terms; in the event that the New
Agreement is adopted, the likelihood of Canopy Growth completing
the acquisition of the Fixed Shares and/or Floating
Shares; other expectations and assumptions concerning
the transactions contemplated between Canopy Growth and Acreage;
the available funds of Acreage and the anticipated use of such
funds; the availability of financing opportunities for Acreage and
the risks associated with the completion thereof; regulatory and
licensing risks; changes in general economic, business and
political conditions, including changes in the financial and stock
markets; risks related to infectious diseases, including the
impacts of the novel coronavirus; legal and regulatory risks
inherent in the cannabis industry, including the global regulatory
landscape and enforcement related to cannabis, political risks and
risks relating to regulatory change; risks relating to anti-money
laundering laws; compliance with extensive government regulation
and the interpretation of various laws regulations and policies;
risk associated with divesting certain assets; public opinion and
perception of the cannabis industry; and such other risks contained
in the public filings of Canopy Growth filed with Canadian
securities regulators and available on the issuer profile of Canopy
Growth on SEDAR at www.sedar.com, including the Canopy Growth's
annual report on Form 10-K dated June 1,
2020 and in the public filings of Acreage filed with
Canadian securities regulators and available on the issuer profile
of Acreage on SEDAR at www.sedar.com, including Acreage's annual
report on Form 10-K dated May 29,
2020.
In respect of the forward-looking statements and information
concerning the anticipated benefits and completion of the New
Arrangement and the anticipated timing for completion of the New
Arrangement, Canopy Growth and Acreage have provided such
statements and information in reliance on certain assumptions that
they believe are reasonable at this time. Although Canopy Growth
and Acreage believe that the assumptions and factors used in
preparing the forward-looking information or forward-looking
statements in this news release are reasonable, undue reliance
should not be placed on such information and no assurance can be
given that such events will occur in the disclosed time frames or
at all. The forward-looking information and forward-looking
statements included in this news release are made as of the date of
this news release and Canopy Growth and Acreage do not undertake
any obligation to publicly update such forward-looking information
or forward-looking information to reflect new information,
subsequent events or otherwise unless required by applicable
securities laws. There can be no assurance that the Acquisition,
the New Arrangement, the occurrence of the Triggering Event or the
acquisition of the Fixed Shares and/or the Floating Shares will
occur, or that such events will occur on the terms and conditions
contemplated in this news release. The New Agreement could be
modified, restructured or terminated. Actual results could differ
materially from those currently anticipated due to a number of
factors and risks. The New Arrangement cannot close until the
required shareholder, court and regulatory approval is obtained.
Investors are cautioned that, except as disclosed in the management
information circular of Acreage to be prepared in connection with
the New Arrangement, any information released or received with
respect to the New Arrangement may not be accurate or complete and
should not be relied upon.
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SOURCE Canopy Growth Corporation