Grow, Gift, Repair

When big Canna starts buying each other out

Pot companies say they’re not interested in replicating Canopy Growth Corp.’s deal for Acreage Holdings Inc., arguing that a structure that depends on US legalization creates risks for both sides.

Canopy said last month that it will buy Acreage for $3.4 billion in a deal conditional on the United States legalizing marijuana at the federal level in the next 90 months. The value of the cash-and-stock offer has fluctuated since then and is currently worth about $29 a share. That’s about $10 above Acreage’s current stock price, indicating investors aren’t convinced the deal will get done.

The structure doesn’t appeal because it limits the target’s potential stock gains, said Hadley Ford, chief executive officer of New York-based cannabis firm iAnthus Capital Holdings Inc.

“There’s no new capital associated with that and I think it puts a limit on what your upside might be,” Ford said in an interview at a Canaccord Genuity Group Inc. pot conference in New York.

If iAnthus were to agree to a deal, it would be looking for something that enhances its retail presence, adds interesting brands or drives down its cost of capital, like its recent acquisition of MPX Bioceutical.

A Canopy-like deal “doesn’t seem to check any of those boxes,” he said.

Canadian company Aphria Inc. would have similar reservations about modeling a cross-border deal on the Canopy-Acreage structure, said CEO Irwin Simon.

The problem with a deal that’s contingent on US legalization is the buyer has no input into how the target is run in the interim and has no control over how the regulations develop, Simon said.

“Do I want to commit major resources to that today? I’d rather go buy lottery tickets,” he said.

The US market is too big for Canadian cannabis companies to ignore, said Dan Daviau, CEO of Canaccord, which advised on the Canopy-Acreage deal.

“Canadian companies are concerned about whether, when the wall comes down, will there be anything left or will the US guys already be too firmly established,” Daviau said.

Many of the biggest US pot firms are already beyond the reach of Canada’s licensed producers, said Daviau, pointing to Wakefield-based Curaleaf Holding Inc.’s $4.9 billion market value.

“That would be a chunky acquisition for most of the Canadians,” he said. “The US companies are evolving to a state where they’re not going to be bought by a Canadian company.”