Canopy Growth, Canada’s largest cannabis company, announced a blockbuster $3.4 billion deal to buy Acreage Holdings, the largest U.S. cannabis operator, on April 18, but Acreage shares continue to relatively underperform. Acreage shares have only traded higher by about 3% since the announcement, whereas Canopy shares have gained roughly 20%.
On Monday, Acreage Holdings CEO Kevin Murphy defended the deal that gives Canopy the right to acquire his company when the sale of cannabis becomes permissible on a federal level in the U.S.
“You can choose your opportunity in business, you just can’t choose when it comes,” Murphy told Yahoo Finance YFiPM, adding that it was a deal he was obligated to take. “With Constellation and Canopy knocking on our door, as the CEO and Chairman of this company it was my obligation to not only the shareholders, but the future of this company to accept that invitation.”
Mainly, Murphy emphasized that the deal will help his company gain international exposure through Canopy and that it will help hedge any downside that could come from competitors consolidating in the cannabis space. While the deal might not secure his place as the top cannabis name in the world, Murphy indicated the deal would ensure a place on the podium.
“Not all the companies in cannabis today need to exist and they won’t exist,” said Murphy, whose comments follow Canopy Growth CEO Bruce Linton’s appearance last week on YFiPM. Linton predicted Acreage shares will eventually trade closer to the 40% premium laid out in the agreement.
Murphy also pointed to his more optimistic timeline for the sale of cannabis becoming federally permissible sometime in the next 18 months as one potential reason that could explain why shares weren’t more reflective of the deal’s terms. Analysts, like Piper Jaffray’s Michael Lavery, for example, believe that it could take more than four years for that scenario to play out.
“I think the trouble people are having is, how long is it going to take for it to be [federally] permissible in the US,” Murphy said. “We have a view, given we have a number of board members who are cued into Washington... in regards to it being permissible we believe it's 12 to 18 months out, not four to six years out.”
Acreage boasts both former Speaker of the House John Boehner and former Massachusetts Governor Bill Weld as board members. The Acreage board unanimously approved the deal, but it is subject to shareholder votes from Acreage and Canopy in June.