Cannabis M&A surges in hot Pennsylvania market with $400 million in deals

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Merger and acquisition activity is sizzling in Pennsylvania, with more than $400 million worth of deals announced since March alone, as local cannabis businesses cash out and multistate operators seek or expand footholds in the rapidly growing mid-Atlantic market.

Cultivation and processing operations are fetching $100 million and more. And dispensary licenses are commanding prices of $20 million-$35 million for each storefront as the state’s retail sector consolidates.

M&A activity is brisk in other marijuana states such as Illinois, Massachusetts and New Jersey.

But Pennsylvania particularly stands out because of a variety of factors – including the expectation the state will approve adult use, though probably not this year.

Chicago-based Verano Holdings, TerrAscend, which has offices in Toronto and New York, and Florida-headquartered Trulieve are among the MSOs angling to set up shop or expand in Pennsylvania through acquisitions.

It’s as if, 45 days ago, Pennsylvania hung an “everything must go” sign in the window, said Steve Schain, a senior cannabis attorney in the state for the Hoban Law Group. Schain has represented parties involved in some of the deals.

“Marijuana licenses are selling like hotcakes, moving at breakneck speed,” Schain said. “The only question is, when will the feeding frenzy cease?”

A variety of factors are spurring the deals:

  • A fast-growing medical cannabis market that could reach or even exceed $1 billion in sales this year.
  • A limited-licensing structure that nevertheless allows one company to open up to 15 dispensaries through five dispensary permits. Three storefronts are allowed per dispensary permit. Six storefronts are allowed per a vertically integrated clinical research license.
  • One of the highest number of registered medical marijuana patients of any state in the country – 528,000, according to the newly released MJBizFactbook. Only Florida is higher with 551,000 registered patients.
  • High consumer purchase averages.

MMJ shoppers spend money

Seattle cannabis data analytics firm Headset, which recently launched coverage of the market, noted Pennsylvania’s medical marijuana patients are avid shoppers for MMJ products: The state “stands out among other U.S. markets with the largest average basket sizes so far this year, at $123.88 per basket.”

Headset added that Pennsylvania’s average basket size is double Michigan’s, and 1.5 times as high as Oregon’s.

The MJBizFactbook projects that Pennsylvania medical marijuana sales will reach $775 million to $925 million in 2021, compared with roughly $475 million-$600 million in 2020.

Headset is even more bullish, estimating sales over the past 12 months at $904 million and the current revenue run rate exceeding $1 billion a year. Some companies provide point-of-sale data to Headset, which the firm uses to make projections.

St. Louis-based investment banking firm Stifel wrote in a May 7 research note that Pennsylvania retail sales ran ahead of the firm’s projections for the first quarter of 2021 and wholesale pricing remained relatively robust.

Chicago-based Green Thumb Industries and Cresco Labs as well as TerrAscend and Trulieve accounted for the majority of the retail sales growth, Stifel noted.

Verano Holdings, TerrAscend and Trulieve have signed agreements to acquire operations in Pennsylvania since March (see graphic above), with Verano the most aggressive acquirer.

Verano’s three deals since March alone add up to $285 million.

In March, Verano agreed to spend $110.3 million to acquire the Healing Center, which has three dispensaries in the Pittsburgh area. The Healing Center has perennially been anointed the best MMJ dispensary in the area by Pittsburgh City Paper.

Verano also signed $175 million worth of definitive agreements to acquire a large cultivation facility in Pennsylvania as well as an equity interest in six dispensaries and an additional growing facility.

Selling while market hot

Schain and others noted some local businesses have decided to sell while market values are high and sales are hot. In some cases, the purchasing MSOs already had stakes in the MMJ operators they set out to acquire.

In effect, the local businesses realize they are riding the crest of a wave – after scrambling for capital from family and friends and experiencing a gradual rollout of the state’s MMJ program in 2018.

The coronavirus pandemic also spurred state regulators to triple the allowable purchase amount and brought curbside sales, home delivery and easy online patient registration. That, in turn, has increased the value of their businesses, Schain said.

Yet, the writing is on the wall.

“Yes, adult use is on the way and we’re assuming existing medical marijuana businesses will be grandfathered into adult use,” Schain said.

But with adult use, there will be a “ton of more competition.” And marijuana, in most cases, will be just a commodity, he noted.

“This was a good wave to ride,” Schain said.

Take TerrAscend.

The company already had acquired Ilera Healthcare, a vertically integrated operation. for $225 million in 2019 and staked out a leading position in flower production in Pennsylvania.

Ilera earlier had made a 10% investment in Keystone Canna Remedies (KCR).

That move served as a “little bonus” toward TerrAscend’s deal last month to buy the remaining 90% stake in KCR for $63 million, Jason Wild, TerrAscend’s executive chair, told MJBizDaily.

KCR has three dispensaries in northeast Pennsylvania. The deal closed May 3.

With the Ilera and KCR acquisitions, TerrAscend now has six storefronts in Pennsylvania. Still, the company is looking to buy more, Wild said.

The attraction: One of the country’s most-populated states with nearly 13 million people, a roughly $1 billion annual MMJ revenue run rate, a strong medical marijuana program and the 18-dispensary cap, which is “higher than most other states,” Wild said.

“The numbers work. It’s strategic, and the numbers work,” he said.

That’s even assuming that Pennsylvania lawmakers don’t pass adult-use legalization this year, while neighboring New Jersey is moving ahead.

“Sure, (New Jersey) will take something away from Pennsylvania,” Wild said.

But TerrAscend has that base covered as well: It has a vertical MMJ operation in New Jersey with a dispensary just across the state line from Pennsylvania.

Retail consolidation

Pennsylvania now has 117 dispensaries in operation, according to the most recent state data, with 14 opening since the first of the year.

But the retail side clearly is becoming more consolidated as more MSOs move into the state or expand their operations.

Green Thumb Industries, for example, has 15 Rise dispensaries in Pennsylvania, according to the state’s list of MMJ dispensaries and the company’s website.

Arizona-based Harvest Health & Recreation has 10 dispensaries, and Florida-based Jushi Holdings shows 11 dispensaries under its “Beyond Hello” brand.

A number of other MSOs, including Columbia Care, Cresco, Curaleaf, TerrAscend, Trulieve and Verano, each have multiple dispensaries.

MSOs also are devoting capital to expand operations in Pennsylvania.

Jushi, for example, last month raised $30 million from the San Diego-based real estate investment trust Innovative Industrial Properties to expand its cultivation center in Scranton.

Miami-based Cansortium, which operates the Fluent brand, recently raised $71 million in debt financing on top of a $17.1 million equity raise.

In a news release, Cansortium CEO Robert Beasley singled out Florida and Pennsylvania as two markets the company is targeting for expansion.

As for adult-use legalization in Pennsylvania, who knows?

Gov. Tom Wolf made legalizing recreational marijuana one of his administration’s top legislative priorities this year.

But the state’s Republican-controlled Senate is seen as a big hurdle.

In the meantime, the state’s medical marijuana market continues to speed along.

Jeff Smith can be reached at