Canopy Growth's (WEED.TO)(CGC) latest acquisition, that hinges on pot becoming federally legal in the United States, is a Colorado-based cannabis edibles brand that claims to lead the category by market share across North America.
Smiths Falls, Ont.-based Canopy announced a deal to acquire privately-held Wana Brands on Thursday. The company says the transaction is similar in structure to its planned takeover of New York-based multi-state operator Acreage Holdings (ACRHF), a landmark deal when it was announced in 2019 that required federally permissible pot sales in order to be fully consummated.
Under the terms of the deal, Canopy has separate call option agreements with three Wana owner entities to acquire 100 per cent of the company. Canopy says it will make an upfront cash payment of US$297.5 million. Canopy did not disclose the total value of the deal, which it says can be satisfied with cash, shares or a combination of both at its discretion.
“The right to acquire Wana secures another major, direct pathway into the U.S. THC market upon federal permissibility, and in Canada we’ll be adding the top-ranked cannabinoid gummies to our industry-leading house of brands,” Canopy chief executive officer David Klein stated in a news release on Thursday.
Wana claims to be the top cannabis-infused edibles brand in North America, with gummies and other products available in 12 states and nine Canadian markets. The company is looking to expand to 20 states before the end of 2022. According to industry data provider Headset, gummies account for 71 per cent of all edibles purchases in tracked U.S. states. The category also includes infused beverages, chocolates, and other products.
In Canada, Wana has a licencing agreement with London, Ont.-based edibles-maker Indiva (NDVA.V). The companies announced an extension of that deal in February, a five-year term that may be extended for three additional five-year periods. In a Sept. 7 note to clients, Raymond James analyst Rahul Sarugaser praised Indiva’s roughly 50 per cent share of legal cannabis edibles sold in Canada, calling the company “an M&A target if we’ve ever seen one.”
Canopy sees Wana’s licensing model as an opportunity for growth ahead of potential U.S. cannabis legalization. The private company is profitable, “with a track record of generating strong revenue growth and category-leading gross and EBITDA margins,” according to Canopy.
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