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Canadian cannabis company TerrAscend Corp. (CSE: TER) (OTCQX: TRSSF) struck a deal to allow Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) to raise its ownership stake in its midsize counterpart with the conversion of TerrAscend debt into common shares.

Under the agreement, Canopy will convert the C$125.5 million in loans plus accrued interest in exchange for 24.6 million exchangeable shares in TerrAscend at a price of C$5.10 per share and 22.4 million new common share purchase warrants.

The debt conversion raises Canopy’s conditional ownership in TerrAscend from 12% to 18.2%, with a ceiling of 23.4% should it exercise newly issued warrants. The transaction includes a weighted average exercise price of C$6.07 per common share.

The news comes as capital has become progressively harder to come by for licensed U.S. cannabis companies locked out of major stock exchanges and out of institutional investors’ reach due to its federal Schedule 1 status.

A longtime legislative impasse in D.C. over federal legalization does not help, nor does the lulling prospects concerning the SAFE Banking Act, which this week faced certified opposition from Senate Minority Leader Mitch McConnell. The Republican minority leader dubbed the effort as a “pet priority” for congressional Democrats.

Canopy Growth has been looking for ways to legally venture into the U.S. cannabis space as the Canadian legal marijuana market suffers from its own slew of issues, with three pending U.S. acquisitions ponied up for eventual federal legalization. The Nasdaq-listed operator eventually grew tired of waiting, and in October said it planned to consolidate the financials of its three pending deals under a new U.S.-based umbrella, though questions remain as to whether major exchanges will ultimately allow the adjustment.

In a statement, TerrAscend dubbed the move as a “significant deleveraging event” for the company, adding that it has retired $120 million (C$160 million) worth of debt in recent weeks, reducing annual cash burn by $10 million (C$13.5 million).

“Canopy USA continues to be a trusted investor and partner,” TerrAscend’s executive chairman Jason Wild said. “We thank them for their continued support as they increase their conditional ownership in the company.”

He added, “This transaction, combined with the recent $30 million pay down of our Michigan loan, materially improves our balance sheet and reduces annual interest expense by approximately $10 million.”

Canopy Growth Raises Wager on US Expansion, Ups Stake in TerrAscend on Green Market Report.