Letter to Shareholders

Letter to Shareholders

Letter to Shareholders

August 17, 2020

Dear Shareholder:

The Board of Directors (the “Acreage Board”) of Acreage Holdings, Inc. (“Acreage”) cordially invites you to ‎attend the special meeting (the “Meeting”) of holders (the “Shareholders”) of Acreage’s issued and outstanding shares to be held at 11:00 a.m. (New York time) ‎on September 16, 2020. In light of the recent coronavirus (COVID-19) outbreak and in order to address potential issues arising from the unprecedented public health impact of the novel coronavirus (COVID-19‎), comply with applicable public health directives that may be in force at the time of the Meeting‎, and to limit and mitigate risks to the health and safety of our communities, Shareholders, employees, directors and other stakeholders, the Meeting will be held in a virtual format, which will be ‎conducted via live webcast online at web.lumiagm.com/‎221798142 (password: Acreage2020‎). Shareholders will not need to, or be able to, physically attend the Meeting. Shareholders will have an ‎equal opportunity to attend, ask questions and vote at the Meeting online regardless of their geographic ‎location. Inside this document, you will find important information and instructions about how to participate ‎in the Meeting.

‎On June 24, 2020, Acreage entered into a proposal agreement with Canopy Growth Corporation (“Canopy Growth”), which sets out, among other things, the terms and conditions upon which the parties are proposing to enter into an amending agreement (the “Amending Agreement”) to amend the existing arrangement agreement between Acreage and Canopy Growth dated April 18, 2019, as amended on May 15, 2019 (the “Existing Arrangement Agreement”), amend and restate the existing plan of arrangement (the “Amended Plan of Arrangement”) and implement the Amended Plan of Arrangement pursuant to the Business ‎Corporations Act ‎‎(British Columbia) (the “Amended Arrangement”).

At the Meeting, you will be asked to consider and approve ‎a special resolution authorizing and approving (i) the Amended Arrangement, (ii) the Amending Agreement, (iii) the Amended Plan of Arrangement, and (iv) the second amended and restated equity incentive plan (the “Amended and Restated Omnibus Equity Incentive Plan”).

Please complete the enclosed form of proxy and submit it to our transfer agent and registrar, Odyssey Trust Company, as soon as possible but not later than 48 hours (excluding Saturdays, Sundays and holidays) prior to ‎the time of the Meeting or any adjournment or postponement thereof.‎

Pursuant to the ‎Amended Plan of Arrangement, among other things, Canopy Growth will ‎make an aggregate cash payment of US$37,500,024 to the ‎Shareholders and ‎certain holders of securities exchangeable for ‎ Existing Shares and Acreage will complete a capital reorganization (the “Capital ‎Reorganization”) ‎whereby: (i) each Class A subordinate voting ‎share (each, an “Existing SVS”) will be exchanged for 0.7 of a ‎Class E subordinate voting ‎share (each whole share, a “Fixed Share”) and 0.3 of ‎a Class D subordinate voting share ‎‎(each whole share, a “Floating Share”); (ii) ‎each Class B proportionate voting share (each, an “Existing PVS”) will be exchanged for 28 ‎Fixed Shares and 12 Floating Shares; ‎and (iii) each Class C multiple ‎voting share (each, an “Existing MVS”, and together with the Existing SVS and Existing MVS, the “Existing Shares”) will be exchanged for 0.7 ‎of a new multiple voting ‎share (each whole share, a “Fixed Multiple Share”) and 0.3 of a ‎Floating Share. ‎Each Fixed Existing MVS ‎will be ‎entitled to 4,300 votes at all meetings of Shareholders with ‎each Fixed Share and ‎each Floating Share entitled to one vote per share at ‎such meetings.‎

As a condition to implementation of the Amended Arrangement, an affiliate of Canopy Growth (the “Lender”) will advance the first tranche of US$50,000,000 of a loan of up to US$100,000,000 (the “Loan”) to an affiliate of the Company that operates solely in the hemp industry in full compliance with all applicable laws (“Hempco”) pursuant to a secured debenture (the “Debenture”).

