Canopy Growth (CGC 1.40%) and Acreage Holdings (ACRGF +0.00%) are amending the terms of a merger deal agreed to last year, effectively reducing its value significantly.
As with the previous agreement, the new version of the arrangement is contingent upon marijuana being legalized at the federal level in the U.S. (the "triggering event" in the language of the deal).
It also rests on the division of Acreage's common stock into "fixed" and "floating" Acreage shares; the former is to consist of 0.7 of one share of that common stock, with the latter comprising the remainder. Canopy Growth will pay 0.3048 of one of its shares for each fixed Acreage share; the original deal's level was 0.5818 of a Canopy Growth share.
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As for the floating shares, Canopy Growth will have a call right should the triggering event occur. The price, as the company explains, is to be "equal to the 30-day volume weighted average trading price of the Floating Shares on the [Canadian Securities Exchange], subject to a minimum call price of US$6.41 per Floating Share, payable in either cash or Canopy Growth Shares at Canopy Growth's option."
Finally, Canopy Growth will get the deal rolling with an up-front payment of $37.5 million to Acreage. Under the terms of the original agreement, Canopy Growth paid $300 million in up-front monies.
All told, the value of the new deal is roughly $843 million, far below the first arrangement's estimated $3.4 billion.
Investors aren't rewarding either marijuana company for the modification. On Friday, Canopy Growth stock declined by nearly 3.9%, while Acreage cratered by 10%. Both declines were well steeper than the falls recorded by the major equities indexes on the day.
