Ontario Commission des 22nd Floor 22e étage
Securities valeurs mobilières 20 Queen Street West 20, rue queen ouest
Commission de l’Ontario Toronto ON M5H 3S8 Toronto ON M5H 3S8
October 1, 2021
In the Matter of the Securities Legislation of Ontario (the Jurisdiction)
and
In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions
and
In the Matter of Canopy Growth Corporation (Canopy) and The Supreme Cannabis Company, Inc. (Supreme) (together, Filers)
DECISION
Background
- The securities regulatory authority in the Jurisdiction (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) that:
(a) the requirements of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and Parts XVIII and XXI of the Securities Act (Ontario) (Continuous Disclosure Requirements) do not apply to Supreme;
(b) the requirements of National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109) (Certification Requirements) do not apply to Supreme; and
(c) the insider reporting requirements under the Legislation and the requirement to file an insider profile under National Instrument 55-102 System for Electronic Disclosure by Insiders and National Instrument 55-104 Insider Reporting Requirements and Exemptions (together, Insider Reporting Requirements) do not apply to any insider of Supreme
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filers have provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon Territory.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
- Supreme
(a) Supreme is a company existing under the Canada Business Corporation Act (CBCA).
(b) The authorized capital of Supreme consists of (i) an unlimited number of common shares (Supreme Shares), (ii) 10,000,000 Class A Preferred Shares and (iii) 10,000,000 Class B Preferred Shares. As of July 21, 2021, there were outstanding 773,105,109 Supreme Shares validly issued and outstanding as fully-paid and non-assessable shares of Supreme, all of which are held by Canopy.
(c) Supreme also has senior unsecured non-convertible debentures expiring on September 10, 2025 (Accretion Debentures) which are governed by a debenture indenture (Original Accretion Debenture Indenture) dated September 9, 2020 between Supreme and Computershare Trust Company of Canada (Computershare).
(d) Following completion of the Arrangement (as defined below), Supreme and Canopy entered into a first supplemental debenture indenture with Computershare dated August 25, 2021 (First Supplemental Accretion Indenture and together with the Original Accretion Debenture Indenture, Accretion Debenture Indenture). The Accretion Debentures are not listed on any stock exchange.
(e) Supreme also has outstanding 8% convertible unsecured subordinated debentures expiring on September 10, 2025 (Convertible Debentures) which are governed by a debenture indenture (Original Indenture) dated October 19, 2018 as supplemented by the first supplemental indenture made as of September 9, 2020 (First Supplemental Indenture) between Supreme and Computershare.
(f) In connection with closing of the Arrangement, Supreme and Canopy entered into a second supplemental debenture indenture with Computershare dated June 22, 2021 (Second Supplemental Indenture) which provides that from and after the effective date of the Arrangement (Effective Date), in accordance with the terms of the Debenture Indenture, each holder of outstanding Convertible Debentures (Debentureholder) is entitled to receive upon the conversion of such holder’s Convertible Debentures, in lieu of the Supreme Shares to which such Debentureholder was theretofor entitled upon such conversion, the Arrangement Consideration (as defined below).
(g) Following completion of the Arrangement, Supreme and Canopy entered into a third supplemental debenture indenture with Computershare dated August 25, 2021 (Third Supplemental Indenture and together with the Original Indenture, the First Supplemental Indenture and the Second Supplemental Indenture, Debenture Indenture).
(h) Each of the Convertible Debentures continues to be governed by and subject to the terms of the Debenture Indenture and Canopy has agreed that upon any conversion of a Convertible Debenture, in accordance with the terms of the Debenture Indenture, Canopy will issue the necessary number of common shares of Canopy (Canopy Shares) and pay the Cash Consideration (as defined below) needed to settle such conversion that such holder would have been entitled to be issued and receive if, immediately prior to the Effective Date, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled upon conversion of such Convertible Debentures.
(i) Supreme also has outstanding common share purchase warrants with an exercise price of $0.23 per share, expiring on January 29, 2024 (January Warrants) and common share purchase warrants with an exercise price of $0.40 per share, expiring on February 19, 2024 (February Warrants and together with the January Warrants, Warrants). The January Warrants are listed on the TSX under the symbol “WEED.WT” and the February Warrants are listed on the TSX under the symbol “WEED.WT.A”.
