If this agreement is executed as planned, total production capacity of Canopy Growth Corporation (TSE:WEED) will more than double, and the Company will have operations in six provinces
SmallCapPower | October 13, 2017: Canopy Growth Corporation (TSX:WEED), Canada’s largest cannabis producer, announced Wednesday that it has a signed a definitive joint venture agreement with a large-scale greenhouse operator (30 years’ experience in managing and operating ~5.8 million sq.ft. of greenhouse infrastructure across North America) to form a new company, BC Tweed Joint Venture Inc. The JV will develop 1.3 million sq. ft. of greenhouse growing capacity in British Columbia with an exclusive option to develop a further 1.7 million sq. ft. of existing greenhouse infrastructure at a second B.C. location, taking the total capacity to 3.0 million sq. ft. As per the agreement, the JV partner has agreed to lease a 1.3 million sq. ft. greenhouse facility located on a 55-acre parcel of land in B.C. from an affiliate of the Partner, with an option to acquire the property. The Company is hopeful of the first product from the JV as early as July 1, 2018.
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Canopy Growth has industry’s leading production capacity of over 40,000 kg/year and the current JV deal further expands its operational footprint (sixth province) in Canada. In the future, the Company’s production capacity is expected to reach ~100,000 kg/year. Following the expansion announcement at the Company’s existing Tweed Farms Inc. greenhouse facility in Niagara-on-the-Lake, ON, this JV will increase Canopy’s total pro-forma greenhouse production footprint to ~2.3 million sq. ft., with an exclusive option to bring that footprint to 4.0 million sq. ft. Additionally, the Company announced indoor capacity expansion plans that will bring its total indoor production capacity to ~900,000 sq. ft.
If this agreement is executed as planned, total production capacity of Canopy Growth will more than double, and the Company will have operations in six provinces.
Canopy Growth will be the majority owner of the JV with a 66 2/3% share, and based on milestones will issue 310,316 of its common shares to the partner over two tranches and a further $2.75 million of common shares in two remaining tranches. Canopy Growth will contribute about $20 million ($1.0 million advanced at closing) to the JV in exchange for Class A Preferred Shares with cumulative preferred dividends.
Following the announcement of the JV, shares of Canopy Growth surged nearly 6% to close at $13.59 on Wednesday. In terms of valuation, Canopy Growth currently trades at price-to-sales of 47.7x and price to book of 3.5x.
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