Wana Brands founder sells buy option to Canopy Growth as she eyes more growth for the edibles company.
Wana Brands founder Nancy Whiteman has been called the Martha Stewart of pot edibles, but she told MarketWatch she's been more inspired by socially conscious brands such as Warby Parker Inc. and Patagonia as she charts the next chapter for her company with fresh capital from Canadian cannabis company Canopy Growth Corp.
In what's been described as the largest transaction ever in the pot edibles space, Canopy Growth (WEED.T) last week agreed to make a $298 million upfront cash payment in return for options to buy Wana Brands outright, if marijuana becomes federally legal in the U.S. It's similar to Tilray Inc.'s (TLRY) deal with U.S. cannabis company MedMen (MMNFF), which also hinges on potential U.S. legalization.
Even though the acquisition may not go through if pot prohibition remains in place, Wana Brands gets to keep the initial payment from Canopy Growth. It will remain an independent company for the time being.
The transaction with Canopy Growth means that Wana Brands will have more resources to continue its growth and its social agenda. The company has been a public supporter of The Last Prisoner Project, a nonprofit that supports amnesty and expungement of criminal records for cannabis inmates.
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Wana Brands has also hired a director of corporate social responsibly, Karla Rodriguez, to explore other avenues, and has supported other nonprofits including We Don't Waste, the Wildland Firefighter Foundation and Head count.
"There's a lot of entrepreneurs that I admire," Whiteman said. "I tend to gravitate toward companies that have a strong social mission."
Warby Parker has been known for distributing pairs of glasses to people in need through its Buy a Pair, Give a Pair program, while Patagonia has been a major environmental supporter over the years.
Read more: Opinion: Like Nike, Patagonia rightly puts its principles ahead of sales in Jackson Hole.
Up until the deal with Canopy Growth, Boulder, Colo.-based Wana Brands has grown its business of making and selling gummies and other edibles in legal cannabis markets to more than 100 employees in 12 states and nine Canadian markets, with no outside capital for about 11 years.
"We were able to make a great product and market it effectively and expand without taking on any debt or investors," Whiteman said.
As the business expanded, Wana Brands started exploring the possibility of finding a backer to fuel its growth.
"The industry has changed very fundamentally compared to 11 years ago when I started," Whiteman said. "It's no longer the environment it was for small, bootstrapped companies to get started. It's harder for independent entrepreneurs to get a foothold. We're seeing a lot of M&A and consolidation. That's a natural part of any new industry." .
With potential federal legalization on the horizon, Wana Brands saw itself competing against national companies.
Wana Brands chose Canopy Growth out of other suitors because of its potential national footprint, given the large investment made into the company by spirits giant Constellation Brands Inc. STZ. Wana Brands and Canopy Growth were also well known to each other prior to the deal.
"That was a key driver for us in thinking about our timing to find a strong partner in terms of distribution and we felt we lucked out [with Canopy Growth]," she said.
Canopy Growth was particularly interested in getting access to the U.S. edibles market through Wana Brands, which holds a leading position in the space in North America, including a 50% share of the edibles market in Canada.
"Canopy is very strategic about setting up their pathway to enter the U.S. when federal legalization occurs [and] that's what this deal is about," Whiteman said. "They found our geographic footprint compelling and our financials are compelling. Our ability to gain and hold market share has been key."
Under terms of the deal with Canopy Growth, Wana Brands agreed to three separate option agreements whereby Canopy Growth has a call option to acquire 100% of the membership interests in three Wana entities.
Canopy Growth may make additional deferred payments as of the 2 1/2 and five-year anniversaries of the upfront payment, less certain deductions.
Canopy's stock has dropped 46.2% year to date, while the Cannabis ETF (THCX) has slipped 3.6% and the S&P 500 index has rallied 19.3%.
As cannabis products become legal in more states, edibles remain appealing for people who don't want to smoke. The industry has also introduced child resistant packaging. It's also been focusing on educating adults to prevent people from consuming too much at once.
(END) Dow Jones Newswires
October 19, 2021 08:32 ET (12:32 GMT)
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