Canopy to buy U.S. edibles company

Deal is contingent on Washington legalizing cannabis at federal level

Canopy Growth Corp. is preparing another route into the U.S. cannabis market with a new deal to acquire an edibles company — if Canada’s neighbour moves to allow a key pot component.

The Smiths Falls, Ont., cannabis company announced Thursday it had reached an agreement to buy Boulder, Colo.-based Wana Brands, but only if tetrahydrocannabinol (THC), the main psychoactive component in cannabis, becomes federally permissible in the U.S.

Though several states have legalized recreational cannabis, it’s still illegal on a federal level, so many policy-makers are pushing for change.

“We have to be really agile, we have to anticipate changes and we have to be prepared to react when we see them, but the first hurdle is getting to permissibility,” Canopy’s CEO David Klein told The Canadian Press.

The U.S. market has become increasingly attractive for Canadian cannabis brands as they eye new opportunities for revenue growth, after two years of layoffs, downsizings and facility closures at large pot producers including Canopy, Aurora Cannabis Inc. and Tilray Inc.

Pot companies are hoping that the U.S. federally legalizes cannabis, so they can quickly build on their experience in the Canadian market across the border.

“We’ve had to make a lot of changes to get the organization appropriately focused, and to also adapt to the speed or lack of speed at which the Canadian market opened,” said Klein, whose company laid of hundreds of people during the COVID-19 pandemic.

“That experience just serves us well because we’ve been in a situation where … we overbuilt, but Wana is asset-light.”

While Wana makes and sells cannabis gummies tarts, tinctures and vapes in Colorado, it licenses its intellectual property to partners in several other states and in Canada.

Under the agreement, Canopy will make an upfront cash payment of $297.5 million (U.S.) and acquire three call option agreements to acquire Wana entities Mountain High Products LLC, Wana Wellness LLC and the Cima Group LLC.

Upon the exercise of each call option agreement, Canopy Growth will make a payment equal to 15 per cent of the fair market value of the entity when the option is exercised.

Canopy Growth may also make additional deferred payments as of the 2.5 and five-year anniversaries of the upfront payment.

The call option payments and the deferred payments may be made in cash, shares or a combination at Canopy’s discretion.

Klein noted Canopy has signed similar deals with TerrAscend Corp. and Acreage Holdings Inc.