Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
Issue link: https://digital.carswellmedia.com/i/1181164
4 LEXPERT MAGAZINE | OCTOBER 2019 LEXPERT: is deal was a highly complex M&A transaction; what made it so? JAMIE LITCHEN, CASSELS BROCK & BLACKWELL LLP (FOR CANOPY GROWTH): In addition to the many corporate, secur- ities, regulatory and tax law considerations that complicated the transaction, the length of the interim period between signing and closing was an overarching factor that com- plicated this transaction. While there is typically a period of two to three months in between signing a definitive agreement and closing of a public M&A transaction, the conditional nature of the Acreage acquisi- tion resulted in a significantly longer inter- im period prior to closing. is required us to consider and negotiate with respect to a number of variables and potential scenarios that could arise over the course of a 7.5-year period. e inter- im covenants were of critical import- ance in this transaction as we endeav- ored to balance the need for safeguards to protect Canopy Growth's invest- ment, while also providing Acreage with flexibility to develop and grow its business. In many ways, because of the long interim period, this transaction combined elements of a joint venture as well as an acquisition. PHIL SHAER, CHIEF LEGAL OFFICER, CANOPY GROWTH: If stock exchange rules had permitted we would have acquired Acreage earlier, but that was not the case. As a result, we needed to find a solution, and we had been working with Cassels for several months to address the various concerns of the regulators and potential acquisition structures. e legal and regulatory nuances of the cannabis industry meant that while we could pay shareholders for the right to acquire Acre- age, there were significant restrictions on any cash consideration payable to Acreage and the types of control we could exercise in advance of the consummation of the ac- quisition. In addition to this, our majority shareholder, Constellation Brands, had a consent right. Negotiating with multiple potential targets and simultaneously with Constellation Brands added an additional layer of complexity to an already compli- cated transaction. JAMES DOHERTY, GENERAL COUNSEL, ACREAGE HOLDINGS: e transaction involved current and future shareholders of a public company (Acreage Holdings) granting an option to Canopy Growth to buy their Acreage Holdings shares at a specified exchange rate at an indeterminate future date, all pursuant to amended articles under a plan of arrange- ment. e transaction was further com- plicated by Acreage Holdings' i) multiple share class structure, ii) subsidiary retained interests, iii) convertible and exchangeable securities, and iv) status as an inverted com- pany for US tax purposes. e transaction introduced corporate, securities and tax law issues that we had not encountered in previous public M&A transactions (not to mention the overarching US cannabis regu- latory framework necessitating the novel transaction structure). LEXPERT: How will this deal set a pre- cedent for companies to participate in the upside of the largest cannabis market in the world -- as well as for global alcohol, tobac- co, consumer packaged goods or pharma- ceutical companies? LITCHEN: While the specific deal terms will differ for future applications of this structure, there is now a roadmap that we have developed for a company to acquire a When Canopy Growth Corporation implemented its plan of arrangement in June to acquire US multi-state operator Acreage Holdings, Inc. for US$3.4 billion, it completed a highly complex M&A transaction that set a new precedent for companies to participate in the upside of the largest cannabis market in the world. Canopy Growth's purchase of Acreage Holdings overcame multiple regulatory hurdles INTERVIEW By Elizabeth Raymer On the Deal Q&A: Cannabis's Green Light Jamie Litchen Cassels Brock & Blackwell LLP Phil Shaer Chief Legal Officer, Canopy Growth James Doherty General Counsel, Acreage Holdings Robert Fonn DLA Piper (Canada) LLP ON THE DEAL