- Canopy Growth CEO Bruce Linton said the chance of the landmark Acreage Holdings deal not going through is "like 0%" at an exclusive breakfast at Anthony Scaramucci's SALT Conference in Las Vegas.
- Linton was responding to a letter that activist hedge fund Marcato Capital Management wrote announcing its opposition to the deal on Monday, and urging shareholders to vote it down in June.
Canopy Growth's CEO Bruce Linton is confident in the landmark deal that will see the Canadian cannabis producer purchase Acreage Holdings, pending a shareholder vote in June and regulatory approval.
The deal, which Canopy announced in April, would be the largest cross-border marijuana M&A transaction to date. On Monday, activist hedge fund Marcato Capital Management wrote a letter to Acreage shareholders announcing their opposition to the deal – calling it "lopsided" in Canopy's favor — and urged other shareholders to vote it down in June. Marcato owns 2.7% of Acreage's shares.
"Well, we haven't met with them yet," Linton said, of Marcato, during an exclusive breakfast held overlooking the Bellagio fountain at Anthony Scaramucci's SALT Conference in Las Vegas on Thursday morning. "So I think their business model might be more to agitate, but I'm not sure they actually fully see the deal yet either."
Linton said that he's heard from a number of Canopy and Acreage shareholders who are "100% in."
"I think anybody who understands the fact that we can lend to this company upon the closing of the vote, and the ability to be really strong and potentially dominant in a very aggressive, hostile operating environment," said Linton. "Like, you're not certain if you're an MSO [multi-state operator] today or a single-state operator, you don't know in two years 'am I big or dead.'"
To Linton, the deal is accretive to Acreage shareholders because it brings the cost of capital "way down," as Canopy Growth is able to list on the New York Stock Exchange and tap deeper-pocketed investors in the US, which in turn should boost Acreage shares over time. The deal also allows Acreage to leverage Canopy's expertise in growing quality marijuana, and with branded products — along with Canopy's export licenses into valuable international markets.
"It's a complicated deal to get a simple goal," said Linton. Under the terms of the deal, Acreage shareholders will receive a $300 million payment if the vote goes through. The deal will then close if, or when, the US federal government federally legalizes marijuana, or Congress passes a bill that would protect states that legalize marijuana and allow federally-chartered banks to work with the industry. The deal will be terminated in seven-and-a-half years if a federally legal pathway doesn't emerge.
Linton told Business Insider the chances of the deal being terminated are "like 0%."
The deal's complex structure is because of the shifting regulations around marijuana in the US. While marijuana is legal for adults in some form in 33 states, it remains federally illegal, though some marijuana companies that refrain from selling THC-containing products in the US are able to list on US stock exchanges.
A spokesperson for Canopy Growth clarified that the deal price is based on a fixed exchange ratio, which means that Canopy will actually end paying much more than the previously reported $3.4 billion figure. That number will increase as Canopy's share price increases over time.
Apart from the Acreage deal, Linton said he's planning to spend Canopy's money on "applied medical research."
The chance to disrupt the pharmaceutical industry with cannabis-based drugs could turn pharma companies into investors and be the "yin to Constellation's yang," said Linton. Constellation Brands invested $4 billion in a minority stake of Canopy Growth last year.
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