(j) In connection with closing of the Arrangement, Supreme and Canopy entered into a supplemental indenture to the January Indenture with Computershare dated June 22, 2021 (January Supplemental Indenture and together with the Original January Indenture, January Indenture) and a supplemental indenture to the February Indenture with Computershare dated June 22, 2021 (February Supplemental Indenture and together with the Original February Indenture, February Indenture). Each of the January Indenture and the February Indenture (Warrant Indentures) provides that from and after the Effective Date, in accordance with the terms of the Warrant Indentures, each holder of outstanding Warrants (Warrantholder) is entitled to receive upon the exercise of such holder’s Warrants, in lieu of the Supreme Shares to which such Warrantholder was theretofor entitled upon such exercise and for the same aggregate consideration payable therefor, the equivalent number of Canopy Shares, with the Cash Consideration being set off against the applicable exercise price, that such holder would have been entitled to be issued and receive if, immediately prior to the Effective Date, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled upon exercise of such Warrants.
(k) Each of the Warrants will continue to be governed by and subject to the terms of the Warrant Indentures and Canopy has agreed that upon any exercise of a Warrant, in accordance with the terms of the Warrant Indentures, Canopy will issue the necessary number of Canopy Shares needed to settle such exercise.
(l) Supreme also has outstanding common share purchase warrants with an exercise price of $0.19 per share, expiring on January 29, 2024 (January Broker Warrants) and common share purchase warrants with an exercise price of $0.31 per share, expiring on February 19, 2024 (February Broker Warrants and together with the January Broker Warrants, Broker Warrants). The Broker Warrants are governed by definitive warrant certificates (Broker Warrant Certificates).
(m) Each of the Broker Warrants will continue to be governed by and subject to the terms of the Broker Warrant Certificates and, in accordance with the terms of the Broker Warrant Certificates, each holder of outstanding Broker Warrants (Broker Warrantholder) is entitled to receive upon the exercise of such holder’s Broker Warrants, in lieu of the Supreme Shares to which such Broker Warrantholder was theretofor entitled upon such exercise and for the same aggregate consideration payable therefor, the equivalent number of Canopy Shares, with the Cash Consideration being set off against the applicable exercise price, that such holder would have been entitled to be issued and receive if, immediately prior to the Effective Date, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled upon exercise of such Broker Warrants.
(n) As of July 21, 2021, there were no outstanding restricted share units or deferred share units of Supreme.
(o) As of July 21, 2021, there were outstanding 12,022,558 Replacement Options (as defined below) exercisable to acquire 140,1556 Canopy Shares.
(p) As of July 21, 2021, there were outstanding: (i) $27,045,260 aggregate principal amount of Convertible Debentures convertible into an aggregate of 1,106,361 Canopy Shares; (ii) 60,373,500 January Warrants exercisable for an aggregate of 703,877 Canopy Shares; (iii) 41,745,000 February Warrants exercisable for an aggregate of 486,693 Canopy Shares; (iv) 1,936,784 January Broker Warrants exercisable for an aggregate of 22,580 Canopy Shares; (v) 4,508,460 February Broker Warrants exercisable for an aggregate of 52,562 Canopy Shares; and (vi) $1,871,942.01 aggregate principal amount of Accretion Debentures.
(q) Supreme is a “reporting issuer” in each of the provinces and territories of Canada.
- Canopy
(a) Canopy is a company existing under the CBCA.
(b) The authorized capital of Canopy consists of an unlimited number of Canopy Shares. As of July 21, 2021, there were 393,166,799 Canopy Shares outstanding. Canopy also has 139,745,453 common share purchase warrants exercisable for an aggregate of 139,745,453 Canopy Shares and convertible notes that may result in the issuance of up to 12,454,620 Canopy Shares upon conversion.
(c) Canopy is a “reporting issuer” in each of the provinces and territories of Canada.
(d) The Canopy Shares are listed on the TSX and the Nasdaq Global Select Market (Nasdaq) under the symbols “WEED” and “CGC”, respectively.
