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April 18, 2019, 7:24 a.m. EDT

Canopy Growth isn’t buying Acreage Holdings, it’s buying the right to buy Acreage Holdings

Source confirms deal would be for rights to purchase if pot is made legal in U.S.; if bought now, Canopy shares would be delisted for owning an illegal U.S. asset

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By Jeremy C. Owens, MarketWatch , Max A. Cherney


Bloomberg News/Landov
Canopy Growth Corp. grows its marijuana at a facility in Smith Falls, Ontario, Canada.

Canopy Growth Corp. is not outright acquiring Acreage Holdings Inc., as reports said Wednesday, but it is preparing to pay billions for the rights to buy the U.S.-based pot company.

A source familiar with the negotiations confirmed Wednesday afternoon that a Canopy Growth /zigman2/quotes/200603886/composite CGC -2.65%   /zigman2/quotes/202205609/delayed CA:WEED -2.71%  deal with Acreage /zigman2/quotes/205165963/delayed ACRGF -1.81%  was “98% done,” though the final price was still being worked out. Acreage had a market cap of $2.45 billion as of Wednesday’s close, but the deal will be worth “several billions” in Canadian dollars, the source said.

If Canopy Growth were to outright acquire Acreage, though, it would run afoul of rules for the Toronto Stock Exchange, where its shares are listed. The TSX does not allow companies to own stakes in businesses that run illegal operations, which Acreage technically does because marijuana is still federally illegal in the U.S. Canopy would also have to give up its U.S. listing, which was cross-listed from the TSX, and instead look to the Canadian Securities Exchange and over-the-counter trading in the U.S., as publicly-listed U.S. companies do.

Instead, Canopy Growth will purchase the rights to buy Acreage when (or if) marijuana becomes federally legal in the U.S. at an agreed-upon price, according to the source. Many cannabis companies in Canada have purchased warrants in companies with U.S. operations, and Canopy already has some, including in Slang Worldwide Inc. /zigman2/quotes/206538858/delayed SLGWF -4.84%  and others owned by its Canopy Rivers Inc. /zigman2/quotes/214109402/delayed CA:RIV -4.37%  investment subsidiary, which is listed on the TSX Venture exchange.

/zigman2/quotes/200603886/composite CGC 20.21, -0.55, -2.65%

Canopy’s U.S.-listed shares jumped more than 10% in after-hours trading after initial reports of the deal were published Wednesday afternoon, though those gains later quieted down a bit to about 8%. The stock closed 2.8% higher Wednesday, as the ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ -2.24%  lost 0.2% and the Horizons Marijuana Life Sciences Index ETF /zigman2/quotes/208856346/delayed CA:HMMJ -4.07%  gained 1%.

This report has been updated with Acreage’s market cap.

/zigman2/quotes/200603886/composite
US : U.S.: NYSE
$ 20.21
-0.55 -2.65%
Volume: 5.16M
Oct. 18, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$7.03 billion
Rev. per Employee
$115,039
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/zigman2/quotes/202205609/delayed
CA : Canada: Toronto
$ 26.57
-0.74 -2.71%
Volume: 1.74M
Oct. 18, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$9.24 billion
Rev. per Employee
$150,142
loading...
/zigman2/quotes/205165963/delayed
US : U.S.: OTC
$ 5.97
-0.11 -1.81%
Volume: 130,286
Oct. 18, 2019 3:59p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$4.01 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/206538858/delayed
US : U.S.: OTC
$ 0.32
-0.02 -4.84%
Volume: 51,997
Oct. 18, 2019 3:58p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$70.50 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/214109402/delayed
CA : Canada: Toronto
$ 1.75
-0.08 -4.37%
Volume: 183,871
Oct. 18, 2019 8:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$334.39 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/204332491/composite
US : U.S.: NYSE Arca
$ 19.61
-0.45 -2.24%
Volume: 567,924
Oct. 18, 2019 8:00p
loading...
/zigman2/quotes/208856346/delayed
CA : Canada: Toronto
$ 10.60
-0.45 -4.07%
Volume: 607,473
Oct. 18, 2019 3:59p
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Jeremy Owens is MarketWatch’s technology editor and San Francisco bureau chief. You can follow him on Twitter @jowens510. Max A. Cherney is a MarketWatch reporter based in San Francisco. Follow him on Twitter @chernandburn.

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