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  1. Acreage sale to Canopy is conditional on U.S. cannabis legislation passing before 2025
  2. Proposed laws capable of triggering the transaction are at various stages in the legislative process
  3. Acreage CEO Kevin Murphy blamed what he saw as a “delay” on the increasing number of proposals

Cannabis legalization efforts in the United States are taking longer than expected, the CEO of Acreage Holdings said Thursday.

Speaking on a conference call after the multi-state operator announced a wider-than-expected second-quarter loss, Kevin Murphy told analysts the proliferation of cannabis-related bills currently active in the U.S. House of Representatives is creating a level of confusion that could delay their passage. Last month, Acreage shareholders voted overwhelmingly in favour of a plan to sell the company to Canadian licenced cannabis producer Canopy Growth in a highly unusual US$3.4-billion deal that involved an immediate US$300-million cash payment for the right to acquire Acreage.

The full transaction will only be triggered if U.S. federal cannabis prohibition ends by 2025 and legal cannabis businesses are allowed to exist. Despite the majority of U.S. states legally authorizing certain cannabis businesses today, both medicinal and recreational cannabis companies remain illegal in the eyes of current federal law.

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“With more bills being circulated, it creates more confusion and it’s difficult to corral everyone behind one or two separate bills,” Mr. Murphy said. “That is where I think we have led to a little bit of delay and I am probably a little bit more balanced in my enthusiasm.”

He specifically referenced the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, introduced in late July by Rep. Jerrold Nadler (D-NY), as an example of the growing chorus of proposals. The MORE Act would remove marijuana and THC from the Controlled Substances Act, address prior cannabis conviction records, impose a five per cent federal tax on cannabis sales and prevent federal agencies from using cannabis as a reason to deny access to benefits or citizenship status for immigrants.

Another bill, the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, would similarly remove cannabis and its active components from the Controlled Substances Act, while delegating responsibility for regulating the drug - or restricting it, as the case may be - to individual states. The bill that is furthest along in the legislative process, meanwhile, is the Secure and Fair Enforcement (SAFE) Act. That proposal, which the House Financial Services Committee passed with a 45-to-15 vote in March, would allow cannabis businesses to access basic banking services as many are forced to deal almost entirely in cash.

“We now have the STATES Act being circulated, the MORE Act being circulated and then you have different Senators and Congresspeople looking to co-sponsor their bills and to put their own name and their own complexion on this,” Mr. Murphy said. “Democrats want to see more social justice weaved into these acts and frankly, libertarians just want to see [cannabis become] permissible and Republicans are focused on the safety component of it, but they are frankly the last to come over the chasm on cannabis reform.”

The SAFE Act continues to progress, Mr. Murphy said, adding he expected the House and Senate to put the matter to a vote before the end of 2019. Many U.S. cannabis companies such as Acreage have pursued public listings on the Canadian Securities Exchange (CSE) in part because the senior exchanges in both Canada and the United States do not allow any of their listed issuers to engage in activities that violate U.S. federal law.

That is the main reason Canopy proposed such a novel structure in its offer to acquire Acreage. Some industry experts expected passage of the SAFE Act would remove capital markets restrictions on U.S. cannabis companies, potentially triggering the Canopy-Acreage deal, but Mr. Murphy said that will not be the case.

“We were previously hopeful an amendment to include capital markets would be added [to the SAFE Act], but we no longer believe this is a possibility,” he said, adding he still believed “federal permissibility... will happen in the next 12-24 months.”

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