Canopy to buy Supreme for CA$435 million as cannabis M&A heats up

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Canopy Growth announced plans to acquire competing Canadian marijuana producer The Supreme Cannabis Co. in a stock-and-cash deal valued at roughly 435 million Canadian dollars ($345 million).

The pending acquisition continues a recent consolidation trend in the Canadian cannabis industry, amid an oversupply situation that has put pressure on many producers.

Competitors Aphria and Tilray announced plans in December to merge, and Hexo Corp. struck a deal to acquire Zenabis Global in February.

Under terms of the acquisition, Supreme shareholders will receive 0.01165872 Canopy shares and CA$0.0001 in exchange for each Supreme share held, a premium of about 66% based on Supreme and Canopy’s closing share prices Wednesday.

In a Thursday morning news release, Canopy said the deal would provide “a strengthened brand portfolio” with the addition of Supreme’s premium 7Acres brand and others.

Smiths Falls, Ontario-based Canopy said 7Acres “(holds) Canada’s number one premium flower brand position, number one in Pax vapes, and top-5 in pre-rolled joints,” citing data from Seattle-based marijuana data analytics firm Headset and provincial cannabis boards.

“Brand growth is anticipated with distribution supported by Canopy’s robust sales and distribution network as well as superior consumer insights and R&D capabilities,” Canopy said.

Last week, Canopy announced its acquisition of Canadian recreational cannabis brand Ace Valley for an undisclosed sum.

The company also touted Supreme’s Kincardine, Ontario, cultivation facility, highlighting “a demonstrated capability of consistently producing premium flower from sought-after strains at low cost with significant potential for scaling.”

The facility has 280,000 square feet of flowering, vegetation and propagation space, according to a recent investor presentation.

Supreme was the 30th Canadian licensed producer to receive its license from Health Canada, making it one of the longest running LPs in the country.

Canopy said potential cost synergies from the acquisition could total roughly CA$30 million within two years.

The deal is unlikely to affect the push toward profitability at Canopy, according to Piper Sandler equities analysts Michael Lavery and Jeffrey Kratky.

“Supreme is profitable and its 7ACRES brand is premium, but the deal is still small,” the analysts wrote in a Thursday morning research note.

Canopy lost CA$830 million in its most recent quarter.

The acquisition is expected to close by the end of June, pending regulatory approvals and a Supreme shareholder vote.

Shares of Canopy trade as WEED on the Toronto Stock Exchange and CGC on the Nasdaq exchange.

Supreme shares trade as FIRE on the Toronto Stock Exchange.