After the rumour mill started swirling yesterday about impending news of an acquisition, Canopy Growth Corporation (TSX: WEED; NYSE: CGC) today confirmed the company has entered an agreement to acquire Acreage Holdings, Inc. (CSE: ACGR.U; OTC: ACRGF; FSE: 0ZV). 

This isn’t the first overture toward U.S. operations made by the company, as Canopy was the first major Canadian cannabis producer to list on the New York Stock Exchange. 

The completed Acreage acquisition is at least a year or more away, however, as the deal is subject to cannabis becoming legal at the federal level in the U.S., rather than piecemeal state by state as stands currently. 

Final approval by the shareholders of both companies will also be required at special meetings. Following that expected approval, Canopy will provide Acreage with a $300 million payment, covering an approximate $2.55 per subordinate voting share of Acreage. 

Holders of those subordinate voting shares will also receive 0.5818 common shares of Canopy in exchange for each share of Acreage. The full value of the completed deal is estimated at $3.4 billion and offers a premium of 41% over the current 30-day weighted price. 

Canopy Growth’s Co-Chief Executive Officer Bruce Linton commented on the pending deal: 

Today we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists. By combining Acreage’s management team, licenses and assets with Canopy Growth’s intellectual property and brands, there will be tremendous value creation for both companies’ shareholders.

Until cannabis is dropped off the Schedule I list and legalized nationally, the two companies will operate independently of one another. After the deal is completed, Acreage will immediately gain access to Canopy’s Tokyo Smoke and Tweed brands. 

The prospect of cannabis sales becoming legal at the federal level in the U.S. has becoming increasingly likely as 2020 Presidential candidates officially endorse various levels of legalization or de-criminalization.  

Cannabis laws have changed rapidly at the state level in recent years, with 10 out of 50 states having legalized recreational marijuana, and 33 now allowing for medical cannabis usage. Legalization efforts are expected to hit more ballots in next year’s election. 

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