Canopy Growth Corp. has agreed to acquire The Supreme Cannabis Company for a total consideration of $435 million. Under the agreement Canopy Growth will acquire all of Supremes’ issued and outstanding stock. Shares of Canopy dropped about 4.8% at the close of trade on April 8.
Under the transaction, investors in Supreme Cannabis will receive 0.01165872 of Canopy’s common shares and $0.0001 in cash for each Supreme Cannabis share held. This represents a 66% premium over the closing price of Supreme Cannabis stock as of April 7.
Canopy Growth (CGC) Chief Executive officer, David Klein said, “As we continue to expand our leading brand portfolio, we are excited to reach more consumers through Supreme’s premium brands and high-quality products, further solidifying Canopy’s market share.”
Klein added, “Supreme’s deep commitment to superior genetics, top-tier cultivation, and strict quality control, paired with Canopy’s leading consumer insights, advanced R&D and innovation capabilities, is expected to create a powerful combination that aligns with our strategic focus to generate growth with premium quality products across key categories.”
With this acquisition, Canopy strengthens its portfolio with access to 7Acres which is a premium Canadian brand. Canopy also sees brand growth with its sales and distribution network support. It also sees value addition through the Kincardine, Ontario production facility which is scalable.
Furthermore, Canopy estimates the combined pro forma market share at 23.3% of the premium flower segment in Ontario and 21.4% in British Columbia. Potential cost synergies are expected at about $30 million in the first two years.
Canopy Growth anticipates the transaction to close by end of June subject to approvals and satisfaction of other conditions.
On April 8, Oppenheimer analyst Rupesh Parikh assigned the stock a Hold rating but did not assign any price target.
Reacting to the Supreme Cannabis acquisition, Parikh said, “We look very favorably upon this transaction and believe the combination should help to further solidify the company’s ability to deliver on intermediate-term targets.”
The consensus on the Street is that Canopy Growth is a Hold based on 1 Buy, 9 Holds, and 3 Sells. The average analyst price target of $37.56 implies upside potential of 31.8%. Shares have gained about 92.2% over the past year.