Canopy Growth to acquire shares in R&D, animal units it doesn’t already own

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Canopy Growth (TSX:WEED) has agreed to acquire the shares it doesn’t already own in Canopy Health Innovations (CHI) and CHI's subsidiary, Canopy Animal Health, bringing its affiliated research arm fully into the broader Canopy Growth family.

"Canopy Health has over-achieved in its mandate to create value and intellectual property relating to medical cannabis applications,” Bruce Linton, CEO and chairman of Canopy Growth and chairman of CHI, said in a statement.

“By combining its IP with Canopy's production and advanced manufacturing platform, we aim to advance speed to market of medical cannabis products," he added. "Bringing CHI fully under the Canopy banner at this time and at this price reflects the value of CHI's existing assets and takes into account the upstream value creation Canopy Growth is uniquely capable of layering on."

Under the accord, shareholders of CHI, other than Canopy Growth, will receive 0.3790 common shares of Canopy Growth for each common share of CHI held. In addition, Canopy Growth will issue options to purchase common shares of Canopy Growth in exchange for options previously issued by CHI and Canopy Animal Health.

In total, Canopy Growth will issue 3,037,771 common shares, having a value of $91.6-million along with options having an "in-the-money" value of  $9.7-million for a total transaction consideration of $101.3-million.  

The transaction will be undertaken by way of a plan of arrangement and is anticipated to close on or before July 31, 2018.

CHI's IP portfolio includes 39 patent applications filed with the U.S. Patent and Trade Office, which would complement Canopy Growth's broader efforts to develop, perfect, and market cannabis medicines in federally regulated jurisdictions around the world. CHI’s partnerships include Oxford-based Beckley Foundation to create Beckley Canopy Therapeutics.

Marc Wayne, president and CEO of CHI, said the company has built a diversified business focused on unlocking the therapeutic and commercial potential of cannabis for both humans and animals.

“Through our Canopy Animal Health subsidiary, we've laid the foundation for a distinct and underserved high margin category,” he added. “With our strong focus on IP and quality science, CHI continues to make significant progress in its mandate to advance cannabis therapies into the medical mainstream.”

The CHI management team will remain in place to continue pursuing IP protection, clinical work, and product formulation for both human and animal cannabinoid programs alongside Canopy Growth's team.

Jennifer Poland