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Canopy Growth Corp. (TSX: WEED) (NASDAQ: CGC) said Tuesday that it has exercised its option to acquire New York-based Acreage Holdings Inc. (CSE: ACRG.A.U, ACRG.B.U) (OTCQX: ACRHF, ACRDF) through Canopy’s U.S. subsidiary, Canopy USA.

The move comes less than a week after Canopy reported its financial results for fiscal year 2024, which ended on March 31 and showed that despite a decline in revenue, the company managed to significantly reduce its net loss versus the previous fiscal year.

The acquisition is part of Canopy’s long-boiling strategy to expand its presence in the U.S. as more states legalize recreational and rescheduling talks move forward. Canopy USA has also recently completed the acquisition of California-based cannabis brand Jetty and two out of three business units of Colorado-based Wana Brands, it said.

“We’re excited to see this advancing as more of Canopy USA’s priority markets come online for adult use across the Midwest and Northeast,” said David Klein, CEO of Canopy Growth and a board member of Canopy USA, in a statement.

However, the acquisition of Acreage comes with its risks. Financial filings show that Acreage had a mere $7.3 million in cash and a staggering $365.2 million in total liabilities as of March 31. The company also warned of its potential inability to continue operations through the next year, with multiple notices of default on debts and accumulated deficit of $775 million.

Despite the red flags, Klein remains confident that Acreage’s financial woes will be resolved once it is fully integrated into Canopy USA.

“We anticipate that these actions will drive growth and the realization of commercial synergies across Canopy USA’s operational platform,” Klein added.

Still, analysts have mixed opinions on Canopy’s acquisition of Acreage.

Matt Karnes, founder of GreenWave Advisors, recently told Green Market Report that Canopy might be “stuck” with the deal and must “make lemonades out of lemons.” While acknowledging some potential bright spots for Acreage, such as the launch of Ohio’s recreational marijuana market and ongoing developments in New York and New Jersey, Karnes criticized Acreage’s management for “poor choices” that likely contributed to its current predicament.

The lead-up

Canopy has been after Acreage since 2019, when the two companies first entered into an arrangement agreement. The initial deal was contingent upon federal legalization of cannabis in the country.

Under the terms of the original agreement, Canopy would acquire 100% of Acreage’s shares for a total value of approximately $3.4 billion, pending U.S. federal legalization. The deal also included an upfront cash payment of $300 million by Canopy to Acreage shareholders.

By the summer of 2020, the two companies amended the agreement to provide Canopy with more flexibility to pursue other opportunities in the U.S. market. The amended deal reduced the upfront cash payment to $37.5 million and allowed Canopy Growth to acquire 70% of Acreage’s shares upon U.S. legalization, with an option to acquire the remaining 30% later.

Now, with the recent announcement, Canopy has exercised its option to acquire Acreage fully, nearly five years after the initial agreement was made.

The post Canopy Growth exercises option to acquire Acreage Holdings appeared first on Green Market Report.

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Adam Jackson, KahliBuds, 420GrowLife