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Tuesday, December 6, 2022

Is the Acreage Holdings Inc (OTCMKTS:ACRGF) Acquisition Fair?

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You may be wondering ‘why the long face’ for Acreage Holdings Inc (OTCMKTS:ACRGF). We know the company has lined up an acquisition by Canopy Growth (CGC), but shares haven’t sprung higher for ACRGF shareholders, while CGC shares have ripped in the interim. One might suggest that there is a clear winner in the valuation determined by the transaction, and it ain’t Acreage. On that note, interestingly enough, Marcato Capital Management LP, a San Francisco-based investment manager which manages funds that beneficially own approximately 2.7% of the outstanding Subordinated Voting Shares of Acreage Holdings, Inc. (ACRGF) just announced it will vote against Acreage’s “value-destroying” proposed transaction with Canopy Growth Corporation.

According to the release, “As a large Acreage shareholder, we will be voting against the proposed transaction with Canopy Growth Corporation as we believe this is a value destructive transaction and not in the best interests of shareholders. Let us explain. The headline transaction value of $3.4 billion is substantially lower than the fair value of Acreage based solely on the present value of Acreage’s future cash flows.”

Acreage Holdings Inc (OTCMKTS:ACRGF) bills itself as Acreage Holdings, formerly High Street Capital Partners, is a principal investment firm specializing in cannabis industry. Acreage Holdings was founded in 2014 and is based in New York, New York.

This is a vertically integrated, multi-state owner of cannabis licenses and assets in U.S. states where either medical and/or adult use of cannabis is legal. With one of the largest geographic footprints of any cannabis companies, it currently owns and/or operates cultivation, processing and dispensary operations. The Company is dedicated to building and scaling operations to create a seamless, consumer-focused branded cannabis experience.

According to public filings, Acreage is the largest multi-state cannabis operator in the United States in terms of number of states with operating licenses, largest total addressable market, and largest serviceable population.  More recently, Acreage announced a transformative acquisition of Form Factory, which will provide the company with the capabilities to become the cannabis industry’s first and only Consumer Packaged Goods company with a national footprint.

Headquartered in New York City, Acreage Holdings is the largest vertically integrated, multi-state owner of cannabis licenses and assets in U.S. states with respect to number of states with operating licenses, according to public filings.

With operating licenses in 19 states, serving a population of more than 172 million Americans, and an estimated 2022 total addressable market of approximately $14 billion in legal cannabis sales according to Arcview Market Research.  Acreage is dedicated to building and scaling operations to create a seamless, consumer-focused branded cannabis experience.

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As noted above, Marcato Capital Management LP (“Marcato”), a San Francisco-based investment manager which manages funds that beneficially own approximately 2.7% of the outstanding Subordinated Voting Shares of Acreage Holdings, Inc. (ACRGF) just announced it will vote against Acreage’s “value-destroying” proposed transaction with Canopy Growth Corporation.

While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action ACRGF shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -9% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities.

In addition, the listing has registered increased average transaction volume recently, with the past month seeing 59% beyond what we have been seeing over the larger time frame.

Now commanding a market cap of $2.32B, ACRGF has a significant war chest ($74.2M) of cash on the books, which must be weighed relative to about $69.9M in total current liabilities. One should also note that debt has been growing over recent quarters. ACRGF is pulling in trailing 12-month revenues of $12.8M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 160%. This may be a very interesting story and we will look forward to updating it again soon. Sign-up for continuing coverage on shares of $ACRGF stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $ACRGF, either long or short, and we have not been compensated for this article.

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