Canopy Growth – Acreage Holdings Acquisition FAQs

To assist in your understanding of the proposed transactions between Canopy Growth Corporation (“Canopy Growth”) and Acreage Holdings, Inc. (“Acreage”) announced on April 18, 2019, set forth below are some Frequently Asked Questions together with our responses.

A detailed summary of the proposed transactions will be set out in Acreage’s circular (the “Circular”) to be mailed to Acreage shareholders as of May 13, 2019 in connection with the anticipated June 19, 2019 shareholder meeting (the “Shareholder Meeting”) to vote on the resolutions related to the Arrangement (as defined below).

Synopsis: On April 18, 2019, Canopy Growth and Acreage entered into an agreement (the “Arrangement Agreement”). Canopy Growth will receive the Canopy Growth Call Option (as defined below) upon the implementation of the court approved arrangement contemplated in the Arrangement Agreement (the “Arrangement”), which will occur upon the satisfaction or waiver of various conditions, including court and shareholder approvals. Upon closing of the Arrangement and in exchange for the Canopy Growth Call Option, Canopy Growth will pay US$300,000,000 (the “Option Payment Amount”) on a pro rata basis to the holders of certain shares of Acreage and its subsidiaries as described below. Upon the satisfaction or waiver of all of the conditions to exercise of the Canopy Growth Call Option, “triggering event”, there will be an exchange of each Company Share (as defined below) of Acreage (assuming each Company Share is converted to Subordinate Voting Shares) for 0.5818 of a common share of Canopy Growth, subject to adjustment in accordance with the provisions of the Arrangement Agreement.

  • The Arrangement establishing the Canopy Growth Option will become effective at the Initial Effective Time, following the receipt of shareholder approvals for each of Acreage and Canopy Growth along with court approval and all required regulatory approvals and all other conditions to closing are satisfied.
  • The Option Payment Amount will be distributed by the payment agent in accordance with the payment agent’s procedures following the Initial Effective Time. The holders of securities entitled to a pro rata portion of the Option Payment Amount will receive details regarding the procedure to obtain such funds in due course.
  • As noted above, all holders of Subordinate Voting Shares and certain securities convertible into Subordinate Voting Shares, specifically, holders of Proportionate Voting Shares, Multiple Voting Shares, common units and vested profits interests of HSCP not owned by Acreage and Class B non-voting common shares of USCo2, will receive a pro rata share (assuming and taking into account the ratio for adjustment of all such securities into Subordinate Voting Shares) of the Option Payment Amount.
  • The Canopy Growth Call Option expires 90 months (seven and a half years) following the Initial Effective Time. Canopy Growth is required to exercise the Canopy Growth Call Option upon the satisfaction of the “triggering event”, being 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.
  • Subject to the satisfaction or waiver of certain customary closing conditions, the Acquisition is required to be completed by Canopy Growth within 90 days of the exercise of the Canopy Growth Call Option.
  • Acreage will continue to operate in the ordinary course and as an independent company with its own directors and officers until the Acquisition is completed. However, Acreage’s operations shall be subject to certain covenants in the Arrangement Agreement until the earlier of the Acquisition or the termination of the Arrangement Agreement.
  • At the Effective Time, Acreage will enter into a royalty-free license agreement with Canopy Growth, affording Acreage a license to certain of Canopy Growth’s intellectual property, technologies, and brands in the United States, which Acreage intends to leverage across its national footprint.
  • The Option Payment Amount is fixed at US$300,000,000.
  • In connection with the Acquisition, the Exchange Ratio is not subject to adjustment based on the trading prices of Canopy Growth or Acreage; however, the Exchange Ratio may be adjusted in certain circumstances as set out in the Arrangement Agreement. Accordingly, securityholders of Acreage will share in any stock price appreciation in Canopy Growth during the term of the Canopy Growth Call Option based on the Exchange Ratio.

 

Forward Looking Statements

These frequently asked questions contain "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and "forward-looking information" within the meaning of applicable Canadian securities legislation. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Acreage or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information contained in this material change report. These forward-looking statements include, but are not limited to, statements relating to Acreage's expectations with respect to: the timing and outcome of the transactions contemplated in the Arrangement Agreement and the anticipated timing of the special meetings of Acreage and Canopy Growth.

Risks, uncertainties and other factors involved with forward-looking information could cause actual events, results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking information, including assumptions as to the time required to prepare and mail security holder meeting materials; the ability of the parties to receive, in a timely manner and on satisfactory terms, the necessary regulatory, court and shareholders approvals; the ability of the parties to satisfy, in a timely manner, the other conditions to the completion of the Acquisition; the likelihood of the "triggering event" being satisfied or waived by the outside date; the ability of the parties to satisfy, in a timely manner, the conditions to closing following the occurrence or waiver of the "triggering event"; other expectations and assumptions concerning the transactions contemplated in the Arrangement Agreement; the available funds of Acreage and the anticipated use of such funds; the availability of financing opportunities; legal and regulatory risks inherent in the cannabis industry; risks associated with economic conditions, dependence on management and currency risk; risks relating to U.S. regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti-money laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to contracts with third-party service providers; risks related to the enforceability of contracts; reliance on the expertise and judgment of senior management of Acreage; risks related to proprietary intellectual property and potential infringement by third parties; the concentrated voting control of Acreage's founder and the unpredictability caused by Acreage's capital structure; risks relating to the management of growth; increasing competition in the industry; risks inherent in an agricultural business; risks relating to energy costs; risks associated to cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; cybersecurity risks; ability and constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax and insurance related risks; risks related to the economy generally; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the difficulty of enforcement of judgments and effect service outside of Canada; risks related to future acquisitions or dispositions; sales by existing shareholders; and limited research and data relating to cannabis; and such risks as are described in Acreage's annual information form dated April 24, 2019 filed with Canadian securities regulators and available on Acreage's issuer profile on SEDAR at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive.

In respect of the forward-looking information concerning the anticipated completion of the transactions contemplated in the Arrangement Agreement and the timing thereof, Acreage has provided such statements and information in reliance on certain assumptions that it believes are reasonable at this time. Although Acreage believes that the assumptions and factors used in preparing the forward-looking information in this material change report are reasonable, undue reliance should not be placed on such information and no assurance can be given that such events will occur in the disclosed time frames or at all. The forward-looking information included in this material change report are made as of the date of this material change report and Acreage does not undertake an obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable securities laws.

There can be no assurance that the transactions contemplated in the Arrangement Agreement will occur, or that it will occur on the terms and conditions contemplated in this material change report. The transactions contemplated in the Arrangement Agreement could be modified, restructured or terminated. The "triggering event" may not occur or be waived. Actual results could differ materially from those currently anticipated due to a number of factors and risks.

The Acquisition cannot close until necessary regulatory, court and shareholders approvals are obtained, and the "triggering event" has occurred or been waived. There can be no assurance that the Acquisition will be completed as proposed or at all. Investors are cautioned that, except as disclosed herein and in the management information circular to be prepared in connection with the Acquisition, any information released or received with respect to the Acquisition may not be accurate or complete and should not be relied upon.