Canopy Growth, a massive Canadian cannabis grower, has announced a $3.4 billion deal in which they will acquire Acreage Holdings. The deal will go through only after the U.S. has legalized cannabis on a federal level.
The deal was finalized this past Thursday in New York. Until the U.S. has legalized cannabis on a national level, both companies will continue independent operations. It also gives Acreage Holdings access to the Canopy Growths brands.
“Today we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists,” Canopy co-CEO of Canopy Growth, Bruce Linton, stated in a press release. “By combining Acreage’s management team, licenses and assets with Canopy Growth’s intellectual property and brands, there will be tremendous value creation for both companies’ shareholders.”
Directly after the announcement, Canopy Growth’s stocks jumped by a full 8%; the equity has risen 70% since this January.
As for Acreage Holdings, they are one of the largest cannabis operators in the entire U.S., with operations in over 20 states. It is so influential that it has former Speaker of the House, and board director, John Boehner representing its presence on Wall Street.
Canopy Growth itself is worth approximately $14 billion to date. It is one of the largest outfits in the entire North American cannabis industry. Just this year the company has announced partnerships with Corona, Martha Stewart, and Seth Rogen as well as plans to locate a major hemp operation in New York.
However, regardless of the deal being finalized, several crucial questions remain. The most significant being the length of time remaining before the U.S. lifts the federal prohibition on cannabis. Other questions center around the banking issue in the U.S. as well as problems posed by the FDA prohibiting companies from adding cannabis-related ingredients to food and drinks at a national level.
These issues could put the company at odds with investors and the stock exchanges due to the strict policies about illicit business practices.
“Until now, the Nasdaq has not been willing to list companies that have U.S. ‘plant touching’ cannabis operations,” stated David Feldman, a partner at Duane Morris, and cannabis attorney. “What’s interesting is that they didn’t tie this to Nasdaq, they tied it to legalization.”
“It is interesting that they are limiting it to legalization, rather than completing the acquisition when TSX and Nasdaq are prepared to allow the listing,” Feldman added.
Despite the many questions about when the U.S. will lift the prohibition on pot, not all is negative. Just last year the country removed hemp from its list of federally controlled substances, opening markets for CBD and lite canna-oil-based products.
That said, big problems with those who want to buy, sell, and bank within the cannabis industry are still having to deal with problematic legal issues hindering them from doing business with banks and financial institutions in the U.S.
Kevin Murphy, CEO of Acreage Holdings, believes the STATES Act could allow more diverse banking options for U.S. cannabis industry. The piece of legislation was proposed by Senators Elizabeth Warren and Cory Gardner and would allow companies access to bank accounts as well as becoming listed on U.S. stock markets.
“We believe that the timing of this deal was likely motivated by the re-introduction of the STATES Act, which both [Canopy] and [Constellation] had noted would be sufficient for Canopy to enter the U.S. market,” a Cowen analyst, Vivien Azer, wrote on Thursday. “Acreage has the broadest geographic footprint among the major U.S. multi-state operators. The company is also among the best connected politically, with the Board of Directors including former Speaker of the House John Boehner.”
“These relationships will likely prove helpful in pushing for a change in U.S. laws surrounding cannabis, and in particular marijuana, which remains a Schedule I controlled substance,” added Azer.