Canopy Growth Corporation — Form 8-K Summary
Reporting date: December 21, 2020; filed under Items 1.01, 3.02, 7.01 and 9.01. The report was signed December 28, 2020. This filing reports a proposed related-party arrangement with Canopy Rivers Inc. and does not provide quarterly or annual operating results.
Business Context and Transaction
Canopy Growth entered into an arrangement agreement with its wholly owned subsidiary, The Tweed Tree Lot Inc., Canopy Rivers and Canopy Rivers’ wholly owned subsidiary, Canopy Rivers Corporation. The transaction would separate Canopy Growth from Canopy Rivers and transfer specified assets to Canopy Growth through an Ontario plan of arrangement.
- Canopy Growth’s fully diluted conditional ownership in TerrAscend would increase from approximately 13% to approximately 21%.
- Canopy Growth would acquire specified TerrAscend securities and loan receivables, subject to applicable consents, and certain interests in Les Serres Vert Cannabis Inc. (“Vert Mirabel”), subject to rights of first refusal.
- The Tweed NB royalty agreement would be terminated.
- Canopy Growth would surrender and cancel its Canopy Rivers holdings. Following completion, it would have no equity, debt or other interest in Canopy Rivers, which would cease to be a reportable segment.
Transaction Consideration and Financial Effects
| Item | Terms disclosed |
|---|---|
| Cash consideration | Aggregate cash payment of C$115 million to Canopy Rivers and Canopy Rivers Corporation, with specified components including C$64.3 million for TerrAscend exchangeable shares, C$22.45 million for Vert Mirabel preferred shares, C$13.243 million for the TerrAscend loan receivable and C$15 million for termination of the Tweed NB Agreement. |
| Canopy Growth shares | Up to 3,750,000 shares, including 3,410,437.08 shares for TerrAscend exchangeable shares, 99,122 shares for TerrAscend warrants and 13,558 shares for additional TerrAscend warrants; Vert Mirabel common-share consideration is also share-based and may be adjusted. |
| Promissory notes | A C$57.523 million Canopy Growth note and a corresponding C$57.523 million Canopy Rivers note are contemplated and are intended to be settled through the arrangement. |
| Royalty savings | Termination of the Tweed NB Agreement is expected to provide approximately C$2.9 million of annual cash savings over the remaining 24-year term. |
The filing does not provide pro forma revenue, earnings, cash flow, margin, debt, liquidity or valuation effects for the proposed transaction.
Material Changes Versus the Prior Comparable Period
- The filing does not present comparative-period financial statements or operating metrics.
- The proposed transaction would remove Canopy Rivers as a reportable segment and eliminate Canopy Growth’s ongoing equity, debt and other interests in Canopy Rivers.
- Canopy Growth’s conditional fully diluted TerrAscend ownership would increase by approximately eight percentage points, from approximately 13% to approximately 21%.
- Canopy Growth would obtain the stated annual cash savings from terminating the Tweed NB royalty arrangement.
Conditions, Outlook and Risks
Completion requires, among other matters, Ontario Superior Court approval, Canopy Rivers shareholder approval, TSX and Nasdaq approvals, satisfaction of contractual conditions, expiration or waiver of Vert Mirabel rights of first refusal, required releases and consents, and the deposit of C$115 million in trust. The Canopy Rivers meeting was to be held as soon as reasonably practicable and no later than March 15, 2021.
Approval requires at least two-thirds of votes cast by each class of Canopy Rivers shares and a simple majority of disinterested SVS votes, as described in the filing. Dissent rights exceeding 7.5% of Canopy Rivers’ outstanding SVS and MVS on an aggregate basis would also prevent completion under the stated conditions.
The parties may terminate the agreement if shareholder approval is not obtained, completion becomes illegal or permanently prohibited, or the arrangement is not completed by March 31, 2021, subject to permitted extensions. Canopy Growth also has specified termination rights if Canopy Rivers’ board changes its recommendation.
Risks include failure to obtain court, shareholder, exchange or other regulatory approvals; failure to satisfy closing conditions or obtain third-party consents; exercise of Vert Mirabel rights of first refusal; litigation or regulatory intervention; COVID-19 and broader economic conditions; cannabis regulatory and enforcement risks; anti-money-laundering compliance; risks associated with divesting Canopy Rivers; and changes in public perception of cannabis.
Most Important Facts to Verify
- Whether Canopy Rivers shareholders, the Ontario court, the TSX, Nasdaq and other applicable parties approved the arrangement.
- Whether the arrangement closed by the applicable deadline and the final number of Canopy Growth shares issued.
- Whether Vert Mirabel rights of first refusal or required TerrAscend consents changed the assets or consideration transferred.
- Whether the anticipated C$2.9 million annual cash savings were realized.
- How the separation of Canopy Rivers affected Canopy Growth’s segment reporting, consolidated financial statements, debt, liquidity and TerrAscend investment accounting.
- The final value and accounting treatment of the TerrAscend securities, Vert Mirabel interests, notes and cash consideration.