Curaleaf Holdings Inc. (NURLF) stock popped almost 20% on the news it was acquiring privately-held multi-state operator Grassroots or GR Companies Inc. in a deal valued at $875 million. The deal will be made up of 108.8 million shares and $75 million at the closing which is expected in early 2020.
If the deal is completed, Curaleaf’s footprint grows from 12 states to 19 states and putting it within reach of Acreage Holding’s (ACRG.U) size. The company currently has 48 operating dispensaries, which would increase to 68 and the number of dispensary licenses would move from 70 to 131. The deal would also boost the company’s presence in the Midwest, where Grassroots is strong with 20 locations in Illinois and Pennsylvania.
“With the acquisition of Grassroots and the pending acquisition of Select, Curaleaf is the world’s largest cannabis company by both revenue and operating presence,” said Joseph Lusardi, CEO of Curaleaf. “With a combined 68 open dispensaries, this transaction significantly accelerates our expansion strategy and strengthens our reach across the medical and adult-use markets. In addition, it enhances the depth of our retail and wholesale platform across the country. By leveraging our scale, as well as our market-leading capabilities and expertise, we will continue to deliver value for our shareholders.”
Compass Point analyst Rommel Dionisio wrote, “Assuming the successful closing of this transaction as well as the recently announced agreement to acquire Select, Curaleaf would not only become the largest company in the U.S. cannabis industry, but also the largest player in the world by pro forma revenue.” His target price is $13 and the stock was lately trading at $7.74.
In May, Curaleaf said it was going to acquire Cura Partners, Inc. the owners of the Oregon-based Select brand, in an all-stock deal valued at C$1.27 billion or $948.8 million. The company said that the acquisition included Select’s manufacturing, processing, distribution, marketing, and retailing operations and all adult-use cannabis products marketed under the Select brand name, including all intellectual property. Select ‘s THC products are sold in more than 900 retailers, it is the leading cannabis brand in key Western states, including California, Arizona, Oregon, and Nevada. The combination of the two companies will provide immediate geographic diversification with Curaleaf’s footprint on the East Coast and Select’s brand strength on the West Coast.
Dionisio also noted that the two states where Grassroots has planted its flag, Pennsylvania and Illinois are two key growth markets. “We believe Illinois represents the most important growth opportunity in the U.S. cannabis market in 2020, as that state, the fifth most populous in the country, opens up to recreational use on Jan. 1,” he wrote. He also pointed out that Pennsylvania is one of the fastest-growing with over 100,000 medical patients signed up since Feb. 2018. He increased his estimates for 2020 revenue from $696 million to $861 million and EBITDA from $180 million to $248 million. The EPS estimate was moved to $0.21 from $0.20.
Mitch Kahn, co-founder and CEO of Grassroots, said, “Today’s announcement is a testament to the hard work of the many employees that helped make Grassroots the leading cannabis company in the Midwest. This acquisition will enable us to give our patients and retail partners greater access to products that adhere to the highest standards of quality and reliability, and our employees the opportunity to be part of a best-in-class operator.”
Evan Eneman, CEO of MGO|ELLO Alliance, a cannabis finance, taxation, investment banking advisory and firm said, “This trend in M&A is an evolution in the cannabis industry, and as investors put serious capital into these deals, everyone is looking for guidance on who will be next.”