Canopy Growth Corporation (“Canopy Growth” or the “Company”) (TSX: WEED) (NASDAQ: CGC) announced today that it has entered into an exchange agreement (the “Exchange Agreement”) with Greenstar Canada Investment Limited Partnership (“GCILP”), a wholly-owned subsidiary of Constellation Brands, Inc. (“CBI”), in order to extinguish C$100 million (approximately USD$73.9 million) aggregate principal amount of the Company’s outstanding 4.25% unsecured notes due 2023 (the “Existing Notes”).
Pursuant to the Exchange Agreement, the Company agreed to acquire and cancel C$100 million aggregate principal amount of the Existing Notes held by GCILP in exchange for: (i) a cash payment to GCILP in the amount of unpaid and accrued interest owing under the Existing Notes held by GCILP; and (ii) a promissory note (the “Promissory Note”) issuable to GCILP in the aggregate principal amount of C$100 million payable on December 31, 2024 (collectively, the “CBI Transaction”). The Promissory Note will bear interest at a rate of 4.25% per year, payable on maturity of the Promissory Note. The CBI Transaction is expected to close on or about April 14, 2023, subject to customary closing conditions.
Further to its press release dated October 25, 2022, Canopy Growth intends to amend its articles in order to, among other things, create a new class of non-voting and non-participating exchangeable shares (“Exchangeable Shares”), which will be convertible into Company common shares. Following closing of the CBI Transaction and the creation of the Exchangeable Shares, the Company maintains its intention to negotiate an exchange with GCILP to purchase for cancellation up to C$100 million aggregate principal amount of the Promissory Note in exchange for Exchangeable Shares, subject to the rules and policies of the Nasdaq and the Toronto Stock Exchange. The repurchase of the Promissory Note in exchange for Exchangeable Shares would preserve the Company’s cash on hand and reduce the Company’s annual expenses.
The CBI Transaction is considered to be a “related party transaction” within the meaning of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”). Pursuant to Section 5.5(a) and 5.7(1)(a) of MI 61-101, the Company is exempt from obtaining a formal valuation and minority approval of the Company’s shareholders with respect to the CBI Transaction as the fair market value of the CBI Transaction is below 25% of the Company’s market capitalization as determined in accordance with MI 61-101. In addition, the CBI Transaction was approved by the board of directors of the Company with Ms. Judy A. Schmeling, a director of CBI, Mr. Garth Hankinson, Chief Financial Officer and Executive Vice President of CBI, Mr. Robert Hanson, Executive Vice President and President – Wine & Spirits Division of CBI and Mr. James Sabia, Executive Vice President and President – Beer Division of CBI, each having disclosed their interest in the CBI Transaction by virtue of their positions with CBI and abstaining from voting thereon. The Company did not file a material change report 21 days prior to the closing of the CBI Transaction as the details of the CBI Transaction had not been finalized at that time. The Company has not received nor has it requested a valuation of its securities or the subject matter of the CBI Transaction in the 24 months prior to the date hereof.