Cresco Labs buys Tryke, iAnthus to buy Sierra Well, dispensary margins top branded consumer goods & more

Cresco Labs buys Tryke for $282.5 million…

Cresco Labs (CSE: CL) agreed to acquire Tryke Companies for a total  of $282.5 million, with $252.5 million for the operating assets and $30 million for the real estate. The deal is composed of $55 million in cash and $227.5 million in CL shares.

Per the presentation on the acquisition and filings, Tryke had 2018 revenue of $70.4 million and EBITDA of $24.6 million, yielding a surprisingly high 34.9% EBITDA margin.

Using the total acquisition price, this yields multiples of 4.0X 2018 sales and 11.5X 2018 EBITDA.

Tryke generates $31 million, or 44% of its revenue, from a single dispensary on the Las Vegas Strip, directly across the street from Planet 13’s dispensary. Planet 13 has guided to EBITDA margins of 35%-40% at their dispensary over time, but it has achieved only a 5.5% EBITDA margin on $43.6 million of revenue for the year end June 2019.

Look for an in-depth analysis of the margins, multiples and implications for both Tryke and Planet 13 next week.

…and issues equity…

The day after the Tryke deal, Cresco Labs filed a shelf to raise CA$73.5 million via the sale of “units” at a price of CA$10.00 with one subordinated share and a warrant to buy half a share at CA$12.50, adding 7.35 million shares and potentially 11.0 million shares. When combined with the roughly 31 million shares issued to Tryke, this transaction adds 38 million-42 million shares.

… and announces progress with DOJ on Origin House, good for Curaleaf?

Finally, Cresco Labs reached a milestone in its acquisition of Origin House , noting that it has substantially completed the second request from the U.S. Department of Justice’s Hart-Scott-Rodino request.

Curaleaf’s acquisition of Grassroots Cannabis and Cura Partners is also subject to DOJ review, so a positive outcome for Cresco Labs could be a positive sign for Curaleaf’s requests.

iAnthus to buy Sierra Well with 20% EBITDA margin 

iAanthus intends to buy Sierra Well, a vertically integrated operator with two dispensaries and six dispensary licenses in Nevada, for $27.6 million.

The consideration is comprised of $5.1 million in cash and $22.5 million in shares based on the price 10 trading days prior to close, which puts the dilution at the mercy of the stock price until then.

Sierra Well has annualized revenue of $16 million, EBITDA margins “above 20%” and “positive” net income. This yields EBITDA of at least $3.2 million, giving acquisition multiples of 1.73X sales and at most 8.6X EBITDA.

Dispensary margins are high, even higher than branded consumer

Recent acquisitions show how high margins can be for well-run dispensaries, with Sierra Well at 20%, Starbuds at 30%-35% and Tryke at 35%.

These are high EBITDA margins for any vertically integrated consumer business.

For contrast, the EBITDA margins for Lululemon Athletica (Nasdaq: LULU), a branded luxury athliesure brand and retailer, saw EBITDA margins peak at 31.7% in the year ended January 2012, when it also traded at 23X EBITDA and 7.0x sales. EBITDA margins currently sit at 25% and the stock trades at 21.5X EBITDA and 5.6X sales.

While cannabis and yoga pants may seem like very different businesses, at a very high level they both create and self-distribute branded products to consumers. Investors ultimately pay for reliable cash flow generation.

Stock collapse kills WEED-GTEC deal

Canopy Growth’s (NYSE: CGC, TSX: WEED) sale of its Kelowna facility to GTEC for $13 million failed as GTEC could not raise the necessary funds.

Given GTEC’s 36% decline in its equity price, it chose not to further dilute itself.

Akerna to report fiscal year end on Monday, Executive Webcast on Investor Intelligence coming next week

Akerna (Nasdaq: KERN) announced it will report its fiscal year-end earnings on Mon., Sept. 23 after the market close, with a call at 4:30 ET.

Dial in 1-877-407-3982 and enter confirmation code 13694602.

Investor Intelligence will take a deeper dive into the results with CEO Jessica Billingsley on Thursday. Watch the website for more details!

KushCo reaffirms guidance despite vape crisis

KushCo (OTC: KSBH) reaffirmed its full-year guidance for the fiscal year, which ended Aug. 31, for $145-150 million in sales.

KSBH has dropped 24% since Sept. 11, likely a result of the vaping crisis. The company derives roughly 69% of its revenue from the “vape” category.

Of course the guided sales through Aug. 31 would not be affected by the crisis given that the first death occurred on Aug. 23, but the company released a presentation arguing that the shift from illicit to legal vapes will benefit revenue growth longer term.

Will it? Who else is affected?

Look for more analysis of the impacts of the vape crisis on different companies from Investor Intelligence.

For more of Marijuana Business Daily’s ongoing coverage of the vaping crisis, click here.

Mike Regan can be reached at