🤝 Verano acquires Goodness Growth for $413M in Stock (10.1% of pro forma company)
Adds New York and New Mexico markets ahead transition to adult-use; one of two vertically-integrated licenses in Minnesota; and increases operational footprint in Arizona and Maryland.
Overview. Verano will acquire all of the issued and outstanding shares of Goodness Growth for $2.39/share (a 46% premium to where the stock price closed yesterday). After giving effect to the Transaction, Goodness shareholders are expected to hold in aggregate approximately 10.1% of the issued and outstanding pro forma Verano Shares (on a fully-diluted basis). Goodness’ active operations include 18 dispensaries; five cultivation and processing facilities; a research and development facility; and the Vireo, 1937, LiteBud, Kings & Queens, Hi-Color, and Amplifi product brands.
The acquisition of Goodness is expected to expand Verano’s operational footprint with the addition of the New York, Minnesota and New Mexico markets, strategically increasing the Company’s presence in the Northeast, Midwest and Southwest, while adding a suite of established cannabis brands to the Company’s portfolio.
Verano’s footprint will span 18 states, with active operations in 15, including 17 cultivation facilities totaling 1.3 million sq. ft. of cultivation capacity and 111 active dispensaries
Verano will obtain one of only ten vertically-integrated licenses in New York, which includes one cultivation license, four active dispensaries, and four additional dispensaries planned in high-traffic locations. In New York, the Company will gain delivery service across the New York City area via a dispensary on Queens Boulevard centrally located next to the Long Island Expressway, Citi Field and LaGuardia Airport; along with three high-traffic dispensaries – in a busy shopping district in White Plains; in Albany adjacent to the University of Albany campus and Colonie Center Mall; and in Johnson City across from the Oakdale Mall
Verano will acquire one of only two vertically-integrated licenses in Minnesota which includes one cultivation license and eight active dispensaries
In Minnesota, Verano will obtain eight dispensaries, including one in the heart of downtown Minneapolis and four more across the Minneapolis-St. Paul metro area; in locations covering the cities of Duluth and Rochester; and in Moorehead, which is situated in the Fargo, ND metro area
Between 2022 and 2026, these net new markets are expected to generate combined revenue of more than $13.8B
Footprint/Reach > Valuation. The valuation aren’t in line with current market multiples (7.1x 2021E Revenue — $58M, 3.8x 2022E Revenue — $108M // NM 2021E EBITDA — ($5M), 20.7x 2022E EBITDA— $20M) but this was all done with a view on 2023E/2024E numbers based on the revenue potential from adult use in New York (more below). The headline here is Verano solidifying it’s East Coast/Midwest footprint. This increases the company’s state population reach by ~20M more adults.
New York as Main Driver of Deal. As one of two Tier-1 MSOs (Trulieve being the other) that didn’t already have a New York license, Verano needed access to the State (TAM, more attractive story to investors) to cement it’s top 5 status. New York is expected to be a $5-6B market. This is additional support for why MedMen is not letting go of their New York license easily and battling it out publicly with AWH. And why Etain Health (only independent license) has been patient in selling theirs. Minnesota offers one of only two licenses in the market (GTI acquired Leafline which operates five dispensaries in December 2021), it was a $80M market in 2020 and will be a $166M market in 2026E. While New Mexico was a $221M market in 2020 and will be a $784M market in 2026E, it will also become an unlimited license market as it transitions to adult use.
Additional Tier 2 and Tier 3 MSOs Will Consider M&A to Scale Up. Access to Capital remains tight and the best debt deals (~8% interest, Verano also exercised its option to upsize its credit facility to draw an additional $100M at 8.50%, bringing the total outstanding senior secured term loans under the credit facility to $350M) are offered to scaled MSOs. It becomes tougher to raise debt at a low industry level rate if you’re <$250M Market Cap.
Transaction Structure — Cash or Stock? We were led to believe that MSOs wanted to spend cash rather than dilute shareholders from a depressed stock (Curaleaf’s acquisition of Bloom Dispensaries for $211M was 100% cash) but this deal is on the exact end of the spectrum ($413M and 100% stock). I still think this is very much so on a case-by-case basis. Sellers prefer cash when they can get it (leverage with limited licensed states) as even Verano’s deal for Local Joint (AZ) in March 2021 was $27M cash and $3.5M stock.
Cash from Divestiture of Assets in Maryland. Verano will have to divest certain assets in Maryland given its existing footprint in the state (license cap) and should be able to generate $25-30M+ cash from the divestiture. Cresco Labs terminated their Blair Wellness acquisition to enter the Maryland market just two weeks ago.
👋 Highly Objective is curated by Dai Truong, who leads Cannabis Investment Banking at Arlington Capital Advisors. Third-party information presented here and links to third-party content are for informational purposes only and are not intended as a recommendation, offer or solicitation for the purchase or sale of any financial instrument, security or investment. The information provided is not warranted as to completeness or accuracy and is subject to change without notice. Linking to third-party sites in no way implies an endorsement or affiliation of any kind between Arlington Capital Advisors, LLC, or its affiliates and any third party. The information in this blog constitutes my own opinions (and any opinions posted by guest bloggers from time to time) and it should not be regarded as a description of services provided by Arlington Capital Advisors, LLC or any affiliate.