Acreage Holdings Inc., a vertically integrated, multistate operator of cannabis cultivation and retailing facilities in the U.S., announced that, further to its press releases of June 4 and June 5, 2024, Acreage anticipates that Canopy USA LLC will complete its acquisition of Acreage pursuant to the acquisitions (as defined below) in mid-December 2024.
As further described below, as a result of the dilution in respect of the offering (as defined below) completed by the company in June 2024, the company expects that the exchange ratio (as defined below) relating to the fixed shares (as defined below) will be significantly reduced. The exchange ratio reduction will result in fewer common shares (the “Canopy shares”) of Canopy Growth Corp. issuable to each holder of Class E subordinate voting shares of the company (the “fixed shares”). As a result of the material impact of the offering, it is anticipated that the current holders of fixed shares will receive zero value upon the closing of the acquisitions. The company expects that the floating share exchange ratio (as defined below) will remain as provided in the floating share arrangement agreement (as defined below).
Acreage is party to an arrangement agreement with Canopy dated April 18, 2019, as amended (the “fixed share arrangement agreement”), relating to the proposed acquisition (the “fixed share acquisition”) of all issued and outstanding fixed shares pursuant to the plan of arrangement under the Business Corporations Act (British Columbia) (the “fixed share arrangement”). The fixed share acquisition is anticipated to occur immediately after the acquisition of the Class D subordinate voting shares of Acreage (the “floating shares”) pursuant to the plan of arrangement under the Business Corporations Act (British Columbia) (the “floating share arrangement”) in accordance with the arrangement agreement (the “floating share arrangement agreement”) dated Oct. 24, 2022, as amended, among the company, Canopy and Canopy USA (the “floating share acquisition” and together with the fixed share acquisition, the ”acquisitions”).
Upon the closing of the acquisitions, Canopy USA will own 100% of the issued and outstanding shares of Acreage. The acquisitions are expected to close in mid-December 2024, subject to the satisfaction or waiver of closing conditions, including, but not limited to, Acreage, Canopy, and Canopy USA’s receipt of required regulatory approvals.
A letter of transmittal with respect to each of the acquisitions will be mailed to registered shareholders of fixed shares and floating shares. All registered shareholders with physical certificate(s) will be required to send their certificate(s) representing their fixed shares and/or floating shares with a completed letter of transmittal to the Company’s transfer agent, Odyssey Trust Company (“Odyssey”), in accordance with the instructions provided in the applicable letter of transmittal. Additional copies of the letters of transmittal can be obtained through Odyssey.
Shareholders who hold their fixed shares and/or floating shares through a broker or other intermediary and do not have Acreage shares registered in their name will not need to complete the applicable letter(s) of transmittal. Such shareholders should contact their broker or other intermediary to arrange for the deposit of their DRS statement(s) or certificate(s) representing their Acreage shares.
As previously disclosed, on June 6, 2024, Acreage completed its brokered private placement (the “offering”) of 12,000 units (the “units”) of the company at a price of US$833.33 per Unit, with each unit consisting of: (i) US$1,000 principal amount of non-recourse unsecured convertible notes (the “notes”), reflecting a 16.67% original issue discount, convertible into fixed shares; and (ii) fixed share purchase warrants (the “warrants”) of the company. The “conversion price” of the notes is the price per fixed share determined by multiplying (i) the “exchange ratio” (as such term is defined in fixed share arrangement agreement) as the same shall be adjusted in accordance with the terms of the fixed share arrangement agreement by, (ii) the fair market value (as such term is defined in the fixed share arrangement agreement) of the Canopy shares on the business day prior to the closing of the fixed share acquisition after giving effect to the conversion of the notes and the determination of the number of warrants issued under the offering. The conversion price will be determined immediately preceding the closing of the fixed share acquisition.
As noted in the company’s press release dated June 5, 2024, the completion of the offering resulted in significant dilution of the fixed shares, particularly given that the conversion price of the notes is based on the exchange ratio, which will be adjusted pursuant to the fixed share arrangement agreement for issuances in excess of the purchaser approved share threshold (as such term is defined in the fixed share arrangement agreement). The offering is expected to result in the issuance of fixed shares under the notes, and warrants exercisable to acquire fixed shares, at the time of closing the fixed share arrangement, well in excess of the purchaser approved share threshold, with the effect that the exchange ratio will be significantly reduced.
Based on the prevailing trading price of the Canopy shares, the exchange ratio reduction is expected to have a material and adverse effect on the number of Canopy shares that holders of fixed shares are expected to receive pursuant to the fixed share arrangement and on the value of the fixed shares. The following table below sets forth the potential exchange ratio based on a range of canopy share prices:
All registered holders of fixed shares who submit a duly completed letter of transmittal along with their share certificate(s) to Odyssey will be entitled to receive a fraction of a Canopy share in exchange for each fixed share held by such holder of fixed shares based on the exchange ratio then in place. As of close of business on Nov. 22, 2024, the Canopy share price on the Nasdaq was US$3.90. Accordingly, if the Canopy share price does not go above US$5.00, holders of fixed shares will not receive any Canopy shares in exchange for their fixed shares.
All holders of floating shares who submit a duly completed letter of transmittal along with their share certificate(s) to Odyssey will receive 0.045 of a Canopy share in exchange for each floating share held by such holder of floating shares (the “floating share exchange ratio”).
Where the aggregate number of Canopy shares to be issued to a holder of fixed shares or floating shares would result in a fraction of a Canopy share being issuable, the number of Canopy shares to be received by such holder of fixed shares or floating shares shall be rounded down to the nearest whole Canopy share and no compensation shall be issued in lieu of the issuance of a fractional Canopy share.
H/T: www.cannabisbusinesstimes.com
