Last night, it was announced that Harvest Health and Recreation (CSE: HARV) had signed a definitive agreement to acquire Verano Holdings. This news follows the binding agreement signed between the two parties in March 2019. Upon closing, it’ll establish Harvest Health as the largest multi state operator within the US in terms of licenses.
The deal is to be an all stock transaction, valued at approximately US$850mm. It was unclear what percentage of the pro forma company Verano will own based on the information provided in the press release. The deal is expected to be voted upon by Harvest shareholders at a special meeting expected to occur in June 2019.
Combined, the assets of the pro forma company consist of operations in seventeen US states including Puerto Rico, under which Harvest Health has licenses for approximately 219 facilities. These facilities are broken down as follows:
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- 142 dispensaries
- 42 cultivation facilities
- 35 processing facilities
It should be noted however, that while Harvest owns these licenses, it does not necessarily mean that they are in operation. Rather, they have been awarded them. In the case of dispensaries for instance, as of March 8, 2019 of its 142 licenses, Harvest and Verano combined only had 30 of these locations open, with plans for a total of 70 to be in operation by the end of 2019.
“This accretive transaction will improve our position by strategically expanding our operating base to realize the benefits of scale. From day one, both companies focused on consistent revenue and profit growth.”
Jason Vedadi, Executive Chairman of Harvest Health
Under the terms of the acquisition, Harvest will obtain a number of assets. These include operations in 11 states, consisting of seven cultivation licenses and thirty seven retail licenses, the brands currently owned by Verano including Verano and Gold Leaf, and over 150 product SKU’s that are currently in use. Additionally, the firm will obtain a freshly developed headquarters to be used for the Eastern US.
The combined entity expects to utilize both Harvest’s “House of Cannabis” and Verano’s “Zen Leaf” dispensary models for its retail markets, which traditionally was a major focus of both firms. To maximize retail margins, the combined unit intends to utilize its market share to an advantage in terms of vertical integration and operational efficiencies.
The transaction is subject to certain covenants, including undisclosed termination fees should either party elect to terminate the transaction.
The news related to the acquisition of Verano Holdings came after a strong session for Harvest Health, who released its fourth quarter and annual financials yesterday morning. The firm posted a profit of US$7.2mm for the three month period ending December 31, 2018, on total revenues of US$16.9mm. Total profit for the fiscal year came in at US$24.6mm, on revenues of US$47.0mm, generating a gross margin rate of 52% for the twelve month period.
Harvest Health and Recreation (CSE: HARV) closed at CAD$13.51 yesterday, up $0.75, or 5.88%.
Information for this briefing was found via Sedar, Verano Holdings and Harvest Health. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