Pursuant to the Amended Plan of Arrangement, upon the occurrence of a change in federal laws in the United States to permit the general cultivation, distribution and ‎possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from ‎the federal laws of the United States or waiver thereof (at ‎the discretion of Canopy Growth), ‎Canopy Growth will, subject to the satisfaction or waiver of ‎certain closing conditions set out ‎in the Amended Arrangement Agreement: (i) acquire all of ‎the issued and outstanding Fixed Shares ‎‎(following the mandatory conversion of ‎the Fixed Multiple Shares into Fixed Shares) on the ‎basis of 0.3048 of a common share in the capital of Canopy Growth (a “Canopy ‎Growth Share”) for each Fixed Share ‎held at the time of ‎the acquisition of the Fixed Shares (the “Acquisition Time”), subject to ‎‎adjustment in accordance with the terms of the Amended Plan of Arrangement ‎‎(the “Canopy ‎Call Option”); and (ii) have the right (but not the obligation) (the ‎‎“Floating Call Option”), ‎exercisable for a period of 30 days following the Floating Rate Date to acquire all of the ‎issued and outstanding Floating Shares. Upon exercise of the Floating Call Option, Canopy Growth may acquire the Floating Shares for cash or for Canopy Growth Shares or a combination thereof, in Canopy Growth’s sole discretion. If paid in cash, the price per Floating Share shall be equal to the volume-weighted average trading price of the Floating Shares on the Canadian Securities Exchange (the “CSE”) (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41. If paid in Canopy Growth Shares, each Floating Share will be exchanged for a number of Canopy Growth Shares equal to (i) the volume-weighted average trading price of the Floating Shares on the CSE (or other recognized stock exchange on which the Floating Shares are primarily traded as determined by volume) for the 30 trading day period prior to the exercise (or deemed exercise) of the Canopy Call Option, subject to a minimum amount of US$6.41, divided by (ii) the volume-weighted average trading price (expressed in US$) of the Canopy Growth Shares on the New York Stock Exchange (the “NYSE”) (or such other recognized stock exchange on which the Canopy Growth Shares are primarily traded if not then traded on the NYSE) for the 30 trading day period immediately prior to the exercise (or deemed exercise) of the Canopy Call Option (the “Floating Ratio”). The Floating Ratio is subject to adjustment in accordance with the Amended Plan of Arrangement if Acreage issues greater than the permitted number of Floating Shares prior to the Acquisition Date. No fractional Canopy Growth Shares will be issued pursuant to ‎the ‎Amended Plan of Arrangement. The Floating Call Option cannot be exercised unless the Canopy Call Option is exercised (or deemed to be exercised). The acquisition of the Floating Shares pursuant to the Floating Call Option, if exercised, will take place concurrently with the closing of the acquisition of the Fixed Shares pursuant to the Canopy Call Option. It is proposed that the Canopy Call Option and the Floating Call Option will expire 10 years from the Amendment Time. There can be no guarantee as to the value of a Canopy Growth Share at the Acquisition Time.

The Special Committee and the Acreage Board considered a number of factors including, among others, the following:

  1. Preserving Shareholder ValueAcreage assessed the alternatives reasonably available to it and determined that the Amended Arrangement represents the best current prospect for its continued viability and the preservation of Shareholder value. Acreage assessed the alternatives reasonably available to it given disappointing performance, sector-wide stock valuation erosion, significant constraints on funding sources and the very real prospect of being unable to comply with the Existing Arrangement Agreement. Based on these factors and the valuable relationship with Canopy Growth, Acreage determined that entry into the Amending Agreement represents the best current prospect for viability and the preservation of Shareholder value.
  2. Aggregate Amendment Option Payment.  At the Amendment ‎Time, Canopy ‎Growth will pay the Aggregate Amendment Option Payment of US$37,500,024 to the Shareholders, the High Street Holders and the USCo2 Holders, with the amount each such holder is entitled to receive estimated to be approximately $0.30 per Existing SVS. Given that there is no certainty that the Existing Canopy Option will be exercised prior to its expiry, a cash payment to Shareholders is advantageous. The Amended Arrangement still represents an attractive premium to shareholders of approximately 120% to the June 24, 2020 closing price of the Existing Shares on the CSE.
  3. Potential Upside with Floating Shares. Shareholders will receive Floating Shares pursuant to the Amended Arrangement. If Canopy Growth acquires the Floating Shares pursuant to the Floating Call Option, it will do so at a price based upon the 30-day volume-weighted average trading price of the Floating Shares on the CSE, subject to a minimum of US$6.41 per Floating Share. The Acreage Board believes that, the Floating Shares, if acquired by Canopy Growth, and depending on market factors and the growth of Acreage’s business between the Amendment Time and the Acquisition Date, when combined with the consideration to be received for the Fixed Shares at the Acquisition Time, could produce a more attractive Shareholder return as compared to the Existing Arrangement 
  4. Canopy Growth Loan to Hempco. As a condition to the Amended Arrangement becoming effective, the Lender will provide Hempco with an Initial Advance of US$50,000,000 pursuant to the Debenture. A further US$50,000,000 advance will be made available upon satisfaction of specified Hempco conditions precedent. The Loan is anticipated to provide Acreage with the necessary financing for Hempco’s operations in the CBD market. Acreage anticipates that Hempco’s operations will leverage Canopy Growth’s current U.S. CBD business, be accretive and drive overall value for Shareholders.
  5. Management Service Agreements. Pursuant to the Amending Agreement, in the event that Canopy Growth acquires, or conditionally acquires, a competitor of Acreage in the United States, Canopy Growth, as a condition to completing such transaction, will require the target entity (the “Target Cannabis Operator”) to enter into a commercially reasonable management service agreement with Acreage on terms acceptable to Acreage, acting reasonably. In the event that the Target Cannabis Operator and Acreage cannot agree upon a commercially reasonable management service agreement, the Target Cannabis Operator will pay a management fee to Acreage equal to a percentage of net revenue generated by the Target Cannabis Operator.
  6. Waivers and Consents Obtained under Existing Arrangement.  As a condition to entering into the Proposal Agreement, Canopy Growth provided Acreage with advance consent required pursuant to the Arrangement Agreement to (i) enable Acreage to sell all or substantially all of the assets of Acreage or its Subsidiaries situated or located outside of the Identified States on such terms as Acreage may negotiate from time to time; and (ii) sell particular real property on terms that may be negotiated by Acreage.

