Ontario’s Canopy Growth Acquires Three US Companies. Is that Legal?

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Ontario’s anthem proudly calls the province “A place to stand, A place to grow.” One local business, however, isn’t standing still as it looks to grow cannabis across the border.

Canopy Growth, one of Canada’s largest pot companies, is accelerating its US entry via three key acquisitions, Bloomberg reported Tuesday. The details, however, fittingly remain a little hazy.

Greener Pastures

While legalization has been on the tongues of senators and representatives for years, the US is hesitant to allow broad recreational use, instead leaving the issue up to the states while rolling back punishments and convictions. Earlier this month, President Biden pardoned thousands of people with federal charges for simple possession and called for a review of how weed is classified – a schedule 1 narcotic, comparable to LSD and heroin from a legal standpoint. And even though 19 states and D.C. currently allow recreational weed, foreign companies cannot grow and sell bud in the US.

Canada legalized cannabis on a national level in 2018, and the industry has created and sustained 151,000 jobs and contributed $43.5 billion to Canada’s GDP, Deloitte reported. Canopy – which generated net revenue of $520 million in FY 2022 – has been holding its breath until the day it could finally break into the US, a market that is expected to be valued at $40 billion by 2030. Tired of waiting, Canopy is trying a new method to reach American consumers:

  • Canopy created a US holding company to acquire three American cannabis producers – Acreage Holdings, Wana Brands, and Jetty Extracts – for $843 million, $297.5 million, and $69 million, respectively.
  • To adhere to federal guidelines, Canopy USA will have its own management, and the exchangeable shares create a protective layer between US operations and Canopy’s core Canadian business. Additionally, beverage giant Constellation Brands, which owns a 37.5% stake in Canopy, said it will convert its existing common shares into new exchangeable shares, protecting shareholder value while retaining its interest in Canopy through non-voting and non-participating shares.

“We get to more aggressively take control of our destiny in the US,” Canopy CEO David Klein told Bloomberg. “And get these businesses performing better than they are today,”

Coming down: All that grows is not gold, though. Weed stocks have taken a hit in the past 12 months. Stocks in the EQM Global Cannabis Index valued at $37 a share last year, are now worth less than half of that at just $13. And year to date, shares in Canopy are down 70%. Their stocks are not nearly as high as their customers.