Canopy Growth Corp., Canada’s largest licensed producer, has announced its acquisition of Hiku Brands Co., and estimates of the all-stock deal range from $250 M (as reported in the Financial Post) to $350 M (according to Hiku).

Hiku owns the cannabis lifestyle brand/ coffee shop Tokyo Smoke along with licensed producer DOJA Cannabis, and Canopy CEO Bruce Linton cited Tokyo Smoke as a major reason for the acquisition saying: 

“Hiku equals brands. Canopy is built on brands. So we combined them”.

Once cannabis is legalized in October, Hiku plans to open cannabis retail stores in provinces that are allowing private retail. Along those ends, Hiku has applied for retail licenses in Alberta’s biggest cities and is working to open stores in Newfoundland and Labrador. Hiku also holds a conditional retail license in Manitoba.

As Canopy CEO Bruce Linton told the Globe and Mail: 

“They need product to fill the stores. And we want to be able to have more and more stores”.

Hiku is a relatively new company, having formed back in January from the merger of Tokyo Smoke and DOJA Cannabis. Tokyo Smoke is often billed as a “hipster coffee chain” that sells cannabis accessories, while DOJA is a BC-based licensed producer.

Major shareholders in Hiku include Jeremy and Jason Drummond, who are members of the Regina-based billionaire family that have been accused of trying to control and monopolize the Canadian cannabis industry by cannabis activists like dispensary owner Pat Warnecke. Mr. Warnecke also told CLN in a previous interview that the Drummonds are major shareholders in licensed producers Aphria and Aurora Cannabis.

An impending cannabis oligopoly

One of the biggest problems with Canada’s legalization is that cannabis distribution is being controlled by the provincial governments, who are sourcing their cannabis from a few licensed producers, which will lead to a system where all retail stores are basically selling the same weed, regardless if the stores are public or private.

Canopy’s acquisition of Hiku gives the company another outlet for its cannabis while creating the illusion of choice because with all the mergers and acquisitions in the cannabis industry lately, it seems that despite a plethora of cannabis retail brands, they will all be owned by a few large companies- aka a classic oligopoly.

Is Canopy acquiring more brands to distance itself from past controversies?

It makes sense that Canopy would want to buy Hiku Brands- to get away from some of the negative associations that have tainted Canopy’s product over the past few years.

You may remember that Canopy is still facing a class action lawsuit over a recall due to Mettrum’s use of myclobutanil, a banned pesticide, which forced Health Canada to begin conducting random spot checks on LP weed to ensure no banned pesticides are being used.

Mettrum is a licensed producer that was acquired by Canopy for $430M in early 2017, mere months after the recall was announced, and Canopy has said it will vigorously defend itself against all suits related to the Mettrum recall.

Hiku’s previous deal with WeedMD canceled for $10 M

Back in April, Hiku had a $240M deal to merge with WeedMD, an Ontario-based licensed producer. This deal was canceled, which forced Hiku to pay WeedMD $10M in termination fees as it announced its new deal with Canopy Growth.

For comparison’s sake, estimates of Canopy’s deal with Hiku range from $250-350M.

In the wake of the deal falling through, WeedMD has appointed a new CEO, Keith Merker (who was WeedMD’s CFO) while retaining former CEO Bruce Dawson-Sculley as an advisor.

WeedMD CEO Keith Merker said in a statement:

“With an additional $10 million in non-dilutive capital . . . we’re in a solid position financially and operationally to continue executing and delivering on all of our goals and objectives”.

Sources

Financial Post: Canopy to acquire Tokyo Smoke parent company in $250 million retail play.

Globe and Mail: Canopy buying Hiku Brands, owner of Tokyo Smoke coffee shops.

London Free Press: Local marijuana firm paid $10M after mega-merger nixed.

Newswire: Canopy Growth Statement Regarding Possible Class Action Related to Mettrum Health Corp. Recall.

Share Purchase Agreement: March 6, 2018.