(This story has been updated with more details about the termination of the deal and a statement from PharmaCann.)
MedMen, a Los Angeles-based multistate marijuana operator, announced that its blockbuster acquisition of PharmaCann has been scuttled and that the company will focus on beefing up its retail operations in California and other states.
MedMen also fired its chief financial officer, Michael Kramer, replacing him immediately with the company’s chief corporate development officer, Zeeshan Hyder.
The decision to terminate the planned $682 million all-stock transaction, first announced almost a year ago to the day, surprised observers since it came just one month after MedMen said both companies had complied with antitrust obligations under Hart-Scott-Rodino (HSR) requirements and that the deal was now expected to close by the end of this year.
“We understand the need to pivot in a rapidly evolving industry, but this announcement comes as a surprise to us, particularly given the timing of the HSR expiry press release issued less than a month ago, which consisted of optimistic management commentary in regards to the deal’s prospects,” Vivien Azer, analyst at New York-based Cowen, wrote in a research note.
MedMen said the decision to scrap the acquisition was a mutual one on the part of it and PharmaCann.
In a news release, MedMen said the move will allow it to “deepen” its presence in the “core” retail markets of California, Florida, Illinois, Massachusetts, Nevada and New York.
According to the release, PharmaCann has agreed to transfer certain cannabis cultivation, production and retail licenses and related assets in Illinois and Virginia to MedMen for “no additional consideration from MedMen, other than the forgiveness of certain debt.”
PharmaCann also has marijuana operations in Maryland, Massachusetts and New York.
“The cannabis sector has evolved tremendously since we first announced the PharmaCann transaction and based on the current macro-environment and future opportunities that exist for our business, we believe it is now in the best interest of our shareholders to deepen, rather than widen, our company’s reach,” Adam Bierman, MedMen co-founder and CEO, said in the news release.
High executive turnover
Kramer’s ouster as CFO follows a string of high-profile departures from MedMen over the past 18 months. Kramer was less than a year into the job. In the news release, MenMen gave no explanation for his departure.
Kramer, who has an extensive background in corporate retail, was hired to bring down some of what analysts had viewed as excessive corporate spending.
Upon his hiring in December, Bierman said, “His appointment underscores our commitment to investing in a strong management team with a track record of execution.”
Under the termination agreement, PharmaCann has agreed to surrender the following cannabis facilities and licenses to MedMen:
- An operational cultivation and production facility in Hillcrest, Illinois.
- A retail location in Evanston, Illinois.
- A retail license for the “greater Chicago” area.
- A license for a vertically integrated facility in Virginia.
“Today we turn the page and begin a new future for our company and our stakeholders,” PharmaCann Executive Director Greg Cappelli said in a statement.
“Over the past 12 months, PharmaCann has more than tripled its revenues through organic growth in Illinois, New York, and Massachusetts, as well as through recent store openings in Ohio and Pennsylvania.
“Additionally, we continue to make progress on the construction of our Ohio, Massachusetts and Pennsylvania cultivation and processing sites, which are expected to become operational in 2020.”
Like many of the bigger planned cannabis acquisitions, the MedMen-PharmaCann transaction was subject to antitrust scrutiny from the U.S. Department of Justice.
Such unexpected scrutiny cast a shadow over cannabis company stock prices in recent months and even threatened the eventual closing of such transactions.
But MedMen, as noted, was one of the first of several companies recently to say it had complied with obligations under Hart-Scott-Rodino requirements for further compliance and was expecting to close the deal by the end of the year.
MedMen trades on the Canadian Securities Exchange as MMEN.
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Nick Thomas can be reached at email@example.com