DEFA14A: Canopy Growth Receives Recommendation from Glass Lewis for Exchangeable Share Proposal

Glass Lewis recommends Canopy Growth shareholders vote in favor of creating exchangeable shares to advance Canopy USA's strategy.

Summary

• Canopy Growth Corporation announced that Glass Lewis & Co., an independent proxy advisory firm, recommends shareholders vote for the special resolution authorizing an amendment to the company's articles of incorporation.
• The amendment proposes the creation of exchangeable shares and the restatement of common shares to allow conversion into exchangeable shares.
• This proposal is related to Canopy Growth's strategy to accelerate its entry into the U.S. cannabis industry through Canopy USA.
• Canopy USA holds Canopy Growth's U.S. cannabis investments and aims to acquire Acreage Holdings, Wana Wellness, and Lemurian (Jetty).
• Upon acquiring these U.S. THC businesses, Canopy Growth expects to deconsolidate Canopy USA's financial results and hold a non-controlling equity method investment.
• The U.S. retail cannabis market is projected to reach approximately US$50 billion in 2026.
• The special meeting of Canopy Shareholders will be held on Friday, April 12, 2024, at 1:00 p.m. Eastern Time (Toronto time).

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the recommendation from Glass Lewis and the potential for growth in the U.S. cannabis market. However, the deconsolidation of Canopy USA and regulatory uncertainties temper the optimism.

Positives

• Independent proxy advisor Glass Lewis recommends shareholders vote in favor of the proposal.
• The strategy aims to capitalize on the growing U.S. cannabis market, projected to reach US$50 billion in 2026.
• The formation of Canopy USA is expected to generate revenue and cost synergies.
• The company expects reduced operating expenses for Canopy Growth with respect to the monitoring of the U.S. THC portfolio of assets.
• The company expects cost synergies across Canopy USA, including the elimination of public company reporting costs for Acreage.

Negatives

• Canopy Growth will deconsolidate the financial results of Canopy USA, resulting in a non-controlling interest.
• The strategy is contingent on the approval of the Amendment Proposal by shareholders.
• The strategy is dependent on the future permissibility of cannabis at the U.S. federal level.

Risks

• The strategy's success depends on the U.S. federal government's stance on cannabis legalization.
• The acquisitions of Acreage, Wana, and Jetty are subject to regulatory approvals and other closing conditions.
• There is a risk that the anticipated benefits and synergies may not be fully realized.
• The company faces risks related to the conditions precedent to the acquisitions of Acreage, Wana and Jetty not being satisfied or waived.
• The company faces risks related to Acreages financial statements expressing doubt about its ability to continue as a going concern.
• The company faces the fact that we have yet to receive audited financial statements from Jetty.

Future Outlook

Canopy Growth aims to capitalize on the U.S. cannabis market and achieve profitable growth upon federal permissibility of cannabis in the United States.

Management Comments

• Glass Lewis noted the proposed change is not contrary to shareholders' interests and as such, Glass Lewis recommends Canopy Shareholders vote in favour of this proposal.

Industry Context

This announcement reflects the ongoing trend of cannabis companies seeking to enter and expand within the U.S. market, despite federal prohibition, by creating structures that allow them to participate in the market's growth.

Comparison to Industry Standards

• Other cannabis companies like Curaleaf, Trulieve, and Green Thumb Industries have also focused on expanding their presence in the U.S. market.
• Canopy Growth's strategy of creating a U.S.-domiciled holding company is similar to structures employed by other Canadian cannabis companies to navigate U.S. federal regulations.
• The projected US$50 billion market size for the U.S. cannabis market in 2026 aligns with industry forecasts from sources like MJBizDaily and New Frontier Data.

Stakeholder Impact

• Shareholders will be impacted by the potential value creation from Canopy Growth's U.S. expansion.
• Employees of Canopy Growth and Canopy USA may experience changes related to the restructuring and acquisitions.
• Customers of Acreage, Wana, and Jetty may see changes in product offerings and brand availability.

Next Steps

• Canopy Shareholders will vote on the Amendment Proposal at the special meeting on April 12, 2024.
• Canopy USA will pursue the acquisition of Acreage Holdings, Wana Wellness, and Jetty Extracts, subject to regulatory approvals and closing conditions.

Key Dates

Keywords

Canopy Growth, Canopy USA, Exchangeable Shares, Glass Lewis, Proxy Vote, U.S. Cannabis Market, Acreage Holdings, Wana Wellness, Jetty Extracts