Full Press Release Details
MATERIAL CHANGE REPORT
Canopy Growth Corporation ( Canopy Growth )
Smiths Falls, ON, K7A 0A8
The news release attached hereto as Schedule A was disseminated on August 14, 2018 by Canada Newswire.
On August 14, 2018, Canopy Growth entered into a subscription agreement (the Subscription Agreement )
with CBG Holdings LLC, a Delaware limited liability company ( CBG ) and indirect wholly-owned subsidiary of Constellation Brands, Inc. ( Constellation and, together with its subsidiaries, the CBG
Group ), pursuant to which CBG agreed to purchase 104,500,000 common shares of Canopy Growth at a price per common share of C$48.60, for an aggregate subscription price of approximately C$5.079 billion (the
Greenstar Canada Investment Limited Partnership, a limited partnership existing under the
laws of the Province of British Columbia ( Greenstar ) and indirect wholly-owned subsidiary of Constellation, currently owns 18,876,901 common shares of Canopy Growth, representing an 8.5% interest in Canopy Growth. Greenstar also
holds warrants to purchase an additional 18,876,901 common shares, representing 8.5% of the currently issued and outstanding Canopy Growth common shares, of which 50% have vested, with the remaining 50% vesting on February 1, 2019 (the
Greenstar Warrants ).
It is expected that the common shares issuable to CBG pursuant to the
Subscription Agreement will result in CBG and Greenstar collectively holding approximately 37.8% of the issued and outstanding common shares of Canopy Growth on a fully diluted basis as of the closing of the Investment (the Closing
Date ), assuming exercise of all Greenstar Warrants and assuming: (A) the exercise of options to purchase 18,824,025 common shares of Canopy Growth and 29,930 restricted stock units; (B) the successful completion of the proposed
acquisition of Hiku Brands Company Ltd. by Canopy Growth by statutory plan of arrangement in accordance with the terms and conditions of the arrangement agreement dated July 10, 2018;
and (C) the cash settlement of all issued and outstanding 4.25% convertible senior notes issued by Canopy Growth (together with items A and B, the Fully Diluted
In addition, CBG will acquire 139,745,453 common share purchase warrants (the
Warrants ), of which 88,472,861 Warrants (the Tranche A Warrants ) will have an exercise price of C$50.40 and will be immediately exercisable at any time, and from time to time, for a period of three years
following the Closing Date and 51,272,592 of the Warrants (the Tranche B Warrants ) will have an exercise price based on the five-day volume weighted average trading price of the common
shares of Canopy Growth on the Toronto Stock Exchange at the time of exercise and will have a term of three years following the Closing Date. The Tranche B Warrants will become immediately exercisable if and when all of the Tranche A Warrants have
It is expected that CBG and Greenstar will have beneficial ownership of common shares of Canopy Growth
representing approximately 55% of the issued and outstanding common shares of Canopy Growth (calculated on a fully diluted basis as of the Closing Date and assuming the full exercise of the Greenstar Warrants and the Warrants, the Fully Diluted
Assumptions and that no further common shares or securities convertible into common shares in the capital of Canopy Growth are issued between the date of the Subscription Agreement and the Closing Date). (See Forward-Looking Statements
in the news release attached as Schedule A ).
Canopy Growth believes that it will benefit from
Constellation s deep understanding of consumer trends and shifting preferences, and proven ability to translate those insights into distinct brand positionings that build strong connections with consumers and foster brand loyalty.
Constellation s disciplined approach and capabilities in areas such as mergers and acquisitions, finance, large-scale production, marketing and sales as a leading Fortune 500 company, combined with Canopy Growth s entrepreneurial approach
and best-in-class knowledge and expertise within the emerging cannabis sector create a powerful combination that will ensure Canopy Growth is set up for sustainable,
long-term success as the company and sector evolve. (See Forward-Looking Statements in the news release attached as Schedule A ).
The Subscription Agreement contains customary representations and warranties from both Canopy Growth and CBG and each have
agreed to customary covenants, including, among others, covenants on the part of Canopy Growth relating to: (i) the conduct of Canopy Growth s business during the interim period between the execution of the Subscription Agreement and the
completion of the Investment; (ii) Canopy Growth s obligation to give notice of an amended notice of meeting for its annual general meeting of shareholders, setting the date for such meeting at September 26, 2018, preserving the
existing record date and amending the meeting to be a special meeting to consider the Investment and the election of the CBG Nominees (as defined below) to the Canopy Growth Board of Directors (the
Canopy Board ); and (iii) subject to certain limited and customary exceptions, the recommendation by the Canopy Board that Canopy Growth shareholders approve the Investment
and the election of the CBG Nominees to the Canopy Board. Canopy Growth has also agreed: (x) not to solicit any alternative acquisition proposals; (y) subject to certain limited and customary exceptions, not to enter into any discussions
with respect to, or enter into any agreement concerning, or provide confidential information in connection with, any alternative acquisition proposal; or (z) subject to certain exceptions, that the Canopy Board will not withdraw, modify or
qualify in any manner its recommendation that Canopy Growth shareholders approve the Investment and the election of the CBG Nominees to the Canopy Board.
