Verano Holdings Corp. (CSE: VRNO) (OTCQX: VRNOF) was terminating its plan to buy Goodness Growth Holdings Inc. and said that the reason was GGH breached the covenants spelled out in the acquisition agreement. Verano told GGH that it was killing the deal and on top of that GGH owes the company a termination fee of $14,875,000 plus the reimbursement of transaction expenses up to $3,000,000.
“We believe the decision to terminate this arrangement agreement was in the best interest of Verano and our shareholders,” said George Archos, Verano Founder and Chief Executive Officer. He continued saying, “As we work through the termination process, we expect to provide additional commentary.” Verano said it would provide more details in its earnings announcement, roughly in the second week of November.
According to GGH, Verano is claiming in its reason for termination that GGH failed to give reasonable consideration to Verano’s comments on the draft Goodness proxy circular prepared by Goodness and reviewed and cleared by the United States Securities Exchange Commission. It went on to say that Verano claimed that the board of directors of Goodness refused to re-evaluate the terms of the transaction and GGH says that there were no material adverse changes for either company. The termination also blamed “Goodness’ alleged failure to reaffirm its recommendation to shareholders to vote for the Transaction, which recommendation had not yet been made and was planned to be made in the Proxy, which was anticipated to be mailed to the shareholders of Goodness next week.”
GGH Fires Back
For its part, Goodness Growth said it believes that Verano has no legal basis to terminate the Arrangement Agreement and that Verano has committed various material breaches of the Arrangement Agreement. However, GGH said it had received the termination request and agreed the deal won’t go through. In addition, GGH said it plans to immediately start legal action against Verano “to seek significant damages for, among other things, Verano’s material breaches of the Arrangement Agreement, Verano’s failure to discharge its obligations thereunder and Verano’s breach of the duties of good faith and honest contractual performance.”
In a statement, Goodness said it “vehemently denies all of Verano’s allegations and has complied with its obligations under the Arrangement Agreement in all material respects at all times. Verano has no factual or legal basis to justify or support its purported grounds for termination of the Arrangement Agreement. Goodness believes that Verano is repudiating the Arrangement Agreement to avoid fulfilling its obligations thereunder after Goodness refused Verano’s request to reduce the agreed-upon consideration payable by Verano under the Arrangement Agreement.”
The deal was announced in February 2022 and would’ve been an all-stock deal valued at $413 million. Goodness Growth Holdings has 18 dispensaries, five cultivation centers, and a research and development facility. The deal would have given Verano access to New York, one of the nation’s largest potential markets, which is poised to allow recreational marijuana sales next year. Chicago rivals Green Thumb Industries, Cresco Labs, and PharmaCann already are in New York, but the state is losing its appeal as the launch of the adult-use market has floundered. Instead, the illicit market is expanding and flourishing as the regulators struggle to get any rules and regulations written.
Recently Ascend Wellness pulled out of its plan to acquire MedMen’s assets in New York, specifically stating that the state’s prospects looked less promising than originally anticipated.