Canopy Growth, the Largest Cannabis Licensed Producer in Canada Appears Set to for Another Major Growth Spurt Following the Company’s Suprise Announcement That it Would Be Acquiring Rival LP Supreme Cannabis
Canopy Growth (TSX: WEED) (NYSE: CGC) (FRA: 11L1) announced recently that it would be acquiring Supreme Cannabis (TSX: FIRE) (OTCQX: SPRWF) (FRA: 53S1) for a cool $435 million. It’s a somewhat curious move, as Canopy Growth has been divesting, not acquiring, Canadian assets recently. Reaction from investors has been muted, as the stock price has not seen a large swing in either direction since the deal was announced.
Canopy Growth’s primary motivation for the purchase appears to be the 7ACRES brand. 7ACRES is Supreme’s flagship brand and is one of the leading premium brands throughout Canada. The move will expand Canopy’s house of brands strategy and give the combined companies approximately 6% of Canada’s recreational cannabis market, including 23.3% of the premium flower market in Ontario.
“As we continue to expand our leading brand portfolio, we’re excited to reach more consumers through Supreme’s premium brands and high-quality products, further solidifying Canopy’s market leadership. Supreme’s deep commitment to superior genetics, top-tier cultivation and strict quality control, paired with Canopy’s leading consumer insights, advanced R&D and innovation capabilities, is expected to create a powerful combination that aligns with our strategic focus to generate growth with premium quality products across key categories,” commented Canopy Growth CEO David Klein.
While Canopy Growth is gaining a prominent brand, Supreme shareholders are benefiting from the deal as well. They will benefit from the sheer size and breadth of Canopy Growth’s operations and infrastructure, as well the large cash position afforded by Canopy Growth’s relationship with Constellation Brands. Management expects to realize over $30 million in cost-saving synergies in the two years following the business combination.
Also commenting on the blockbuster merger, Supreme Cannabis President & CEO Beena Goldenberg added:
“This transaction is a testament to the value created by all the teams at Supreme and will be beneficial to all of our stakeholders. We have been successful at delivering great products that achieved strong customer loyalty and operating at levels of efficiency that are industry-leading. We have also built a highly sought-after premium brand in 7ACRES. Combining Supreme Cannabis with Canopy – a Canadian market leader with exposure to the United States – presents a significant value creation opportunity for both companies. We look forward to working with Canopy to complete this transaction.”
The terms of the deal will see Supreme Cannabis shareholders receive 0.01165875 shares of Canopy Growth and $0.0001 in cash for each of their Supreme Cannabis shares. Supreme Cannabis shareholders will hold a vote at a special meeting held in June 2020, with closing expected soon thereafter.