CBG has agreed that until the earlier of: (i) the termination of the Subscription Agreement; (ii) the Closing Date;
and (iii) April 1, 2019, it will not, and will cause its affiliates not to, directly or indirectly, whether individually or by acting jointly or in concert with any other person (including by providing financing or other support or
assistance to any other person), without the express written consent of the Canopy Board or except in accordance with the terms of the Subscription Agreement acquire additional securities of Canopy Growth or engage in certain transactions set forth
in the Subscription Agreement, including mergers, take-over bids, proxy solicitations, or otherwise attempt to control or to influence the management or Canopy Board.
The closing of the Investment is subject to certain customary closing conditions including the receipt of approval from the
Toronto Stock Exchange, approval of the Canopy Growth shareholders, receipt of regulatory approvals pursuant to the Investment Canada Act (Canada) and Competition Act (Canada), if required, and receipt of any required third-party
The Subscription Agreement entitles each of CBG and Canopy Growth to certain customary termination rights,
exercisable upon the occurrence of certain events, including: (i) by either CBG or Canopy Growth if the Investment has not been completed by April 1, 2019, or such later date as may be agreed by the parties; (ii) by CBG if the Canopy
Board withdraws, qualifies or modifies of its recommendation that Canopy Growth shareholders approve the Investment and election of the CBG Nominees to the Canopy Board or adopts, approves, recommends, endorses or otherwise declares advisable the
adoption of any alternative acquisition proposal; or (iii) by Canopy Growth if, prior to obtaining the shareholder approval, the Canopy Board authorizes Canopy Growth to enter into a proposed agreement for a superior alternative acquisition
proposal provided that Canopy Growth is then in compliance with its covenant not to solicit alternative acquisition proposals and that, prior to or concurrent with such termination, Canopy Growth pays a termination fee.
The Subscription Agreement provides that Canopy Growth must pay CBG a termination fee of varying amounts if the Subscription
Agreement is terminated in
certain circumstances. The Subscription Agreement contemplates that Greenstar, CBG and Canopy Growth will enter into an Amended and Restated Investor Rights Agreement (the A&R
IRA ) on the Closing Date, which will amend the Investor Rights Agreement dated November 2, 2017 between Greenstar and Canopy Growth, pursuant to which the Canopy Board will be increased from five directors to seven directors, four of
whom will be nominated for election by CBG (the CBG Nominees ) so long as the CBG Group holds at least the Target Shares (as defined below). In the event that the CBG Group ceases to hold the Target Shares, CBG will be entitled to
designate a number of CBG Nominees that represents its proportionate share of the number of directors comprising the Canopy Board (rounded up to the next whole number) based on the CBG Group s percentage ownership of outstanding Canopy Growth
common shares (assuming the exercise or conversion of any convertible securities then owned by the CBG Group). Target Shares means that number of common shares in the capital of Canopy Growth that satisfies the following two
conditions: (i) 117,208,056 common shares, subject to certain adjustments; and (ii) the number of common shares and warrants that represents 28.2% of the outstanding Canopy Growth common shares, assuming for the purposes of this calculation,
the exercise or conversion of all convertible securities owned by the CBG Group, including the Greenstar Warrants and the Warrants.
The A&R IRA will provide that so long as the CBG Group continues to hold at least the Target Shares, the Canopy Board will
not: (i) propose or resolve to change the size of the Canopy Board, except where otherwise required by law, or with the consent of CBG; or (ii) present a slate of director nominees to the shareholders of Canopy Growth for election to the
Canopy Board that is greater than or fewer than seven directors. The A&R IRA will also provide CBG certain rights subject to certain conditions, including, among others, approval rights for certain transactions,
pre-emptive rights, registration rights, and top-up rights. In addition, the A&R IRA will provide that, subject to certain conditions, so long as the CBG Group
continues to hold at least the Target Shares, the CBG Group will adhere to certain non-competition restrictions including that: (y) Canopy Growth will be its exclusive strategic vehicle for cannabis
products of any kind anywhere in the world; and (z) Canopy Growth will be presented exclusively all cannabis opportunities of the type more particularly described in the A&R IRA (the Cannabis Opportunities ). Further, the
CBG Group will agree, for a limited period of time, to certain post-termination, non-competition restrictions, which include not pursuing any other Cannabis Opportunities and not directly or indirectly
participating in a competing business of Canopy Growth anywhere in the world.
