Canopy Growth to buy Acreage in $3.4 billion deal

FILE PHOTO: A sign featuring Canopy Growth Corporation's logo is pictured at their facility in Smiths Falls, Ontario, Canada, January 4, 2018. REUTERS/Chris Wattie

(Reuters) - Canopy Growth Corp said on Thursday it had secured a right to buy Acreage Holdings Inc for $3.4 billion once the United States legalizes the production and sale of cannabis.

Shares of Canopy Growth surged 7.5 percent to C$61.40 after the two companies said the deal value was at a premium of 41.7 percent over the 30-day volume weighted average price of Acreage subordinate voting shares ending April 16.

“Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists,” Canopy Chairman and co-Chief Executive Officer Bruce Linton said.

A growing number of companies are trying to push into the U.S. cannabis industry, with the recreational use of cannabis now legal in 10 states and the District of Columbia and medical marijuana legal in 23 states.

Bank of America Merrill Lynch estimates an addressable market for the global cannabis sector at $166 billion, with the United States accounting for more than a third.

Reuters had reported on Wednesday that Canopy and Acreage were nearing a deal.

The companies said they would also execute a licensing agreement granting Acreage access to Canopy Growth’s brands, including Tweed and Tokyo Smoke, along with other intellectual property.

Once Canopy exercises its right to buy Acreage, it will have access to Canopy’s markets beyond the United States, the companies said, adding that they operate independently until then.

Reporting by Arundhati Sarkar in Bengaluru; Editing by Anil D’Silva