Two U.S. Marijuana Retailers Hook Up, Possibly Creating Largest Chain

March 11, 2019

The American cannabis chain Harvest Health & Recreation announced an acquisition today that could make it the industry’s largest retail license holder—with the right to open 123 retail dispensaries across 16 states and territories. Its Canada-listed stock jumped 18% on the morning’s news, to 10.15 Canadian dollars (US $7.57) on the Canadian Securities Exchange.

As cannabis restrictions fall in one state after another, a half dozen companies are racing to become the Starbucks of legal weed. Like Harvest, they must list their stocks in Canada, or with the OTC Markets Group , because the NYSE and Nasdaq won’t accept them as long as cannabis remains federally illegal.

The Phoenix-based Harvest (OTC ticker: HRVSF) will buy the privately held operator Verano, which is headquartered in Chicago, for stock that the companies valued at $850 million. Verano brings with it licenses for 37 retail locations and seven cultivation facilities. The acquisition announcement said that Verano is cash-flow positive.

“It’s a real big deal,” Harvest chief executive Steve White told Barron’s, “particularly if you’re concerned about profitability.”

The merger will add retail outlets in states where Harvest or Verano already have cultivation facilities, thereby enhancing the group’s margins.“We were profitable in Arizona. Then we became profitable in Nevada. Then we became profitable in Maryland and Pennsylvania,” said White. “So far, there hasn’t been a state where we haven’t been able to turn profitable quickly.

Verano also has a proprietary technology for extracting cannabis ingredients at pharmaceutical grade levels, said the companies.

“The combination with Verano fits perfectly with our vision of creating the world’s most valuable cannabis company,” said Jason Vedadi, Harvest’s executive chairman, in the release. Verano executives said they’d considered some of the largest players in the industry, before choosing Harvest as their acquirer.

The companies plan to discuss the deal in a conference call this afternoon.

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