- The Plan of Arrangement
(a) Supreme and Canopy entered into an arrangement agreement dated April 8, 2021, as amended (Arrangement Agreement) which provided the terms and conditions under which Canopy would acquire all of the issued and outstanding Supreme Shares pursuant to a court-approved plan of arrangement under the provisions of section 192 of the CBCA (Arrangement).
(b) On May 11, 2021, Supreme obtained an interim order of the Ontario Superior Court of Justice (Commercial List) (Court) specifying certain requirements and procedures for a special meeting of the shareholders of Supreme (Supreme Shareholders) for the purpose of approving the Arrangement (Supreme Meeting).
(c) In connection with the Arrangement, Supreme mailed to the Supreme Shareholders the management information circular of Supreme dated May 11, 2021 (Circular) containing prospectus-level disclosure of the business and affairs of each of Supreme and Canopy and information on the Arrangement, a copy of which has been filed on SEDAR under Supreme’s profile. The Circular included disclosure that Canopy intended to apply to have Supreme cease to be a reporting issuer as soon as practicable following the Effective Date.
(d) Supreme provided the holders of all Convertible Debentures and Warrants with prior notice of the Arrangement and enclosed a copy of the Circular.
(e) Approval of the Arrangement required at least 66⅔% of the votes cast by Supreme Shareholders present in person or represented by proxy at the Supreme Meeting.
(f) The Arrangement was approved by the Supreme Shareholders at the Supreme Meeting held on June 10, 2021 as 81.05% of Supreme Shareholders present in person or represented by proxy at the Supreme Meeting voted in favour the Arrangement.
(g) On June 15, 2021, Supreme received the final order of the Court pursuant to Section 192(3) of the CBCA, approving the Arrangement.
(h) Pursuant to Articles of Arrangement, the Arrangement became effective on June 22, 2021 and Supreme became a wholly-owned subsidiary of Canopy.
(i) Under the Arrangement, in addition to other matters, the following occurred:
(i) each outstanding deferred share unit of Supreme was deemed to be vested and was exchanged for a cash payment equal to the volume weighted average price of one Supreme Share on the TSX during the five trading days immediately prior to the Effective Date;
(ii) each outstanding restricted share unit of Supreme was deemed to be vested and was surrendered to Supreme in exchange for one Supreme Share;
(iii) each Supreme Share was cancelled in exchange for (i) 0.01165872 (Exchange Ratio) Canopy Shares and (ii) $0.0001 in cash (Cash Consideration) for each Supreme Share held (collectively, Arrangement Consideration); and
(iv) each outstanding option to acquire Supreme Shares was exchanged for a replacement option (Replacement Option) exercisable for Canopy Shares, with the number and price of such Replacement Options adjusted by the Exchange Ratio.
(j) Upon completion of the Arrangement, the Convertible Debentures remain outstanding as debentures of Supreme and each Convertible Debenture entitles the holder thereof to receive upon the conversion of such holder’s Convertible Debentures, in lieu of the Supreme Shares to which such Debentureholder was theretofor entitled upon such conversion, the equivalent number of Canopy Shares and Cash Consideration that such holder would have been entitled to be issued and receive if, immediately prior to the Effective Date, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled upon conversion of such Convertible Debentures.
(k) Upon completion of the Arrangement, the Warrants and Broker Warrants remain outstanding as warrants of Supreme and each Warrant and Broker Warrant entitles the holder thereof to receive upon the exercise of such holder’s Warrants or Broker Warrants, as applicable, in lieu of the Supreme Shares to which such holder was theretofor entitled upon such exercise and for the same aggregate consideration payable therefor, the equivalent number of Canopy Shares, with the Cash Consideration being set off against the applicable exercise price, that such holder would have been entitled to be issued and receive if, immediately prior to the Effective Date, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled upon exercise of such Warrants or Broker Warrants.
(l) Canopy has received approval of the TSX for, and made the necessary filings with the Nasdaq in connection with, the listing of the Canopy Shares that were issued and issuable pursuant to the Arrangement.
(m) In connection with the closing of the Arrangement, effective June 24, 2021, the Supreme Shares were de-listed from the TSX.
