Activist investor CannaRoyalty (CNNRF) is at it again, making another acquisition in the cannabis space, this time announcing its intent to acquire all of River Distribution, California’s largest cannabis retail network.
The move is a bold step for the Marc Lustig-led company, giving it access to a large network and significantly growing its revenue. In 2017, River generated $25.4 million in revenue, which would bring total 2017 revenue CannaRoyalty has acquired to $31.9 million, including from Alta Supply, another California-based distributor CannaRoyalty previously acquired.
“The RVR and CannaRoyalty teams have already worked closely together for the past year. We are confident that the consolidation of RVR with Alta Supply will position us as a leader in the world’s largest regulated cannabis distribution system, in California,” Lustig said in a press release.
With the acquisition, which is expected to close by the end of the second quarter 2018, CannaRoyalty is going to be the “largest revenue-generating cannabis holding companies in the world,” the company said.
Lustig continued, noting CannaRoyalty’s existing network makes it a perfect fit for River Distribution. “Our extensive distribution network in California makes us an ideal partner for brands that are looking to grow in California at scale,” he said. “And a carefully selected portfolio of manufacturing partners also make us a superior partner for dispensaries seeking one-stop access to a full spectrum of top products and brands, in an efficient and cost-effective manner.”
Ted Simpkins, the founder, and CEO of River said the deal helps complement River’s existing business, allowing it to grow even further, alluding to his experience having built a wine and spirits business previously.
“I am highly confident that distribution will become one of the most valuable and integral components of the cannabis value chain as the adult-use market matures over the next several years,” Simpkins said in the statement. “CannaRoyalty has been an exceptional partner to RVR and it is clear to me that its growing team has the right mix of talent and assets to enable us to continue to meaningfully grow our already leading network.” Simpkins, along with River’s CFO Henry Pilger, will join the combined company after the deal closes.
The move puts CannaRoyalty squarely in the largest cannabis market in the world. In 2016, the California cannabis market saw $2.8 billion in sales, according to New Frontier Data. The market is expected to nearly triple by 2021, totaling $6.8 billion, with vapor products expected to account for 15 percent of the market.
Edible products are expected to be another strong segment of the market, accounting for 22 percent of the market, growing at an annual clip of 117 percent in 2018, according to data compiled by Brightfield Group & BDS Analytics.
Though the final acquisition price was not disclosed, CannaRoyalty said it would use 5 million shares, along with 1.65 million shares to pay for the acquisition. There is also another 2 million shares “subject to the successful completion by RVR of financial milestones to be agreed on by the parties.”
CannaRoyalty trades on the Canadian Stock Exchange under the ticker “CRZ” as well as over-the-counter exchanges under the ticker “CNNRF.” Shares of the over-the-counter stock recently changed hands at $2.94, down since the high of $4 seen in early January.