Canopy Growth and Acreage announced a modification to the terms of their May 2019 deal. Canopy Growth will also loan up to $100M to Acreage. The funds were necessary as Acreage recently announced a short term loan with an interest rate of 60%. Canopy's interest rate is much more palatable at 6.1%.
Acreage shareholders will now get an initial up-front payment of $37.5M ($.30 per share). There will be two new classes of shares with each existing shareholder receiving .7 of a fixed share and .3 of a floating share. Floating shares will give Acreage shareholders the ability to participate in upside potential upon the triggering event, which Canopy Growth may acquire in the future (the minimum price will be $6.41 for floating shares). Floating shares will be listed on the Canadian Stock Exchange and trade separately. Fixed shares will be entitled to receive .3048 of a Canopy Growth share, revised down from .5818 of a Canopy Growth share. Canopy Growth will get an extension of the term to ten years from 90 months. Acreage is also permitted to issue up to 32.7M fixed and floating shares, down from 58M previously.
Acreage's CEO has also resigned but will stay on as Chairman. Director Bill Van Faasen will serve as the interim CEO. With the replacement of the CEOs of both Canopy Growth and Acreage, we see the maturation of the industry from the entrepreneurial flag-planting growth stage to better managers of capital.
It is not lost on us that Canopy itself has relied on the cash investment from Constellation Brands. A week ago at Canopy's investor meeting, management talked around providing Acreage any further support. Canopy's view of its cash needs is more optimistic than our opinion.
This was a dumb deal from the outset and the new terms do not change that thought process.
