Canopy Growth will spend $25M over 5 years to lease St. John's site, with option to buy
Numbered company gets $10M interest-free construction loan, plus $8.7M in shares for purchase option
Financial filings with securities regulators shed light on the lease arrangement between Canopy Growth and a provincially registered numbered company that owns the site of a planned cannabis production facility in St. John's.
Over the past week, the Opposition Tories have questioned the Ball government about the numbered company that is now listed as owner of the land, and what type of deal it has with Canopy.
Canopy's condensed interim consolidated financial statements for the quarter ending June 30 provide some — but not all — of the answers.
According to those public records, Canopy entered into an agreement to lease a production facility in Newfoundland on May 4.
A few days later, the company held a media event in the White Hills area of St. John's to announce the location it had selected.
Details of lease deal
Here's what the arrangement with the numbered company entails, according to Canopy's financial filings.
The annual lease payments are $4.99 million, plus operating costs, over a five-year period. In total, that's nearly $25 million.
Canopy also has the option to purchase the production facility from the numbered company at the end of that five years.
The filings indicated that Canopy paid $8.74 million for this lease purchase option from the numbered company by issuing 332,009 shares on May 11. Those shares would appear to be much more valuable today, as Canopy's stock price has spiked around $20 per share since then.
As well, Canopy provided the numbered company with a $10-million interest-free construction loan.
Canopy expects that loan will remain outstanding until it exercises the purchase option more than five years down the road.
As a publicly-traded company — listed under the ticker symbol WEED on the Toronto Stock Exchange — Canopy is required to publish certain financial and business information.
Unclear who owns numbered company that owns land
In December, Canopy Growth inked a deal with the Newfoundland and Labrador government.
It will see Canopy establish a $55-million production facility capable of producing 12,000 kilograms of dried cannabis product a year, creating 146 jobs, and ensuring at least 8,000 kilograms of cannabis is available for sale in the province.
In return, Canopy will be able to recoup $40 million of eligible costs through reduced sales remittances.
Canopy set up its own provincially registered numbered company — 80694 Newfoundland and Labrador — that was a party to that agreement.
The environmental assessment documents for the production facility listed that company — 80694 — as the proponent.
According to the provincial registry of companies, Canopy executives Mark Zekulin and Phil Shaer are the sole directors of 80694.
On July 26 — more than two months after the sod-turning in the White Hills heralding Canopy's site selection decision — another numbered company finalized a transaction to buy the land, according to public records.
That company — 80521 Newfoundland and Labrador — paid $2.69 million to Baine Johnston Properties Limited for the site, according to documents filed at the registry of deeds.
It's not clear who owns 80521 Newfoundland and Labrador.
The sole listed director is St. John's lawyer Dennis Clarke. The company's registered office address is his downtown law firm.
Under provincial law, ownership information of companies is not public.
Although Clarke is a director, he may or may not own shares in the company.
Clarke did not respond to repeated email and phone messages from CBC News.
In the legislature last week, Finance Minister Tom Osborne said he does not know who owns the numbered company that owns the site.
Canopy 'unsure of the shareholder structure'
Canopy Growth also indicated it doesn't know who owns 80521 Newfoundland and Labrador.
"Unsure of the shareholder structure, it is a private business," Canopy vice-president of communications Jordan Sinclair said in an email to CBC News.
Canopy selected 80521 as a landlord "based on their understanding of the local real estate market and their ability to move quickly and identify appropriate sites for retail and the production site," Sinclair said.
"There was also a cost component to ensure value for money and a short turnaround to be able to get the site online as quickly as possible."
Sinclair said 80521 is arm's length from Canopy, and is a distinct and separate business from which Canopy leases a property.
And what about the timeline that saw Canopy announce the site in May, while the numbered company's acquisition of the land was not wrapped up until July?
"The site was selected and approved by Canopy Growth as an appropriate site for cannabis production, then the current property owner went through the process of finalizing their ownership of the site," Sinclair said.
"This process allowed both parties to manage the risks inherent in a multimillion-dollar project such as this."
Both Canopy and 80521 paying building costs
He indicated that both parties are on the hook for portions of the construction costs.
"The property owner pays for the costs of constructing the building itself," Sinclair said.
"Canopy pays the costs of fitting up the cannabis production capabilities within the building."
Sinclair said the cost of the purchase option at the end of five years has yet to be determined.
And how does this arrangement compare to others entered into by Canopy across the country?
"Each arrangement is unique. Some of our properties are leased, others are owned, or jointly owned with partners. Our headquarters in Smiths Falls was leased prior to our acquisition of the site," Sinclair said.
"Leasing prior to purchasing a site allows us to manage upfront costs and structuring an agreement to include an option to purchase ensures that investments made in a site can be wholly owned if that is desirable."
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