Canadian weed giant Canopy Growth Corp. (TSX: WEED) is giving up ownership in its venture capital firm Canopy Rivers Inc. (TSX: RIV), in a deal valued at $297 million.
Under the terms of the agreement, Canopy Growth said Monday it will receive exchangeable shares, warrants and debt in TerrAscend Corp. (CSE: TER). The move will increase its direct ownership in the U.S. cannabis operator to 21 per cent from 13 per cent.
Canopy Rivers will also give up its stake in Vert Mirabel, increasing Canopy Growth’s ownership in the Quebec greenhouse venture to 67 per cent from 41 per cent.
In exchange, Canopy Rivers will receive $115 million in cash and 3,750,000 common shares of Canopy Growth.
Canopy Rivers says the deal gives it the freedom to pivot out of the under-performing Canadian market and explore opportunities stateside in “the world’s largest and most attractive cannabis market.”
Shares in Canopy Rivers rose over 29 per cent Monday to $1.19 on the Toronto Stock Exchange.
“Following the closing of the transaction, we intend to shift our focus to pursuing other opportunities in the global cannabis market, where we believe that our new strategic focus and substantial balance sheet will allow us to successfully execute our revamped strategic plan,” Canopy Rivers CEO Narbé Alexandrian said in a statement.
SUPER EXCITED! @CanopyRiversInc announced a transaction that monetizes our investments in three portfolio assets for a total transaction value of ~$297M, representing an aggregate ROIC of ~5.6x and IRR of ~101%. Info: https://t.co/BEooSJusRm$RIV $CNPOF
— Narbe Alexandrian (@narbe87) December 21, 2020
As it shifts focus to the states, the firm said it may de-list from the TSX following completion of the deal, as the exchange doesn’t allow American cannabis operators to list while the plant is federally illegal in the U.S.
Canopy Rivers will also change its name to reflect severing ties with Canopy Growth. All of the weed giant’s members on the board of Canopy Rivers will also resign.
Canopy Rivers was established in 2017 as a strategic investment vehicle for Canopy Growth. The firm has built a portfolio of 18 companies in the weed sector.
The complex cash-and-stock deal comes at a time when Canopy Growth has been aggressively cutting operations in Canada.
Earlier this month, the Ontario-based company said it will shut down five of its Canadian facilities and lay off 220 workers in order to save up to $200 million a year.
Read more: Canopy shutters 5 Canadian facilities, beverage boss walks
Read more: Average deal size cut in half by Covid: Canopy Rivers CEO Q&A
“With our new strategy in place, it is appropriate for us to divest our interest in Canopy Rivers to increase our focus as a company,” Canopy Growth CEO David Klein said in a separate statement.
The deal will help the company develop its Vert Mirabel greenhouse, which Klein added is a “very important component of our Canadian cannabis operations.”
The transaction will also cancel a royalty related to the recently-closed Tweed NB facility. Canopy Growth said the cancellation will save it $2.9 million annually over the remaining two years of the arrangement.
When the deal closes, Canopy Growth will give back its nearly 36.5 million class-B multiple voting shares and 15.2 million class-A subordinate voting shares in Canopy Rivers.
The deal is subject to approval by a two-thirds majority vote by holders of Canopy Rivers.
Canopy Growth stock fell over 1 per cent Monday on the TSX.
Top image via Canopy Growth
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