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Curaleaf CEO expects more U.S acquisitions, shares surge on US$875M deal

Jeff Lagerquist

U.S. multi-state cannabis operator Curaleaf Holdings Inc. (CURA.CN)(CURLF) has announced an agreement to acquire private producer GR Companies Inc. in a US$875 million cash and stock deal.

Massachusetts-based Curaleaf is currently the largest multi-state cannabis operator in the United States, with a market capitalization of US$3.89 billion. The addition of GR Companies, also known as Grassroots, would boost its presence from 12 to 19 states.

Curaleaf shares listed on the Canadian Securities Exchange (CSE) surged 19.20 per cent to $10.12 at 2:18 p.m. ET.

The combined company would hold 131 dispensary licenses, 68 operational locations, 20 cultivation sites and 26 processing facilities, solidifying a dominant position across the patchwork of U.S. states where cannabis sales are legal.

"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, in a news release on Wednesday.

“We had a hole in the midwest that we filled with Grassroots,” Lusardi added in an interview with Yahoo Finance. “We believe it’s about a US$100 billion market. There’s a lot of headroom. We intend to keep driving to stay number one in the industry.”

Illinois-based Grassroots has a leading presence in markets Curaleaf has yet to enter. Those include Illinois, which legalized recreational cannabis use last month, and Pennsylvania, the fifth most populous U.S. state.

Curaleaf will also expand to new markets in Arkansas, Michigan, North Dakota, Oklahoma and Vermont, while bolstering its business in Connecticut, Maryland, Nevada and Ohio.

Curaleaf said it will have an addressable market of 177 million U.S. customers, if the combination of the two vertically-integrated cannabis operators is approved.

Beacon Securities analyst Russell Stanley expects to see more M&A transactions involving U.S. cannabis players. He said the combination of Curaleaf and Grassroots makes a lot of sense, given the minimal geographic overlap.

“Curaleaf already had the strongest retail footprint of any multi-state operator,” he told Yahoo Finance Canada. “Scale is important in this space, and I am sure all its peers are watching what they did today.”

Under the terms of the deal, Curaleaf will acquire Grassroots for US$875 million, composed of US$75 million in cash, 102.8 million subordinate voting shares of Curaleaf, and US$40 million in Curaleaf shares priced at the 10-day volume-weighted average price prior to closing of the transaction.

The deal, which has the unanimous approval of both company’s boards, is expected to close in early 2020.

In May, Curaleaf acquired a West Coast cannabis-oil maker in a deal valued at nearly $1 billion, the largest ever between two U.S. pot companies.

Curaleaf also announced in early May that it signed a definitive agreement to acquire the state-regulated cannabis business of Oregon-based Cura Partners Inc. The company sells wholesale cannabis oil to retailers under the brand name Select Oils.

Stanley said he expects Curaleaf’s pursuit of Select means the company is becoming “seasoned” at working to meet regulatory hurdles, which bodes well for the Grassroots deal closing on time.

“I think that early 2020 timeline they have provided is no doubt informed by their experience to date in working through the Select acquisition,” he said. “We don’t think there is any real risk of this new deal not closing.”

Lusardi said Curaleaf will forge ahead with U.S. expansion, with an eventual eye towards Europe. For now though, he sees “no need to run around the world to chase opportunities that don’t exist yet.”

“Curaleaf is the leading stock in the industry today. We have the biggest footprint operational today. We are going to have industry leading revenues. That’s why (acquisition) targets are accepting of our stock and actually want our currency,” Lusardi said.

Curaleaf’s CSE-listed shares have climbed about 33 per cent year-to-date, as of Tuesday’s close.

“Because we can’t list on U.S. exchanges, there is still what we characterize as a wall of money out there that can’t buy these stocks yet,” Lusardi said. “For us, therein lies the opportunity.”

Yahoo Finance Canada
Yahoo Finance Canada

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