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Acreage Holdings investors decry Canopy Growth deal to be “value-destructive,” announce plans to vote against in open letter

Canopy Growth Corporation’s (CGC) deal to purchase Acreage Holdings (ACRGF) pending federal legalization in the U.S. set the cannabis industry ablaze last month, with some experts calling the $3.4 billion deal an outright game-changer in cross-border collaboration.

With the dust yet to settle, some detractors have begun to question what’s being called an “unbelievably lopsided” deal that seems to favor the Canadian cannabis giant.

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In an open letter to its board on Monday, San Francisco-based investment manager Marcato Capital Management LP derided the deal, calling it “a value-destructive transaction and not in the best interests of shareholders.” The firm, which owns 575,000 shares of Acreage, or just about 2.7 percent of the outstanding Subordinated Voting Shares said in a statement that it plans to vote against the deal.

According to the statement, the $3.4 billion price tag is far lower than what Marcato believes Acreage could command based on the present value of their future cash flows alone.

GTI

(A look at the U.S. and Canadian cannabis industries/ Green Thumb Industries)

“We believe Acreage's strategic value, as one of the few multi-state operators of scale in the U.S., with leading positions in the most valuable markets merits a significant premium to any stand-alone cash-flow derived valuation,” wrote founder and managing partner Mick McGuire. “Furthermore, we believe enterprise values of cannabis companies will skyrocket upon the relaxation of current Federal restrictions.”  

Noting that the entire process did nothing to maximize shareholder value, McGuire wrote that other parties should have been allowed to bid on Acreage, including those in the spirits, beer, beverage, tobacco, and CPG industries. He went on to question whether or not Acreage was fulfilling its duty to shareholders by dealing only with Canopy.

As proof, the Marcato statement pointed to diverging share prices of Canopy and Acreage. Acreage fell an average of 6.0 percent since the announcement, while Canopy stock gained nearly 15.2 percent over the same period, leading McGuire to conclude that the market agrees with his reasoning.

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“As a large Acreage shareholder, we will be voting against the proposed transaction with Canopy Growth Corporation,” wrote McGuire before noting that Marcato would prefer to either see Acreage remain independent or, if a sale is necessary, a formal and competitive process be put in place.

“Our preferred path would see the Company remain independent, continue to execute on its strategic plan, and be patient when considering strategic transactions until there is greater visibility on the overall U.S. legal and regulatory landscape,” he wrote.

Representatives from Acreage, Canopy, and Marcato, could not be reached for comment.

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