Rapid Reaction: What Investors Should Know About Harvest Health’s $850M Acquisition

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Harvest Health & Recreation (CNSX: HARV) Monday inked a binding agreement to purchase privately held multistate operator (MSO) Verano Holdings for $850 million.

The all-stock deal is believed to be the largest acquisition in the U.S. cannabis industry to date, and is a strong signal that M&A activity will continue to ramp up as major MSOs race to grow their brand and market share.

The acquisition surpasses MedMen’s $682 million all-stock purchase of PharmaCann in October.

Here are key takeaways Investor Intelligence subscribers should know:

The Players

Harvest:  Headquartered in Arizona, Harvest already has one of the largest footprints among MSOs with licenses or operations in 12 states, including major markets such as California, Florida, Pennsylvania and Massachusetts. With a market cap of nearly $2 billion, Harvest is ranked third largest among U.S. marijuana operators, just behind behind competitors Green Thumb Industries and MedMen.

Verano: Based in Chicago, Verano is one of the largest privately held cannabis operators with facilities in Florida, Illinois, Maryland and Nevada and 45 licenses under development in Florida, Maryland, Ohio and Puerto Rico.

Details on the Deal

The all-stock deal values the purchase price of Verano at $850 million, based on a share price  of 8.79 Canadian dollars ($6.55) for Harvest’s stock.

Under the deal, Harvest will acquire Verano’s licenses and operations in 11 states, including seven cultivation licenses and 37 retail licenses. All told, the move will expand Harvest’s reach to 16 states with up to 123 retail dispensaries.

Monday’s announcement, however, lacked additional financial details, leaving some analysts and industry observers interviewed by Investor Intelligence eager for more insight.

“Like most ‘transformative’ deals in cannabis, there was no specific financial detail so providing any (analysis) on price paid is a true challenge,” noted Paul Penney, research analyst at Northland Capital Markets.

Matt Karnes at New York-based GreenWave Advisors agreed.

“Because there is a limited amount of financial information that is publicly available, it is unclear at what point this transaction becomes accretive. But given the quality and depth of its management team, we are confident in its ability to execute and create shareholder value. ”

All-stock deals, which have the potential to be dilutive do shareholders, are ramping up across the cannabis industry, with MedMen’s earlier acquisition of PharmaCann a case in point.

A shareholder call is planned for 3:30 p.m. ET Monday where additional details could be revealed.

Analyst & Market Reaction

Lack of financial details aside, market and analyst reaction so far has been positive following the news.

“This is very positive for Harvest at first blush, very good from a footprint perspective,” Jesse Pytlak, equity research analyst at Cormark Securities in Toronto, said. “More broadly speaking, it is reflective of this race to scale for MSOs and large meaningful players as we get (into) some major consolidation.”

Harvest stock was up more than 14 % early Monday on the news, trading as high as CA$10.18 a share, up from the day’s opening price of CA$9.26.