Canadian cannabis producer Canopy Growth Corp. (TSX: WEED) (NASDAQ: CGC) has agreed to absorb a trio of companies into its new holding entity, Canopy USA.
Under these agreements, which have yet to be approved by shareholders, Canopy USA will acquire 100% of Area holdings (OTC: ACRHF), as well as Excerpts from the pier and Wana Brandswith the aim of accelerating its entry into the American cannabis industry.
“As growth in the US cannabis market continues rapidly at the state level, this strategy allows us to take control of our own destiny and capitalize on the once-in-a-generation opportunity of the world’s largest cannabis market.” , said Canopy CEO David Klein.
Canopy’s core business will not immediately benefit from the new sales stream since herbal companies in Canada cannot grow or sell marijuana in the United States due to the federal ban.
Yet President Joe Biden reporting a review on how the medicine is classified earlier this month could provide a pathway for Canopy to operate in the United States
Canopy struck a deal three years ago to buy Acreage for $3.4 billion once the United States legalizes marijuana federally. With the issue mostly stuck in limbo, the new decision expedites the closing with Canopy USA finalizing the takeover, the company said.
“This strategy and positioning are true differentiators, which should enable our investors and our brands to realize near-term value while positioning Canopy for profitable growth and an early start to U.S. federal clearance,” said Klein said.
Canopy USA will have its own management and board of directors, within which Canopy Growth Corp. will not have voting rights.
The news is somewhat surprising, as many transactions have stalled or completely collapsed in 2022.
Last year, the industry quickly consolidated as optimism about rising sales grew and more U.S. states moved to legalize the harvest. Now consolidation has become a lifeline for struggling operators facing tough times as the industry continues to see tighter projections and cash flow challenges.
The volume of M&A activity this year has fallen 80.2% from 2021, according to Oct. 14 data from Viridian Capital Advisors. Additionally, $4.72 billion in deals are still under review and 145 deals closed this year, compared to $23.82 billion in deal value and 271 closings last year.
Shares of Canopy Growth, which has a market value of $1.1 billion, were up 23% at press time.