(n) While the Convertible Debentures and Warrants remain securities issued by Supreme and remain listed on TSX, the TSX required that, following the Effective Date, such securities be listed under the trading symbols “WEED.DB”, “WEED.WT” and “WEED.WT.A” despite such securities remaining securities of and issued by Supreme.
(o) The only securities of Supreme that are held publicly are the Accretion Debentures, the Convertible Debentures, the Warrants and the Broker Warrants. In accordance with the terms of the Second Supplemental Indenture, the Convertible Debentures are convertible into Canopy Shares and all principal and interest payments on the Convertible Debentures are payable in cash. In accordance with the terms of the January Supplemental Indenture and the February Supplemental Indenture, the Warrants are exercisable for Canopy Shares. In accordance with the terms of the Broker Warrant Certificates, the Broker Warrants are exercisable for Canopy Shares. In accordance with the terms of the Accretion Debenture Indenture, all principal and interest payments on the Accretion Debentures are payable in cash.
(p) In accordance with the terms of the Third Supplemental Indenture, Canopy has guaranteed the full, unconditional and punctual payment of all principal (premium, if any) and interest, due and payable in cash, with respect to the Convertible Debentures.
(q) In accordance with the terms of the First Supplemental Accretion Indenture, Canopy has guaranteed the full, unconditional and punctual payment of all principal (premium, if any) and interest, due and payable in cash, with respect to the Accretion Debentures.
(r) The only securities of Supreme that are traded on a marketplace (as defined in National Instrument 21-101 Marketplace Operation) are the Convertible Debentures and the Warrants.
(s) Supreme has provided notice to Computershare and to the holders of the Convertible Debentures, Warrants, Broker Warrants and Accretion Debentures, as applicable, with respect to the Arrangement containing details of the consideration to be received upon the conversion or exercise, as applicable, of the Convertible Debentures, Warrants, Broker Warrants and Accretion Debentures, following the Effective Date.
(t) Supreme cannot rely on the exemption available in s. 13.3 of NI 51-102 for issuers of exchangeable securities because the Convertible Debentures, Warrants and Broker Warrants are not “designated exchangeable securities” as defined in NI 51-102. None of the holders of the Convertible Debentures, the Warrants or the Broker Warrants have voting rights in respect of Canopy, in their capacity as debentureholders and warrantholders, respectively.
(u) Supreme cannot rely on the exemption available with respect to the Convertible Debentures and Accretion Debentures in s. 13.4 of NI 51-102 for credit support issuers because Supreme has other securities outstanding that are not held by Canopy or an affiliate of Canopy, including the Warrants and the Broker Warrants.
(v) The Debenture Indenture, the Accretion Debenture Indenture and the Warrant Indentures each include a covenant that Supreme will use its reasonable commercial efforts to maintain its status as a “reporting issuer” (or the equivalent thereof) not in default of the requirements of the securities laws in each of the provinces and territories of Canada.
(w) None of the Debenture Indenture, the Accretion Debenture Indenture, the Warrant Indentures or the Broker Warrant Certificates requires Supreme to deliver any continuous disclosure materials of Supreme to Debentureholders or Warrantholders.
(x) Supreme has no intention of accessing the capital markets in the future by issuing any further securities to the public.
(y) Following the closing of the Arrangement, it is information relating to Canopy, and not to Supreme, that is of primary importance to holders of Convertible Debentures, Accretion Debentures, Warrants and Broker Warrants as (i) each of the Warrants and Broker Warrants, is exercisable for Canopy Shares and (ii) pursuant to the Third Supplemental Indenture and the First Supplemental Accretion Indenture, Canopy has guaranteed the full, unconditional and punctual payment of all principal (premium, if any) and interest, due and payable in cash, with respect to the Convertible Debentures and the Accretion Debentures. .
