Canopy Growth speeding entry into US cannabis market, but full approval might stretch into 2024

Did you miss the webinar “Women Leaders in Cannabis: Shattering the Grass Ceiling?” Head to MJBiz YouTube to watch it now!

Image of Canadian indoor-grown cannabis

Canopy Growth Corp. is accelerating its entry into the United States through a plan that will trigger full ownership of its American cannabis investments under the umbrella of a new U.S.-domiciled holding company, Canopy USA, in advance of any potential federal reform.

But the deal – which the Canadian producer said would make the company profitable – could take time to pull off, with at least one key acquisition not expected to be completed until potentially early calendar 2024.

The Smiths Falls, Ontario-based company announced Tuesday the creation of Canopy USA, which will purchase the American cannabis businesses – multistate operator Acreage Holdings, extractor Jetty Extracts and edibles maker Wana Brands – that Canopy had agreed to buy once recreational marijuana was legal under U.S. law.

Canopy has decided not to wait for U.S. federal legalization, though Tuesday’s announcement comes after President Joe Biden’s recent move to review marijuana’s Schedule 1 status.

“This footprint is expected to enable Canopy USA to accelerate market expansion as key states across the country continue to allow adult-use cannabis,” CEO David Kline said on a conference call with analysts.

Upon various approvals, Canopy would possess nonvoting, exchangeable shares in Canopy USA, which would eventually be convertible into common shares.

Canopy said it will have no economic or voting interest in Canopy USA, which will operate independently from the Canadian business.

Canopy USA would be run by a board of managers consisting of:

  • Canopy Growth CEO Klein.
  • At least one more unidentified Canopy appointee.
  • An unidentified third-party investor in Canopy USA.
  • Wana CEO and founder Nancy Whiteman.

Canopy said it will be profitable on a consolidated basis once Canopy USA closes on the acquisitions of New York-based Acreage, California-headquartered Jetty and Colorado-based Wana.

However, that could take up to 1½ years as investor and regulatory approvals are sought.

The Jetty and Wana acquisitions are expected to be completed in the first half of calendar 2023.

But the Acreage acquisition – a key part of the deal – isn’t expected to completely close until late calendar 2023 or early 2024, a Canopy spokesperson told MJBizDaily.

Obtaining approval by holders of Acreage shares and required regulatory approvals in the various states in which Acreage operates could happen “before the end of calendar 2023 or early 2024,” the spokesperson said.

That means revenue from those three businesses might not be fully reflected in Canopy’s consolidated financial statements until, potentially, the end of fiscal 2024 or into 2025.

“Under the new structure, Canopy USA’s financial performance will be consolidated into Canopy’s financial statement. As a result, it’s expected that nearly half of Canopy’s consolidated revenue will come from the US THC market,” Klein said on the conference call.

“I think it gives us a bit of a head start on any sort of regulatory reform that would come through, because if we wait for any reform and then we take these steps, we would still require licensing transfers and regulatory approvals and so forth, so we think the timing is right.”

In an email to MJBizDaily, the Canopy spokesperson said the company will move on closing the acquisitions of Acreage, Jetty and Wana “regardless of federal activity in (Washington) DC.”

Exchangeable shares

The plan to consolidate all of Canopy’s American cannabis assets into a single entity – Canopy USA – requires the creation of a new class of nonvoting, exchangeable shares in the capital of Canopy, the company’s executives explained in the conference call.

The exchangeable share structure will enable Canopy USA to trigger full ownership of Acreage, Jetty and Wana.

Canopy USA, not Canopy Growth, will own the three assets.

Under the plan, Canopy Growth would hold nonvoting, exchangeable shares in Canopy USA, creating “a ringed-fence structure” between it and Canopy USA, the company said.

Shareholders will be asked to approve the new share class at an upcoming shareholder meeting set for January 2023.

“The creation of these exchangeable shares will (allow) shareholders to self-assess their level of comfort with Canopy’s exposure to the U.S. market,” Klein told analysts.

Alcoholic beverage giant Constellation Brands – which is Canopy’s largest shareholder – has already signaled its intention to change its common shares for exchangeable ones.

“Constellation Brands intends to transition existing common shares ownership interest in Canopy Growth into new exchangeable shares, protecting Constellation shareholder value while retaining an interest in Canopy Growth through non-voting and non-participating shares,” Constellation said in a news release.

Canopy said the structure would ensure Constellation a maker and marketer of beer, wine and spirits – remains the largest shareholder over the long term.

Canopy has said that if Constellation elects to convert its Canopy shares into exchangeable shares and Canopy’s exchangeable shares plan is approved by shareholders in January, then:

  • Constellation will surrender for cancellation its 139,745,453 warrants to purchase Canopy common shares, for no consideration.
  • Constellation will no longer have the right to nominate board members of Canopy, “will no longer have any approval rights over certain transactions proposed to be undertaken by the Company, and restrictive covenants previously agreed between the parties will terminate; and all of Constellation’s nominees that are currently serving on the board are expected to resign and new directors will be appointed to fill the vacancies caused by their resignations.”

Bloomberg reported that Constellation might convert its exchangeable shares in Canopy back to common stock at any time.

Asset light strategy 

Canopy USA plans to employ an asset light strategy.

“Canopy USA is expected to have a balance of owned and outsourced production capacity to match market dynamics and will seek to leverage a network of third-party producers to scale appropriately,” CEO Kline told analysts.

Canopy has racked up billions of dollars in losses in Canada after massively overbuilding its cultivation footprint across the country.

“You don’t have to own the entire grow footprint,” Klein said, adding that Canopy will “look to take advantage of that.”

“We see significant expansion in popularity of these brands (from Acreage, Jetty and Wana) among consumers in mature markets, as well as to replicate on an asset light model to introduce Canopy USA’s brands to consumers in new markets,” the CEO said.

Canopy shares trade as WEED on the Toronto Stock Exchange and CGC on the Nasdaq.

Matt Lamers can be reached at