Harvest Health & Recreation Acquisition is a Game Changer

Harvest Health & Recreation Inc. (CSE:HARV), one of the U.S. marijuana stocks, said it has agreed to acquire Verano Holdings

SmallCapPower | March 13, 2019: Harvest Health & Recreation Inc. (CSE:HARV), one of the U.S. cannabis stocks, Monday announced that it has signed a binding agreement to acquire Verano Holdings, a privately-held, multi-state licensed operator of cannabis facilities, in an all-stock deal valued at US$850 million. The acquisition will allow Harvest to operate up to 200 facilities in 16 states and territories across the U.S., including 123 retail dispensaries. Post acquisition, the newly-combined entity will become one of the largest multi-state cannabis operators in the country, based on licenses held and facilities permitted.

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Verano will provide Harvest Health & Recreation with licenses and operations in 11 states and territories, which include seven cultivation licenses & 37 retail licenses, extending its reach to over 150 million Americans. Harvest would acquire a proprietor portfolio of brands including 150 product SKUs (sold in more than 150 retail locations) and ethanol extraction technology at pharmaceutical grade levels, which would provide opportunities in cannabis biotech, food & beverage verticals. The acquisition will expand Harvest’s capacity by 900,000 sq. ft. with operations in Illinois, Maryland and Nevada. Moreover, Harvest Health & Recreation will receive an ownership interest in nine Zen Leaf dispensaries, which have 2.5x higher average annual revenues compared to retail cannabis industry averages.

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Harvest Health & Recreation CEO Steve White said, “From day one, we have operated as a fundamentally sound business focused on consistent revenue and profit growth. We are excited to bring Verano’s premium brands and operations into Harvest. We have the unique opportunity to create truly national brands by deploying these products within the future combined footprint of states and dispensaries. Most importantly, we share the same mission as one new company to improve people’s lives through the goodness of cannabis.”

Upon the deal closing, the combined entity is expected to be operating 30 dispensaries, eight cultivation and seven manufacturing facilities. Furthermore, by the end of 2019, Harvest Health & Recreation plans to have over 70 dispensaries, 13 cultivation facilities and 13 manufacturing facilities.

As per the agreement signed on March 10, 2019, Verano shareholders will receive, in the aggregate, a combination of Harvest Health & Recreation subordinate voting shares and Harvest multiple voting shares for a total estimated deal value of $850 million, based on a share price of C$8.79. Following completion of acquisition, Verano’s ~$3.2 million of long-term debt will remain in place. The deal is expected to close in H1 2019, subject to regulatory and shareholders’ approval.

Harvest Health & Recreation stock currently trades at a market capitalization of $681.1 million with a price-to-book multiple of 0.2x.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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