For additional information with respect to these and other ‎anticipated benefits of the Amended Arrangement, see the section in the proxy statement and management information circular accompanying this letter (the “Circular”) entitled “The Amended Arrangement – Reasons for the ‎Amended Arrangement”.‎

The special resolution approving the Amended Arrangement, the Amending Agreement, the Amended Plan of Arrangement and the Amended and Restated Omnibus Equity Incentive Plan (the “Amendment Resolution”) must be approved by at least 66⅔% of ‎the votes cast at the Meeting by the holders of Existing Shares, voting together as a single class. In addition, the ‎Amendment Resolution is subject to approval by a simple majority of votes cast by the holders of Existing SVS and Existing PVS, present virtually or represented by proxy and entitled to vote at the Meeting, voting together as a single class‎, excluding the votes in respect of Existing Shares which are owned, held, controlled or directed by Mr. Kevin Murphy. The Amendment ‎Resolution is also subject to the approval of a simple majority of the votes cast by the holders of outstanding Existing SVS, Existing PVS and Existing MVS, voting together as a single class, excluding the votes in respect of Existing Shares which are owned, held, controlled or directed by Mr. Murphy. Abstentions and broker non-votes will not have any effect on the approval of the Amendment Resolution.

Eight Capital ‎has delivered an opinion to the special committee of the Acreage Board (the ‎‎“Special Committee”), which states that, as of the date thereof, and subject to the assumptions, ‎qualifications and limitations set out therein, the consideration to be ‎received by the Shareholders pursuant to the Amended Arrangement is fair, from a financial point of view, to the Shareholders ‎‎(the “New Fairness Opinion”). ‎

After consulting with Acreage management and receiving advice and assistance of its financial and legal advisors, and after careful consideration of a number of alternatives and factors, including, among others, receipt of the unanimous recommendation from the Special Committee, the New Fairness Opinion and the factors set out in the Circular under the heading “Reasons for the Amended Arrangement”, the members of the Acreage Board unanimously (with the exception of Mr. Murphy, who declared his interest in the transactions contemplated by the Proposal Agreement and the Amending Agreement and abstained from voting in respect thereof) determined that the Amended Arrangement and entry into the Proposal Agreement are in the best interests of Acreage ‎and are fair to Shareholders and recommend that Shareholders vote FOR the Amendment Resolution. The accompanying Circular describes the background to the Acreage Board’s‎ determinations and recommendations.

The accompanying Circular contains a detailed description of the Amended Arrangement‎ and includes other information to assist you in considering the matters to be voted upon which we encourage you to carefully consider. If you require assistance, you should consult your financial, tax, legal and other professional advisors.

Your vote is important regardless of the number of Existing Shares you own. All Shareholders are encouraged to ‎take the time to complete, sign, date and return the applicable form of proxy in accordance with the instructions set ‎out therein and in the accompanying Circular so that your Existing Shares are voted at the Meeting in ‎accordance with your instructions. If you are a non-registered Shareholder and hold your Existing Shares through a ‎broker, custodian, nominee or other intermediary, please follow their instructions.‎

Please vote as soon as possible.

While certain matters, such as the timing of the receipt of court approval and the satisfaction of certain other ‎conditions, are beyond Acreage’s control, if the requisite approvals are obtained from Shareholders, it is ‎anticipated that the Amended Arrangement will be completed in September of 2020.‎

Enclosed is a letter of transmittal for registered Shareholders explaining how you can deposit your Existing Shares and obtain the Fixed Shares and Floating Shares in exchange therefor in connection with the Capital Reorganization. The letter of transmittal will also be available on the Company’s website at Investors.acreageholdings.com as well as on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar or by contacting Odyssey Trust Company (using the information set out on the back of the accompanying Circular).

If you have any questions regarding the submission of your proxy, please contact Odyssey Trust Company, at its ‎North American toll-free number: ‎1-888-290-1175 ‎or ‎Kingsdale Advisors, the strategic advisor and the proxy ‎solicitation agent for Acreage, by telephone at 1-877-657-5856 toll-‎free in North America (+1-416-867-2272 collect) or by e-mail at contactus@kingsdaleadvisors.com‎.‎

On behalf of Acreage, I would like to thank all Shareholders for your ongoing support.‎

Sincerely,

__________________________
William C. Van Faasen
Interim Chief Executive Officer
Acreage Holdings, Inc.