Canopy Growth Corp. is not outright acquiring Acreage Holdings Inc., as reports said Wednesday, but it is preparing to pay billions for the rights to buy the U.S.-based pot company.
A source familiar with the negotiations confirmed Wednesday afternoon that a Canopy Growth CGC, +2.81% WEED, +2.81% deal with Acreage ACRGF, +9.14% was “98% done,” though the final price was still being worked out. Acreage had a market cap of $2.45 billion as of Wednesday’s close, but the deal will be worth “several billions” in Canadian dollars, the source said.
If Canopy Growth were to outright acquire Acreage, though, it would run afoul of rules for the Toronto Stock Exchange, where its shares are listed. The TSX does not allow companies to own stakes in businesses that run illegal operations, which Acreage technically does because marijuana is still federally illegal in the U.S. Canopy would also have to give up its U.S. listing, which was cross-listed from the TSX, and instead look to the Canadian Securities Exchange and over-the-counter trading in the U.S., as publicly-listed U.S. companies do.
Instead, Canopy Growth will purchase the rights to buy Acreage when (or if) marijuana becomes federally legal in the U.S. at an agreed-upon price, according to the source. Many cannabis companies in Canada have purchased warrants in companies with U.S. operations, and Canopy already has some, including in Slang Worldwide Inc. SLGWF, +1.76% and others owned by its Canopy Rivers Inc. RIV, +10.05% investment subsidiary, which is listed on the TSX Venture exchange.
Canopy’s U.S.-listed shares jumped more than 10% in after-hours trading after initial reports of the deal were published Wednesday afternoon, though those gains later quieted down a bit to about 8%. The stock closed 2.8% higher Wednesday, as the ETFMG Alternative Harvest ETF MJ, -0.15% lost 0.2% and the Horizons Marijuana Life Sciences Index ETFHMMJ, +1.03% gained 1%.