When Canopy Growth (CA:WEED) announced in October 2021 that it had acquired the option to buy 100% of Wana Brands, the number one cannabis edibles brand in North America, investors knew it was only a matter of time before some arrangement with Indiva Limited (CA:NDVA), the exclusive producer and distributor of Wana’s products in Canada, was announced.        

On May 30, that announcement finally came through. 

Canopy and Indiva issued a joint statement stating “that they have entered into a license assignment and assumption agreement (the ‘Assignment Agreement’) providing Canopy Growth exclusive rights and interests to manufacture, distribute, and sell Wana-branded products in Canada which accelerates Canopy Growth's ability to leverage the Wana brand.”

NDVA stock is down 77% over the past year. It now has a market cap of less than $7 million. WEED stock is down 81% over the same timeframe, but its market cap is 10x larger despite the freefall in its share price. Cannabis-connected exchange-traded fund ETFMG Alternative Harvest ETF (US:MJ) is down about 57% in the last 12 months. 

Make It, Sell It 

As part of the arrangement, the two companies have entered into a contract manufacturing agreement that sees Indiva become the exclusive manufacturer and supplier of Wana-branded products in Canada for five years, with an option for both parties to agree to an additional five years. 

 “Collectively, these agreements provide Canopy Growth more complete ownership over the value chain for the Wana brand in Canada, while ensuring continuity of high-quality manufacturing and consistency with Canopy's asset-light production strategy,” stated Canopy Growth CEO David Klein in the press release. 

“By better aligning our ownership position in Wana throughout North America, we expect to accelerate the introduction of product innovation in Canada that has already proven enormously popular in the United States.”

In addition to the above mentioned changes, Canopy will buy 37.23 million Indiva shares in a private placement for $2.16 million, or $0.0579 a share. In addition to the private placement, Canopy will receive additional consideration of $844,383 and a cash payment of $1.25 million on May 30, 2024. 

The transaction gives Canopy a 19.99% ownership stake in Indiva. In return, Indiva strengthens its balance sheet while extending its right to manufacture Wana’s products beyond May 2025, when it would lose its manufacturing rights due to the Canopy arrangement with Wana.  

“We are excited to form this investment and contract manufacturing partnership with Canopy Growth, and we look forward to continuing to produce Wana gummies for many years to come,” said Niel Marotta, president and CEO of Indiva.

Good for All Shareholders

While Indiva has put a brave face on this turn of events, the reality is that it had little choice but to negotiate with Canopy over its future involvement with the Wana brand. 

In 2022, Indiva’s sales from Wana Sour Gummies were lower than the year before. They were lower again in Q1 2023. Wana co-founder and CEO Nancy Whiteman’s comments in the announcement don’t hide the fact she wasn’t happy about the deterioration in Wana sales.

“This new agreement allows us to bring our most innovative products to Canada much more rapidly, while allowing Canopy Growth to begin recognizing the EBITDA benefits that Wana can help drive,” Whiteman stated.

The arrangement makes sense for both parties. Shareholders of both companies ought to be happy with the announcement.