Harvest Health and Recreation Inc. an American cannabis company listed on the Canadian Securities Exchange is acquiring Verano Holdings LLC — a privately-held Chicago-based pot company with a connection to Andy DeFrancesco, the private equity investor and dealmaker formerly associated with Aphria Inc.
The all-stock deal is one of the largest to take place south of the border to date, with Harvest purchasing Verano for US$850 million based on a share price of $8.79. The transaction is expected to close in the first half of 2019.
News of the deal sent Harvest’s stock up as much as 13 per cent on Monday, to close at $9.50. The shares had closed Friday at $8.59. The Arizona-based company debuted on the CSE last November.
“Verano is a company we have been watching for a number of months. They are hardworking, unassuming people who grow great cannabis and run their business efficiently,” Harvest CEO Steve White told the Financial Post.
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White said he recently visited Verano’s operations in Illinois and was impressed by the quality of their product and the price that consumers were willing to pay for it.
“We’re motivated to expand aggressively right now because we are seeing massive discounts for cannabis assets like Verano because the substance is federally illegal. At some point that is going to change, and these businesses are going to be worth a lot more,” explained White.
Harvest’s main assets include licenses for 147 retail and cultivation sites — it is unclear however, how many of those licenses belong to sites that are fully operational. When asked, a company spokesperson declined to provide details.
According to a joint press release put out by Harvest and Verano Monday morning, the deal will create a cannabis entity that will hold licenses for 200 facilities across 16 U.S. states where either recreational or medical marijuana is legal, including 123 retail dispensaries. By the end of 2019, the company expects to have over 70 dispensaries, 13 cultivation facilities and 13 manufacturing facilities fully operational, the press release stated.
Verano’s website states that the company operates in 10 U.S. states, and owns three cultivation and production facilities, in addition to five retail stores (branded Zen Leaf).
Last October, a Florida-based company called SOL Global Investment (then known as Scythian BioSciences), where DeFrancesco is chairman and chief investment officer invested $88 million in Verano. SOL also sold an entity called 3 Boys Farms to Verano in exchange for a further stake it said was valued at $100 million.
The transaction resulted in Verano obtaining a license to grow marijuana in Florida, and SOL Global becoming one of the largest shareholders in Verano.
DeFrancesco’s name has come up in media reports repeatedly due to his role in Aphria’s acquisition of a number of Latin American cannabis assets that a short seller report deemed to be overvalued. The company has defended the transactions.
DeFrancesco declined to comment on Harvest’s acquisition of Verano.
But SOL Global CEO Brady Cobb told the Financial Post that his executive team had identified Verano as a potential investment after touring its cultivation facility and seeing how “exceptional” the operation was.
“I had actually never heard of Verano, had no idea who they were, so I had quite a low expectation. But what I found there was a very sophisticated grow-op with extraordinary attention to detail,” said Cobb. Cobb called Verano’s facility “Aphria-esque,” referring to the Leamington-based large scale grower of cannabis. “To me, Aphria is the best large-scale operator in Canada, and Verano had that feel to it except that it was an indoor facility, not a greenhouse.”
Both White and Cobb declined to comment on exactly how much cannabis Verano has been able to sell on an annual basis so far.
Multi-state cannabis operators like Harvest, Acreage Holdings Inc. and Curaleaf Inc. have become staples of the American cannabis industry due to variations in state regulations toward cannabis, and because of fact that the plant is still illegal on a federal level. These companies are able to circumvent the legal restriction of moving the plant across state-lines by buying up licenses in multiple states and thus leveraging those various domestic consumer markets.
“Although we believe this deal looks to significantly increase Harvest’s vertically integrated platform throughout the U.S., details on Verano still remain thin and we do not have an estimated transaction multiple at this time,” wrote Canaccord Genuity analyst Matt Bottomley in a note Monday morning.
Canaccord co-led a private placement offering of Harvest securities last November, around the same time the company went public through a reverse takeover.
Investment firm Eight Capital is advising Harvest on the Verano deal, and Infor Financial Inc. will act as financial adviser to the special committee of Harvest’s board.