(z) Following completion of the Arrangement, Supreme became a wholly-owned subsidiary of Canopy and Canopy will consolidate Supreme with Canopy for the purposes of financial statement reporting.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
- The decision of the Decision Maker under the Legislation is that the Continuous Disclosure Requirements do not apply to Supreme provided that:
(a) Canopy is the beneficial owner of all of the issued and outstanding voting securities of Supreme;
(b) Canopy is a reporting issuer in a designated Canadian jurisdiction (as defined in NI 51-102) and has filed all documents it is required to file under NI 51-102;
(c) Supreme does not issue any securities, and does not have any securities outstanding, other than:
(i) the Convertible Debentures;
(ii) the Warrants;
(iii) the Broker Warrants;
(iv) the Accretion Debentures;
(v) securities issued to and held by Canopy or an affiliate of Canopy;
(vi) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; or
(vii) securities issued under exemption from the prospectus requirement in section 2.35 of National Instrument 45-106 Prospectus Exemptions (NI 45-106);
(d) Supreme files in electronic format:
(i) if Canopy is a reporting issuer in the local jurisdiction, a notice indicating that it is relying on the continuous disclosure documents filed by Canopy and setting out where those documents can be found in electronic format; or
(ii) copies of all documents Canopy is required to file under securities legislation, other than in connection with a distribution, at the same time as the filing by Canopy of those documents with a securities regulatory authority or regulator;
(e) Canopy concurrently sends to all holders of Broker Warrants and Warrants all disclosure materials that would be required to be sent to holders of similar warrants of Canopy in the manner and at the time required by securities legislation;
(f) Canopy complies with securities legislation in respect of making public disclosure of material information on a timely basis;
(g) Canopy immediately issues in Canada and files any news release that discloses a material change in its affairs;
(h) Supreme issues in Canada a news release and files a material change report in accordance with Part 7 of NI 51-102 for all material changes in respect of the affairs of Supreme that are not also material changes in the affairs of Canopy; and
(i) Supreme complies with the requirements set out in section 13.4 of NI 51-102, other than the requirement in Section 13.4(2)(c)(ii).
- The further decision of the Decision Maker under the Legislation is that the Certification Requirements do not apply to Supreme provided that:
(a) Supreme is not required to, and does not, file its own Interim Filings and Annual Filings (as those terms are defined under NI 52-109);
(b) Supreme files in electronic format under its SEDAR profile either: (i) copies of Canopy’s annual certificates and interim certificates at the same time as Canopy is required under NI 52-109 to file such documents; or (ii) a notice indicating that it is relying on Canopy’s annual certificates and interim certificates and setting out where those documents can be found for viewing on SEDAR; and
(c) Supreme is exempt from or otherwise not subject to the Continuous Disclosure Requirements and Supreme and Canopy are in compliance with the conditions set out in paragraph 1 above.
- The further decision of the Decision Maker under the Legislation is that the Insider Reporting Requirements do not apply to any insider of Supreme in respect of securities of Supreme provided that:
(a) if the insider is not Canopy;
(i) the insider does not receive, in the ordinary course, information as to material facts or material changes concerning Canopy before the material facts or material changes are generally disclosed;
(ii) the insider is not an insider of Canopy in any capacity other than by virtue of being an insider of Supreme;
(b) Canopy is the beneficial owner of all of the issued and outstanding voting securities of Supreme;
(c) if the insider is Canopy, the insider does not beneficially own any Broker Warrants or Warrants;
(d) Canopy is a reporting issuer in a designated Canadian jurisdiction;
(e) Supreme has not issued any securities, and does not have any securities outstanding other than:
(i) the Convertible Debentures;
(ii) the Warrants;
(iii) the Broker Warrants;
(iv) the Accretion Debentures;
(v) securities issued to and held by Canopy or an affiliate of Canopy;
(vi) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; or
(vii) securities issued under exemption from the prospectus requirement in section 2.35 of NI 45-106; and
(f) Supreme is exempt from or otherwise not subject to the Continuous Disclosure Requirements and Supreme and Canopy are in compliance with the conditions set out in paragraph 1 above.
As to the Exemption Sought (other than from the statutory Insider Reporting Requirements):
“Marie-France Bourret”
Marie-France Bourret, Manager, Corporate Finance
As to the Exemption Sought from the statutory Insider Reporting Requirements:
“Cecilia Williams” “Craig Hayman”
Commissioner Commissioner Ontario Securities Commission Ontario Securities Commission