Canopy Rivers Inc. (TSX: RIV) (OTC: CNPOF) has entered into an agreement with Canopy Growth Corporation (NASDAQ: CGC) in which Rivers will transfer three portfolio assets to Canopy Growth in exchange for $115 million in cash and 3,750,000 common shares of Canopy Growth and the cancellation of all 36,468,318 Multiple Voting Shares and the 15,223,938 Subordinate Voting Shares of Rivers held by Canopy Growth.
“This is a transformative transaction for our Company that we believe provides substantial value to our shareholders through an enhanced cash position and strategic flexibility, and the collapse of our dual-class share structure,” said Narbé Alexandrian, President, and CEO, Rivers. “Following the closing of the Transaction, we intend to shift our focus to pursuing other opportunities in the global cannabis market, where we believe that our new strategic focus and substantial balance sheet will allow us to successfully execute our revamped strategic plan.”
In doing so, Rivers will receive significant additional cash resources, which the company said would enable it to pursue opportunities in the global cannabis market, including the United States. With this money added to its coffers, Canopy Rivers will have $243 million on hand. The company said it believes that its significant cash position and single-class share structure will make it an attractive transaction partner for cannabis operators, including those in the U.S., looking for access to capital and a path to liquidity.
The company outlined the following details of the deal in a statement:
- Rivers will terminate the royalty agreement between its wholly-owned subsidiary Canopy Rivers Corporation (“CRC”) and The Tweed Tree Lot Inc., and will sell the following assets, all owned by CRC, to Canopy Growth (collectively, the “Transferred Assets”):
- 19,445,285 exchangeable shares in the capital of TerrAscend Corp. (“TerrAscend”);
- a loan in the principal amount of approximately $13.2 million owed by TerrAscend Canada Inc. (“TerrAscend Canada”) to CRC;
- warrants to purchase 2,225,714 common shares in the capital of TerrAscend at an exercise price of $5.95 per share, exercisable upon the federal legalization of cannabis in the U.S.;
- warrants to purchase 333,723 common shares in the capital of TerrAscend at an exercise price of $6.49 per share, exercisable upon the federal legalization of cannabis in the U.S.;
- its 26% common share interest in Les Serres Vert Cannabis Inc. (“Vert Mirabel”), subject to certain rights of first refusal; and
- its 15,000,000 Class A preference shares in the capital of Vert Mirabel.
- The consideration to be received by Rivers in connection with the Transaction will be satisfied by:
- payment by Canopy Growth of $115 million in cash;
- issuance of 3,750,000 common shares of Canopy Growth, which will be freely tradeable on the TSX and Nasdaq as of the closing of the Transaction; and
- cancellation of all of the 36,468,318 MVS and 15,223,938 SVS held by Canopy Growth.
- Rivers and Canopy Growth will also terminate the agreements that govern their relationship, including the Investor Rights Agreement, Memorandum of Understanding, and Trademark License Agreement.
- Rivers and CRC will also change their corporate names to reflect the new direction of the Company.
“As a long-time shareholder of Rivers, I am pleased to support this transaction”, said Jason Wild, chairman of JW Asset Management which, on closing, will own 23.9% of the common equity of the Company. “As an active investor in the U.S. cannabis market, JW Asset Management recognizes the generational opportunity for value creation in the world’s largest and most attractive cannabis market. With a significant infusion of cash and liquid securities, and a new strategic focus, we believe that Rivers will be well-positioned to further explore and potentially capitalize on this vast opportunity.”
“The financial and strategic merits of the Transaction to the Company and our minority shareholders are clear,” said Joseph Mimran, Chair of the special committee of independent directors that Rivers’ board of directors established in connection with the Transaction. “On behalf of the Board, we look forward to writing the next chapter in Rivers’ history.”
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