The A&R IRA will terminate if the CBG
Group ceases to own at least 33,000,000 common shares of Canopy Growth (or earlier upon the occurrence of certain other events more particularly described in the A&R IRA).
The above descriptions of the Subscription Agreement and the agreements attached thereto as exhibits, including the forms of
the Warrants and the form of the A&R
IRA, are qualified in their entirety by the terms of the Subscription Agreement which will be filed by Canopy Growth on www.SEDAR.com.
The Investment constitutes a related party transaction within the meaning of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions of the Canadian Securities Administrators ( MI 61-101 ) because
Constellation, on a consolidated basis, owns more than 10% of the outstanding common shares of Canopy Growth and, as a result, CBG is a related party of Canopy Growth under MI 61-101. The
Investment is exempt from the formal valuation requirement under MI 61-101 on the basis that the Investment is a distribution of securities for cash and neither Canopy Growth nor, to the knowledge of Canopy
Growth after reasonable inquiry, CBG, has knowledge of any material information concerning Canopy Growth or its securities that has not been generally disclosed. The Investment is subject to the minority shareholder approval requirement of MI 61-101 and as a result, Canopy Growth will seek approval of the Investment by a majority of the votes cast by the holders of common shares of Canopy Growth, other than Greenstar and any other shareholder required to
be excluded under MI 61-101.
See the news releases attached as Schedule A .
Bruce Linton, Chief Executive Officer of Canopy Growth is knowledgeable about the material change described above. His
business telephone number is 1-855-558-9333.
Please see attached.
Constellation Brands to Invest $5 Billion CAD ($4 Billion USD) in
Canopy Growth to Establish Transformative Global Position and Alignment
Expands Strategic Partnership to Accelerate Canopy Growth s Global Expansion Plans
in Rapidly-Growing Medical and Recreational Cannabis Markets
Victor, NY and Smiths Falls, ON, Aug., 15, 2018 Constellation Brands (NYSE: STZ and STZ.B), a leading beverage alcohol company, and Canopy
Growth Corporation (Canopy Growth) (TSX: WEED, NYSE: CGC), a leading diversified cannabis company (together, the Companies ), today announced a significant expansion of their strategic partnership to position Canopy Growth as the global
leader in cannabis production, branding, intellectual property and retailing.
Constellation Brands will increase its ownership interest
in Canopy Growth by acquiring 104.5 million shares directly from Canopy Growth, thereby achieving approximately 38 percent ownership when assuming exercise of the existing Constellation warrants. Constellation Brands is acquiring the new
shares at a price of C$48.60 per share, which is a 37.9 percent premium to Canopy s 5-day volume weighted average price of the common shares on the Toronto Stock Exchange ( VWAP ), and a 51.2 percent premium to the closing
price on August 14, 2018. Constellation will also receive additional warrants of Canopy that, if exercised, would provide for at least an additional $4.5 billion CAD to Canopy Growth.
As a result of the new shares Constellation is acquiring, Canopy Growth will immediately upon closing have proceeds of approximately
$5 billion CAD ($4 billion USD) to bolster its leadership position in the global cannabis industry. This investment, the largest to date in the cannabis space, will provide funds which Canopy Growth will deploy to strategically build
and/or acquire key assets needed to establish global scale in the nearly 30 countries pursuing a federally permissible medical cannabis program, while also rapidly laying the global foundation needed for new recreational cannabis markets. Canopy
Growth s Canadian platform does not require additional cannabis cultivation assets, and management views other jurisdictions, including the United States, as strategic priorities requiring significant capital.
Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner, said Rob Sands, Chief Executive
Officer, Constellation Brands. Over the past year, we ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy s market-
leading capabilities in this space. We look forward to supporting Canopy as they extend their recognized
global leadership position in the medical and recreational cannabis space.
Canopy Growth will benefit from Constellation s
deep understanding of consumer trends and shifting preferences, and proven ability to translate those insights into distinct brand positionings that build strong connections with consumers and foster brand loyalty. Constellation s disciplined