Hiku to be Acquired by Canopy Growth, Drops WeedMD Deal

In a stunning move to the cannabis business world, industry giant Canopy Growth (TSX:WEED; NYSE:CGC) announced on Tuesday (July 10) it will acquire the brand and retail-focused Hiku Brands (CSE:HIKU). 

This new deal will cause the termination of the Hiku and WeedMD (TSXV:WMD) merge that would’ve seen the combination of a medical producer and a brand-focused company.

According to the statement on Tuesday, the Hiku board unanimously determined the Canopy proposal is a “superior” alternative to the WeedMD deal.

The agreement proposal sees that Hiku shareholders will get 0.046 of a Canopy share per Hiku share–the equivalent of C$1.91 per Hiku share–representing C$269.2 million in valuation for the deal.

Alan Gertner, CEO of Hiku, said this transaction is an “incredible step” for the company.

“Ultimately, together we will continue to build one of the world’s most engaging and successful cannabis retail and brand business,” Gertner said in a statement.

Hiku shareholders will obtain a 33 percent premium from the proposed transaction with Canopy from the 20-day volume weighted average prices for the two companies.

An additional 21 percent will also be given based on the closing price of the two companies from yesterday’s trading session.

WeedMD confirmed the split with Hiku in a statement of its own. The company will obtain a C$10 million termination fee for its previous deal with Hiku, advanced by Canopy.

“[A]ll of our commitments are fully funded and we’re in a solid position financially and operationally to continue executing and delivering on all of our goals and objectives,” WeedMD CEO Keith Merker said.

Prior to Tuesday’s announcement, WeedMD obtained a supply agreement on July 5 for and undisclosed amount of legal cannabis product with the province of Alberta for the first year of adult-use sales starting on October 19.

The Investing News Network (INN) reported on a research note issued in June from Mackie Research Capital analyst Greg McLeish, who had reiterated his “Buy” rating to Hiku’s shares based on the proposed merger with WeedMD.

Investor takeaway

Branding has gained recognition as a key metric for investors to evaluate cannabis companies in the public sector.

This deal and confirmation of value by Canopy only sees to strengthen the position of branding in the cannabis space as the sector continues its maturation.

Overall, the cannabis industry has seen an uptick in acquisitions as companies seek to be fully prepared for the start of legalization in Canada.

At the end of Tuesday’s trading session. the market reaction for all the parties involved were down. Hiku declined 0.68 percent to close at C$1.46, WeedMD was down 0.49 percent to C$2.05, and Canopy dipped 1.52 percent to close at $C38.10.

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

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