Constellation Brands (NYSE:STZ) has announced plans to enter into an agreement with Canopy Growth Corporation (NYSE:CGC) for the modification of certain rights and warrants. The modifications are a result of Canopy’s plans of acquiring Acreage Holdings Inc. (OTCMKTS:ACRGF) following federal legalization of cannabis.

Constellation to waive its veto rights

Canopy has already announced the option of acquiring acreage shares upon federal cannabis legalization in the US. The proposed acquisition, as well as the modification of Constellation warrants, is subject to the approval of shareholders. Following the plans, Constellation has agreed that it will relinquish its veto rights to the transaction under the proposed modifications to warrants and other rights.

Besides the 18.9 million warrants related to the 2017 Canopy Investment, the company currently holds 139.7 million warrants that will become exercisable for a period of between five and eight years upon shareholder approval. This will include the 88.5 million Tranche A warrants expected to be exercisable at C$50.40 per share and 51.2 million of Tranche B warrants of which 75% or 38.4 million will be exercisable at C$76.68 per share while the remaining 25% will become part of Tranche C warrants exercisable at the five-day weighted average price of Canopy’s common stock on the Toronto stock exchange.

However, even if Canopy were to exercise its right to acquire Acreage whereas constellation was to exercise its outstanding Canopy warrants its ownership of Canopy cannot exceed 50%.

Canopy to reacquire 25% of warrants issued to Acreage

Nonetheless, if Constellation chose to fully exercise Tranche A warrants, Canopy will reacquire the lesser of the 25% of its issued warrants to Acreage or commit dollar amount equivalent to the 25% implied enterprise value of Acreage within two years from the date Constellation exercises its warrant. Prior to termination or exercising of its warrants, Constellation will have the option of purchasing approximately 20 million of Canopy shares whereby for each share purchased the Tranche B warrant will be reduced by one.

Constellation will maintain its current representation level on Canopy’s Board.