Canopy Growth CGC announced Tuesday that it is consolidating its U.S. assets into a new holding company to speed up its entry into the U.S. market in which it will hold non-voting/non-participating shares, solving several persistent issues.
The company said the creation of Canopy USA will help it reduce costs and tap into the U.S. market, which is projected to be more than $50 billion by 2026.
“As the growth of the U.S. cannabis market continues rapidly at the state level, this strategy enables us to take control of our own destiny and capitalize on the once-in-a-generation opportunity in the largest cannabis market in the world,” said David Klein, CEO of Canopy Growth.
The move will enable Canopy to trigger ownership of its US assets and consolidate those earnings into Canopy numbers, says Jeffries analyst Owen Bennett. "From a Canopy share price perspective, this move is positive. More broadly, this could also have positive implications for MSOs and paths to uplisting, potentially adopting similar structures."
The US assets Canopy will take ownership of include Jetty Extracts, Wana Brands and Acreage Holdings ACRDF. For Acreage, although initial ownership on exercising its rights is 70%, Canopy also announced it be acquiring the remaining 30%. “Note that the conditional 13.7% ownership in TerrAscend TRSSF will not be triggered at this time, although the company says it continues to evaluate all options around this,” said Bennet.
Constellations brand STZ, which acquired a stake in Canopy Growth in 2017 for $190 million, said it will convert its existing common shares in Canopy into new exchangeable shares, which it said will protect shareholder value while retaining its interest in Canopy through non-voting and non-participating shares.
“We believe that the conversion of our ownership interest will maintain Constellation’s ability to realize the potential upside of our investment in Canopy,” said Constellation’s CEO and president Bill Newlands, per CNBC.
A Big Positive For Canopy And The Industry
If one views U.S. cannabis reform, such as it is, in the near term and assumes it would allow for the uplisting of U.S. MSOs, doesn't today's announcement show there could be another way?
Could MSOs put their U.S. assets into a holding company under a parent company, also with ownership via non-voting shares? It appears, says Bennet, “that Canopy has cleared this structure with the necessary regulators/exchanges, so we see no reason why MSOs would not be allowed to do similar. Any additional capital raised by the US MSO parent from greater access to institutions, as a result, could then be loaned to the US holding company as debt — we know lending ok from the perspective of the exchanges," said Bennet, reported the StreetInsider.com. "Beyond MSOs, there could also now be an incentive for other Canadian LPs to do similar moves, potentially paving the way for more deals for US assets from these LPs.
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