Canopy Growth Has an “Obligation” to Acreage Holdings, Says CEO

One of the most unique transactions in the public marijuana industry may be misunderstood by market participants, according to one of the people behind the deal.

The leading executives of Canopy Growth (NYSE:CGC,TSX:WEED) and Acreage Holdings (CSE:ACGR.U,OTCQX:ACRGF) held the stage together at the kickoff of the MJBizConINT’L event in Toronto to discuss the state of consolidation in the cannabis space.

Kevin Murphy, CEO of Acreage, told the audience at the show on Thursday (September 5) that Canopy has an obligation to its deal with the multi-state operator.

“Canopy has an obligation to exercise that option, and given the disparity between where parity is today and where our stock trades, clearly it’s either misunderstood or people believe that option is not a two way mandate,” Murphy said during the panel.

In April, the two marijuana firms announced an acquisition plan by way of a transaction valued at US$3.4 billion. Part of the deal states that Canopy Growth will complete the transaction should cannabis become legal in the US.

However, the companies have hinted that the passing of the STATES Act, a policy that has opened the doors for states to regulate their cannabis programs without federal interference, could also trigger the acquisition.

Mark Zekulin, CEO of Canopy Growth, added that if an investor today believes the triggering action for the deal — the legalization of cannabis in the US — is set to take place, investing in his firm represents future exposure to the entire US market.

Canopy Growth has made moves to the US space with investment in hemp development.

Asked about the size of the cannabis infused beverage market in the US, $ACRG CEO Kevin Murphy says there’s potential to replace beer or wine if companies can attach these new drinks to social settings. #MJBizConINTL

— Cannabis News | INN (@INN_Cannabis) September 5, 2019

“Canopy has an option to buy Acreage, but it’s actually I would call it a forced option,” said Zekulin. “If you believe the triggering event will occur … in the next six, seven years, then it’s not a question of Canopy might exercise its option — Canopy will exercise its option, Canopy has to exercise its option.”

After the dismissal of Bruce Linton, former co-CEO and spokesperson for Canopy Growth, Zekulin assumed the role of CEO. He is set to hold his position until the cannabis firm finds a new leader.

The deal has also opened the door for Acreage to use brands and intellectual property from Canopy Growth. Zekulin said the partnership and brand sharing goes “much deeper” than just a store name.

The duo briefly talked about the lessons shared between market players from the US and Canadian markets. Murphy said the US’ biggest export for this industry will be brands and brand appeal.

He hinted that there is a chance there will be recognizable brand development in the US that later appears in the Canadian market.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Acreage Holdings is a client of the Investing News Network. This article is not paid-for content.