Acreage Holdings Inc. (CNSX:ACRG.U) – Canopy Growth Corp (TSE:WEED) $3.4 Billion Valuation Questioned

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A proposed merger between Acreage Holdings Inc. (CNSX:ACRG.U) and Canopy Growth Corp (TSE:WEED) hangs in the balance, amidst soaring concerns. According to a shareholder of the U.S Cannabis operator, the $3.4 billion takeover value does not represent a fair value.

Canopy Growth-Acreage Holdings

Canopy Growth is planning to acquire Acreage as part of a $3.4 billion deal as it seeks to expand its footprint into the U.S. With the acquisition, the Canadian cannabis player will be able to expand its footprint to about 20 states where Acreage currently has operations. The Canadian player also stands to gain access to a range of dried cannabis products as well as marijuana, edibles, and concentrates.

With the two Company’s board of directors having reached an agreement, the final nail on the coffin depends on the final vote at a shareholders meeting in June.  With valuations, concerns starting to erupt the deal appears to be far from over.

Marcato Capital, which owns about 2.7% of Acreage, has confirmed its opposition to the Canopy bid on concerns it does not represent ‘fair value’ to the Company’s present value as well as future cash flows.  The shareholder has since confirmed it will vote ‘no’ at the June meeting.

According to Marcato, the $3.4 billion bid is not, a fair value in part, because cannabis company’s valuations will skyrocket on the relaxation of current federal restrictions in the U.S. The investment firm believes it would not be prudent for Acreage to go through with a merger that undervalues given its tremendous potential supported by unlocked growth and value embed.

“We believe Acreage’s strategic value, as one of the few multi-state operators of scale in the U.S., with leading positions in the most valuable markets merits a significant premium to any stand-alone cash-flow derived valuation,” said Mick McGuire, founder and managing partner of Marcato Capital Management, in an open letter to Acreage’s board of directors.

Acreage Holding did spike, to the $24 a share mark, on the confirmation it is an acquisition target for Canopy. However, the stock has tumbled in recent weeks back to the $20 a share level as concerns over the proposed merger continue to emerge.

While the valuation concerns could have had, a negative impact on price action, Acreage Spokesperson Howard Schacker remains confident that the deal will happen amidst the uncertainties. It awaits to be seen if concerns echoed by one shareholder will have a ripple effect on other shareholders as well.

Cannabis Sector Consolidation

Mergers and acquisitions are slowly shaping the burgeoning North America cannabis market as companies look to strengthen their competitive edge as well as expansion into new markets. In addition to the proposed Canopy growth and Acreage merger, Cresco Labs is also the running to acquire CannaRoyalty Corp (OTCMKTS:ORHOF) in a deal valued at $825 million.

Arizona based Harvest Health & Recreation Inc. (CNSX:HARV) has also inked an $850 million deal to acquire privately held Verano Holdings. Hexo Corp (TSE:HEXO) is another company pursuing inorganic growth having confirmed plans to acquire Newstrike Brands.

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