What’s Up in Weed – May 15, 2018

I am pleased to bring you this installment of my blog, rounding up what’s happening in the cannabis industry in Canada and abroad.

SkyLaw client Gotham Green Partners makes record-setting investment of US$50 million into iAnthus Capital Holdings. Inc.!

• Gotham Green Partners, a New York-based private equity firm focused on deploying capital into cannabis enterprises, closed a US$50 million investment into iAnthus Capital Holdings, Inc. on Monday, the largest-ever investment by a single investor into a publicly traded company with US cannabis operations.
• SkyLaw is thrilled to have advised Gotham on the transaction.  The investment included both high-yield debt and equity components, along with warrant coverage and specialized arrangements for the exchange of the debentures for equity of iAnthus.
• “Gotham Green Partners is well recognized as a long-term investor and leader within the cannabis investment community, and we are excited to partner with GGP to create value for our shareholders,” said Hadley Ford, CEO of iAnthus.
• iAnthus, which is listed on the Canadian Securities Exchange, owns and operates licensed cannabis cultivation, processing and dispensary facilities throughout the United States.  It plans to apply the proceeds of the financing towards repayment of debt, cultivation and dispensary build-outs in New York and Florida, and strategic expansion activities.
• Jason Adler, Gotham’s Managing Member, said that iAnthus’ recent cannabis-related acquisitions in New York and Florida, combined with its operations in Massachusetts, provided a compelling growth and investment opportunity.  “With this infusion of capital, we look forward to working with the management team to source additional strategic opportunities and accelerate the company’s growth profile,” he commented.
• We are delighted and proud to work with Gotham, and we extend our congratulations to both Gotham and iAnthus on a successful closing.

A new high for valuations: Aurora to buy MedReleaf for $3.2 billion

• Licensed producer Aurora Cannabis Inc. shattered valuation records Monday morning by announcing it would acquire fellow licensed producer MedReleaf Corp. for $3.2 billion in an all-share transaction, a 34% premium to MedReleaf’s then-current stock price.  Both companies are listed on the TSX.
• The move comes one week after the companies addressed market rumours about a merger, admitting to “discussions” with each other but confirming that they had not entered into any agreements regarding a transaction, and just two weeks after Aurora completed its acquisition of CanniMed in a $1.2 billion mixed shares and cash transaction, in what was at that time the biggest takeover to date in the cannabis industry.  Aurora’s acquisition of MedReleaf is a friendly deal, unlike its CanniMed transaction, which began as a hostile takeover.
• The deal’s sheer size makes it a headline-grabber, and reflects the key advantage that public companies have in being able to issue their own shares as as currency in a rapidly consolidating industry.  Share-based acquisitions, however, carry their own risks: shareholders of the acquiror get diluted without the new cash influx that comes from a financing, and shareholders of the target end up holding shares of a company they didn’t originally invest in.  Moreover, those consideration shares only pay off if their value holds steady or continues to climb.  In a market where nearly half a dozen public LPs carry billion-dollar market caps, valuations are already on people’s minds, and are likely to be a key factor in M&A going forward.

Canopy heads to the Big Apple

• While SkyLaw client Cronos Group Inc. made history as the first licensed producer to become listed on a US stock exchange when it listed its shares on the NASDAQ in February, behemoth licensed producer Canopy Growth Corp. has now joined it south of the border, applying to become listed on the New York Stock Exchange, and expects the process to conclude before the end of May.
• Listing on major stock exchanges like the NASDAQ and NYSE raises a company’s profile to investors, including institutional investors.  Cronos and Canopy are eligible to become listed on US stock exchanges in part because they have no operations in the US, where cannabis remains illegal under federal law.

By: Andrea Hill