Canopy Growth Corp (NASDAQ:CGC) (TSE:WEED) has agreed to acquire The Supreme Cannabis Company Inc (OTCMKTS:SPRWF) (TSE:FIRE) in a transaction worth $435 million. Shares of The Supreme Cannabis Company, a penny stock, surged 56% in early trading after the announcement, while Canopy Growth stock slumped by more than 2% in early trading.
Canopy Growth To Acquire Supreme Cannabis Company
In a press release this morning, the two companies announced that Canopy would acquire all of Supreme Cannabis' issued and outstanding shares for $435 million. Supreme Cannabis shareholders will receive 0.01165872 of a common share in Canopy Growth and 0.0001 of a cent in cash in exchange for each Supreme Cannabis share they hold.
The deal offers a premium of about 66% per Supreme Cannabis share, based on the closing prices of both companies' shares on the Toronto Stock Exchange on Wednesday. It's expected to offer multiple benefits to Canopy and Supreme Growth. For example, after the acquisition, Canopy Growth will have a stronger brand portfolio that includes 7ACRES, one of the top premium brands in Canada.
Both companies' brands are expected to grow as Supreme Cannabis benefits from Canopy's strong sales and distribution network and R&D capabilities. In addition to the market premium, Supreme Cannabis investors will also see benefits from Canopy's CBD business in the U.S. and "conditional positioning for continued exposure to the U.S. market expansion."
Additional value will be seen through the Kincardine production facility in Ontario, which is scalable and has been producing premium flower at low costs.
Highlights Of The Transaction
The two companies highlighted several benefits from the transaction. The combination solidifies Canopy's leadership position in Canada's recreational weed market, which is well-positioned for growth by combining the company with Supreme Cannabis, one of Canada's top 10 cannabis companies. Together, the merged company will have a 13.6% share of the recreational cannabis market in Canada. The firm will hold about 23.3% of the premium flower market in Ontario and 21.4% in British Columbia.
Canopy Growth and The Supreme Cannabis Company expect to achieve about $30 million in cost synergies within two years of the closing of the transaction. The synergies are expected to span across cost of goods sold and sales, general, and administrative expenses as Canopy optimizes and integrates Supreme Cannabis' operations and shared services.
The merger is a continuation of the consolidation trend that has been sweeping the global cannabis industry. The consolidation has included everything from small dispensaries to companies merging supply chain components into one business.