Apr 19, 2019

The $3.4-billion-as-soon-as-it's-legal marijuana merger

A mairjuana plant in Edmonton, Alberta, Canada. Photo by Artur Widak/NurPhoto via Getty Images

Canadian cannabis company Canopy Growth, which is 38% owned by beer and spirits company Constellation Brands, bought the right to acquire Acreage Holdings only if recreational marijuana is legalized in the U.S.

The big picture: The tie-up between the U.S. company that grows and sells pot in a handful of states — former Speaker of the House John Boehner is on the board — and the world’s most valuable pot company is essentially a bet on the future that’s valued at $3.4 billion dollars.

Between the lines: The non-deal deal is structured to avoid obstacles that would come with Canopy’s outright acquisition of Acreage before legalization. A deal now would get Canopy’s shares de-listed from the Toronto and New York Stock Exchange, which both forbid listing companies with U.S. cannabis operations since it’s federally illegal. (Canada made marijuana fully legal nationwide in October.)

  • “This is like a very large game of double dutch, as in ‘if the rules change we'll come play, but until then we'll keep spinning those ropes.’ It's a waiting match,” Brent Williams, founder of Highwater Financial, a cannabis-focused investment firm, tells Axios.
  • “It’s a great precedent to set for the Aurora Cannabis's of the world to come in for further expansion of Canadian companies into the U.S.”

How it works: The deal is terminated if cannabis is not legalized (or if exchanges don't change their rules) within 7.5 years, or 90 months. If the deal falls through, no word on what happens to the $300 million upfront cash Canopy agreed to pay Acreage shareholders.

  • But the heads of both companies and many analysts are optimistic legislation will pass within the next 2 or 3 years.
  • The companies said the deal value was a 41% premium over Acreage's share price.

What’s in it for the companies:

  • “Canopy has been at risk of missing out on the U.S. market as it grows. Now they have sort of secured a path towards that, while avoiding an outright acquisition today," Rob Wertheimer, a founding partner of Melius Research, tells Axios. “Acreage is attached to what has become an emerging North American leader and that’s well-positioned for growth.”

The bottom line: This just built a path for companies to buy into a budding U.S. marijuana market without breaking any laws and without facing the wrath of stock exchanges. Analysts say the deal structure could set off a wave of similar transactions.

Go deeper: 4/20 sells high: Corporate America embraces marijuana's big day

Go deeper

Special report: Health care workers vs. coronavirus

Photo Illustration: Sarah Grillo/Axios. Photos: Angela Weiss/AFP via Getty Images, Bruce Bennett/Getty Images, and Europa Press News/Europa Press via Getty Images

Health care workers are at an especially high risk of catching the coronavirus, because of their prolonged exposure to patients who have it. Making matters worse, the U.S. doesn't have enough of the protective equipment, like masks and gloves, that keeps them safe.

  • And yet these workers, with loved ones of their own, keep showing up at hospitals across the country, knowing that more Americans than they can possibly care for are depending on them.

Backed by the Fed, bond investors get bullish

Illustration: Sarah Grillo/Axios

The Fed's massive injections of liquidity have reopened much of the bond market, and after back-to-back weeks in which more than $100 billion flowed out of bond funds, investors have regained their bearings and now see opportunity.

What's happening: But after the hemorrhaging outflows relented last week, bulls may now be sticking their heads out a bit too far. Junk bond funds took in more than $7 billion for the week ended April 1, according to Refinitiv Lipper, setting a new weekly record.

What top CEOs fear telling America about the coronavirus shutdown

Illustration: Eniola Odetunde/Axios

Top CEOs, in private conversations and pleas to President Trump, are warning of economic catastrophe if America doesn't begin planning for a phased return to work as soon as May, corporate leaders tell Axios.

Why it matters: The CEOs say massive numbers of companies, big and small, could go under if business and government don't start urgent talks about ways groups of workers can return.