In order to decrease its debt burden, Canada-based cannabis company Canopy GrowthCorporation is paying back CAD 255.4 million (approximately USD 198 million) in convertible notes and approximately CAD 3 million (USD 2.35 million) in cash for accrued and unpaid interest, as announced in a statement today.
ConstellationBrands (CBrands), which indirectly holds 142.3 million canopy shares, representing 35.3% of the issued and outstanding canopy shares, is participating in the transaction. Its wholly-owned subsidiary, Greenstar Canada Investment Limited Partnership, will acquire a minimum of 21.9 million shares and a maximum of 30.7 million shares, further increasing its stake in the company by another 5.4% or 7.6% respecitively.
In a similar deal, CBrands boosted its equity holding in May 2020, when the company, respectively Greenstar, bought 5.1% in Canopy for a total consideration of around CAD 245 million (USD174 million). (inside.beer, 1.5.2020)
According to the new agreement, Greenstar will sell an aggregate of CAD 100 million (USD 77.5 million) principal amount of outstanding 4.25% senior notes due 2023. Depending on the volume-weighted average price of Canopy’s common shares on the Nasdaq for a 10-day period beginning on and including June 30, 2022, Greenstar will receive between 5.4% and 7.6% (between 21,929,914 or 30,701,880 common shares respectively) of the currently issued and outstanding common shares.
In a second supplement, Greenstar can convert another CAD 200 million of convertible bonds into an aggregate of 4,151,540 common shares.
Prior to the Second Supplement and entering the exchange agreement, subsidiaries of CBrands held an aggregate of 142,253,802 common shares, 139,745,453 warrants and CAD 200 million principal amount of notes, representing approximately 35.3% of the issued and outstanding common shares and, assuming full exercise of the warrants and the conversion of the notes held by these entities, would have held approximately 52.3% of the then issued and outstanding common shares.
As a result of the second supplement and following completion of the exchange contemplated by the exchange agreement and the issuance of additional common shares to all other exchanging holders, subsidiaries of CBrands would hold 172,955,682 common shares representing approximately 35.9% of the then issued and outstanding common shares if the exchange price equals the floor price (USD 2.50) and 164,183,716 common shares (representing approximately 35.8% of the then issued and outstanding common shares) if the exchange price equals the market price (closing price of the canopy shares on the Nasdaq on June 29, 2022), 139,745,453 warrants, and CAD 100 million aggregate principal amount of notes.
Assuming full exercise of the warrants held by these subsidiaries and the transactions noted above, subsidiaries of CBrands would hold 312,701,135 common shares, representing approximately 50.3% of the then issued and outstanding common shares if the exchange price equals the floor price or 303,929,169 common shares, representing approximately 50.7% of the then issued and outstanding common shares if the exchange price equals the market price, in each case assuming no other changes in Canopy’s issued and outstanding common shares.
For its fiscal year through March, Canopy’s full year adjusted EBITDA showed a loss of CAD 415.4 million (USD 328 million).
Canopy Growth stocks like many other cannabis stocks have underperformed the market with Canopy’s share price down by a more than 50% in 2022 and even more than 90% since early 2021. Canopy’s market share in Canada has also been in decline and the company has failed to deliver in recent times. Although the current transaction will help alleviate its current debt burden, the company has an additional CAD 900 million (USD 696 million) credit facility that matures in 2026.