Canopy Growth acquires Ace Valley cannabis in bid to grow brand loyalty

Canopy Growth Corp. has purchased AV Cannabis Inc. in a bid to build more brand loyalty with customers.

The Smiths Falls, Ont.-based cannabis company said Thursday that it has acquired Ace Valley, a Toronto company that makes vapes, gummies and pre-rolls. Financial terms were not disclosed.

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Rade Kovacevic, Canopy's president and chief product officer, said his company was keen on the deal because its stores were among the first to stock Ace Valley, which revealed the strength of the brand.

"We saw them build a really strong consumer following and brand affinity, which is a particularly difficult thing to do in the Canadian cannabis landscape," said Kovacevic, who pointed out that Ace Valley expanded rapidly in Ontario and placed high on top pre-roll, edible and vape lists.

"For us, it made a lot of sense to take this strong collaborative relationship we had and bring them under the canopy."

The deal comes as cannabis companies face brand loyalty challenges because of temporary pot store lockdowns triggered by COVID-19.

A June 2020 survey of 3,000 Canadian cannabis consumers from the Brightfield Group research firm showed most pot brands were only recognized by between one and 15 per cent of those questioned and no brand had a recognition rate above Canopy's Tweed, which sat at 41 per cent.

Tweed was trailed by Aurora Cannabis Inc.'s Drift at 34 per cent, Canopy's Tokyo Smoke at 23 per cent and Canna Farms at 19 per cent.

While Canopy performed better than most on recognition, the survey found its ability to turn brand awareness into purchases lagged in comparison to Organigram Holdings Inc., Aphria Inc. and Tilray Inc.

The Ace Valley deal could help Canopy address these issues and adds yet another name to its roster of brands including Deep Space, Quatreau and Doja, and partnerships with Martha Stewart and actor Seth Rogen's Houseplant.

Ace Valley, a sister company to beer purveyor Ace Hill, has attracted Gen Z and millennial customers with catchy names like Kosher Kush and Great White Shark and flavours including grapefruit and blueberry lavender.

The company also sells "dad" hats and a line of candles it collaborated on with trendy cannabis chain, Superette. The candles have Toronto-centric names like Bellwoods, Summerhill, Spadina and Wellington.

"At the end of the day, that grassroots brand authenticity connects best with customers," Kovacevic said.

The Canadian cannabis market has seen a wave of consolidation as companies deal with a glut of supply and streamline operations to take advantage of markets they have excelled in since legalization.

Cannabis companies are merging to better position themselves for the edibles market, which is often seen as a gateway to more regular pot use.

They are also eyeing the U.S. market where several states have moved to legalize marijuana.

Tilray Inc. and Aphria Inc. are due to merge, Hexo Corp. is buying Zenabis Global Inc. and a subsidiary of British American Tobacco is buying a stake in Organigram Holdings Inc.

Asked whether Canopy will soon sign more deals, Kovacevic said "our general view of the market is that we are always looking at what works well and what we do in house and out of house."

"We always look at great brands."

Ace Valley founders Mike Wagman and Jesse Dallal will not join the Canopy team, but they will be "friends that collaborate with us," Kovacevic said.

Wagman and Dallal said in statement that they were "excited" about the acquisition.

"Canopy is committed to the enduring integrity of Ace Valley and we look forward to seeing it grow into the future."

This report by The Canadian Press was first published April 1, 2021.

Companies in this story: (TSX:WEED, TSX:ACB, TSX:HEXO, TSX:APHA, TSX:OGI, TSX:ZENA)

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