Constellation Brands, Inc. Class A (NYSE:STZ) and Canopy Growth Corp (NYSE:CGC) have announced that they have agreed to make some changes to various warrants and rights.

The new agreement to change some of the warrants and rights that influence their partnership is believed to have been influenced by Canopy’s plans to acquire Acreage Holdings Inc (OTCMKTS:ACRGF).  Another key factor that influenced the decision by Constellation Brands and Canopy Growth to review the warrants and rights is the chance of cannabis legalization by the federal government. Canopy shareholders will decide whether to approve or turn down the proposed warrant modifications.

“Today we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists,” stated Bruce Linton, the co-CEO of Canopy Group.

The warrants involved in the process

Constellation agreed to relinquish its veto rights for the transaction with Canopy Growth due to various modifications that have been proposed for the warrants and other involved conditions. About 18.9 million warrants are involved, courtesy of Canopy investment in Constellation Brands. The latter also has 139.7 million warrants courtesy of its investment in Canopy which are also pending shareholder approval before they can be exercised.

Once they receive shareholder approval, the warrants can be exercised over a period of five to seven years from November 1 last year. Constellation is re-evaluating its investment position in Canopy Growth especially now that there is a major deal which depends on cannabis legalization by the Federal government. The re-evaluation will also provide an opportunity for Constellation to ease the pressure especially as the North American marijuana industry steers towards stability.

The 18.9 million warrants that are part of Canopy’s November 2017 investment are divided into two tranches. The first is the 88.5 million Tranche A warrants which can be exercised at $50.40 CAD price per share. There were 51.2 million Tranche B warrants, of which 75% of them or 38.4 million warrants can be exercised at $76.68 CAD per share. The 25% Tranche B shares that will remain will be converted into Tranche C warrants that can be exercised based on a five-day volume weighted average price of Canopy’s common stock at the Toronto Stock Exchange.