A shareholder of U.S. cannabis operator Acreage Holdings Inc. (ACRGu.CD) plans to vote against the company’s proposed deal with Canadian marijuana giant Canopy Growth Corp. (WEED.TO), describing the unique tie-up as a “value destructive transaction and not in the best interests of shareholders.”

Last month, Canopy Growth said it planned to acquire Acreage in a US$3.4-billion deal that will only be consummated when ​U.S. federal law formally recognizes the states that have legalized marijuana.

The arrangement would give Canopy Growth access to at least 20 U.S. states where Acreage operates to sell its range of dried cannabis products as well as pot-infused edibles and concentrates.

In an open letter released on Monday, Marcato Capital Management LP, a San Francisco-based investment manager that owns about 2.7 per cent of Acreage, said the US$3.4 billion valuation announced at the time is “substantially lower” than Acreage’s fair value based on the present value of the U.S. company’s future cash flows. Based on Canopy Growth’s current share price, the value of the Acreage acquisition is roughly US$3.7 billion.

The investment firm – which has US$438.3 million in disclosed holdings, according to its most recent securities filings – plans to vote “no” when shareholders decide on the deal in June. A circular to vote on the deal is expected to be distributed to Acreage shareholders in the next few weeks.

“We believe Acreage's strategic value, as one of the few multi-state operators of scale in the U.S., with leading positions in the most valuable markets merits a significant premium to any stand-alone cash-flow derived valuation,” said Mick McGuire, founder and managing parter of Marcato Capital Management, in an open letter to Acreage’s board of directors.

“Furthermore, we believe enterprise values of cannabis companies will skyrocket upon the relaxation of current Federal restrictions. Accordingly, Marcato believes it is highly imprudent for Acreage to sell itself today at the proposed valuation, with so much unlocked growth and value embedded in the company.”

McGuire also pointed to Acreage’s poor stock performance since the deal was announced on Apr. 18, compared to Canopy Growth’s shares. Acreage shares are down about 2.3 per cent on the Canadian Securities Exchange since then, while Canopy Growth’s stock is up 13 per cent on the Toronto Stock Exchange.

“The relative value is unbelievably lopsided in Canopy's favour,” McGuire added in his letter. “Canopy stock for Acreage stock is simply a bad deal for Acreage shareholders.”

Acreage spokesperson Howard Schacter told BNN Bloomberg in a phone interview that the company remains confident the deal will happen despite some shareholders’ concerns.

“What we’re dealing with is one shareholder’s point of view which is inconsistent with the overwhelmingly positive response from the vast majority of shareholders that we’ve talked to since the transaction was announced,” he said.

Representatives from Canopy Growth declined to comment.

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