Under the terms of the acquisition agreement, Supreme Cannabis shareholders will receive 0.01165872 of a Canopy common share and $0.0001 in cash in exchange for each Supreme Cannabis Share held. The transaction provides Supreme Cannabis shareholders with a premium per Supreme Cannabis share of approximately 66 percent based on the closing prices of the Supreme Cannabis shares and Canopy common shares on the Toronto Stock Exchange as of April 7, 2021.
The transaction is expected to provide several benefits to both Canopy and Supreme Cannabis shareholders. Following completion of the acquisition, Canopy will possess a strengthened brand portfolio including one of Canada's leading premium brands, 7ACRES. Brand growth is anticipated with distribution supported by Canopy's robust sales and distribution network as well as superior consumer insights and R&D capabilities.
In addition to receiving a market premium, Supreme Cannabis shareholders will also benefit from Canopy's U.S. CBD business and conditional positioning for continued exposure to the U.S. market expansion. Further value will be derived through the scalable Kincardine, Ontario production facility, which has a demonstrated record of producing premium flower at low cost.
Other transaction highlights include:
• Solidifies Canopy's leadership position in the Canadian recreational market, well-positioned for growth: The transaction combines Canopy's preeminent position with Supreme Cannabis' Top-10 position in Canada to create a pro forma Canadian recreational market share of 13.6 percent, including 7ACRES holding Canada's number one premium flower brand position, number one in PAX vapes, and Top-5 in pre-rolled joints.
• Adds premium brands to Canopy's portfolio: The addition of Supreme Cannabis' premium brands, 7ACRES and 7ACRES Craft Collective, complement Canopy's current consumer offering and will strengthen Canopy's brand portfolio, with both brands expected to continue to grow with further investment and expansion. Supreme Cannabis' Blissco and Truverra brands also add breadth to Canopy's market presence in both the recreational and medical markets.
• Brings a premium, low-cost and scalable cultivation facility to Canopy's production capabilities: Supreme Cannabis' hybrid-greenhouse cultivation facility at Kincardine, Ontario has a demonstrated capability of consistently producing premium flower from sought-after strains at low cost with significant potential for scaling.
• Secures an immediate attractive premium for Supreme Cannabis shareholders: The transaction provides Supreme Cannabis shareholders with a premium per Supreme Cannabis Share of approximately 66 percent based on the closing prices of the Supreme Cannabis Shares and Canopy common shares on the TSX as of April 7, 2021.
• Participation by Supreme Cannabis shareholders in the future of Canopy: The Supreme Cannabis shareholders will receive Canopy common shares pursuant to the transaction and will have access to Canopy's consumer insights, advanced R&D and innovation capabilities as well as the opportunity to participate in the future growth of the U.S. market based on the company's conditional positioning for rapid market entry. Post-transaction, Canopy's industry-leading balance sheet and cash position of approximately $2.5 billion positions the company for further expansion and product development.
• Opportunity to achieve potential cost synergies estimated at approximately $30 million within two-years: Canopy anticipates post-transaction cost synergy opportunities across both cost of goods sold and sales, general and administrative expenses, as it optimizes and integrates Supreme's operations and shared services.
"As we continue to expand our leading brand portfolio, we're excited to reach more consumers through Supreme's premium brands and high-quality products, further solidifying Canopy's market leadership," said Canopy CEO David Klein. "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."
Assuming timely receipt of all necessary court, shareholder, regulatory and other third-party approvals and the satisfaction of all other conditions, the transaction is expected to occur by the end of June 2021.
"This transaction is a testament to the value created by all the teams at Supreme and will be beneficial to all of our stakeholders," added Beena Goldenberg, President and CEO of Supreme Cannabis. "We have been successful at delivering great products that achieved strong customer loyalty, and operating at levels of efficiency that are industry-leading. We have also built a highly sought-after premium brand in 7ACRES. Combining Supreme Cannabis with Canopy – a Canadian market leader with exposure to the United States – presents a significant value creation opportunity for both companies. We look forward to working with Canopy to complete this transaction."