Canada's Canopy Growth to buy rival Supreme Cannabis as pot demand lights up

(Reuters) -Canada’s Canopy Growth Corp said on Thursday it will buy rival Supreme Cannabis Co Inc for C$323.3 million ($256.85 million), as the world’s biggest cannabis producer bolsters its portfolio to tap surging demand.

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/File Photo

Shares of Canopy, up 15% this year, fell around 4.6% to C$36 after it announced the cash-and-stock deal for Supreme, which owns pot brands including 7ACRES and Blissco. Supreme shares surged 50% to C$0.40.

The opening of more retail stores and a rise in weed use during the pandemic has brought back investor dollars for cannabis producers after years of underperformance. Hopes of U.S. reforms allowing cross-border commerce are also boosting investments in the sector.

Canopy will continue to push for a higher share of the Canadian market while it prepares for a U.S. entry, Chief Executive David Klein told Reuters.

“We’re a Canadian company... we’re going to use Canada as that kind of solid home base for us to be able to then bring our capabilities and our brands into the U.S. market as it opens,” Klein said in an interview.

He also reiterated that the company is on track to turn profitable on an adjusted basis this year.

The Supreme deal makes Canopy the owner of four out of the top ten cannabis brands in Canada, with an estimated 13.6% of the total recreational market share in the country, the companies said.

Under the deal’s terms, Supreme Cannabis shareholders will receive 0.01165872 of a Canopy common share and C$0.0001 in cash in exchange for each Supreme Cannabis share held.

Including debt, the deal is valued at C$435 million.

($1 = 1.2587 Canadian dollars)

Reporting by Arunima Kumar and Shariq Khan in Bengaluru; Editing by Arun Koyyur and Devika Syamnath