Major consolidation in Virginia cannabis as Boston-based fund takes over second permit

Legal adult-use cannabis retail sales in Virginia are on indefinite hold as lawmakers and Gov. Abigail Spanberger quibble over the best way to launch a potential billion-dollar market.

In the meantime, in a sign of consolidation that’s alarming small-business advocates in the potential $1 billion adult-use market, a single entity has quietly taken control of two of the state’s five vertically integrated medical cannabis permits, records show.

Virginia’s medical cannabis system is limited-license, with only five permits available statewide. Further limiting competition, each permit is restricted to a specific geographic area. Only four of the five designated regions have any operating dispensaries.

And after one flailing marijuana multistate operator sold off its permit ahead of ongoing bankruptcy proceedings, with another yielding control of its license to its erstwhile lender, affiliates of a Boston-based hedge fund now control 40% of Virginia’s roughly $180 million annual medical cannabis market.

Who owns Virginia’s medical cannabis permits?

On the day President Donald Trump issued the executive order directing cannabis to be rescheduled in December, an affiliate of Millstreet Credit Fund outbid multistate operator Curaleaf Holdings for the “pharmaceutical processor” permit formerly held by The Cannabist Co.

The permit was sold off as part of that company’s ongoing bankruptcy proceedings for $130 million in a deal that closed in February.

Meanwhile, another Millstreet affiliate was moving to take control of a second Virginia permit, this one held by Miami-based Ayr Wellness, another beleaguered MSO in deep trouble with its lenders.

In Ayr’s case, the MSO was heavily in debt to Millstreet Capital Management, another legal affiliate of the Boston firm.

In mid-April, as part of Ayr’s restructuring efforts, an entity called Arboretum Virginia announced it had taken over Ayr’s operations in the state. Records show Arboretum and a network of other recently formed companies share a Boston address with Millstreet.

A company representative confirmed that Arboretum now operates both Virginia medical cannabis permits.

“We are pleased to have formally closed into Arboretum the assets of The Cannabist Virginia, which serves the patients of (Health Service Area IV), and for Arboretum to acquire Ayr Virginia, which is building out to serve HSA I,” Scott Davido, interim CEO of Arboretum, said in a statement to MJBizDaily.

“We are excited to welcome the former employees of The Cannabist Virginia into Arboretum and look forward to investing further into the business to better serve the patients of Virginia.”  

Virginia cannabis M&A is ‘first major milestone’ for new operator Arboretum

Millstreet’s purchase represents a transition from lender to operator.

While it’s unclear whether Arboretum plans to take an even bigger share of Virginia’s MMJ market, Millstreet appears keen to give the cannabis industry a go in other markets where Ayr holds permits.

The Virginia takeover “represents the first major milestone in Arboretum’s history as it continues to acquire assets of Ayr Wellness, Inc,” Davido’s statement continues.

“We will continue the acquisition into Arboretum of Ayr’s assets in additional markets, as state regulatory approvals are obtained.”

A spokesperson for the Virginia Cannabis Control Authority (CCA) said the agency could not comment on the transactions.

Medical cannabis sales in Virginia totaled nearly $60 million through the end of April, according to CCA data.

Is Virginia’s marijuana market consolidating before legal adult-use sales?

Millstreet’s consolidation of Virginia’s medical cannabis market came as most observers were busy with what was supposed to have been the long-awaited rollout of adult-use cannabis sales in the state.

Virginia legalized adult-use marijuana in 2021, but plans to launch what most observers say is a market with billion-dollar potential were repeatedly foiled by former Republican Gov. Glenn Youngkin.

Hopes that the stalemate would finally be lifted were raised during the campaign for Youngkin’s successor. But Spanberger, who was sworn in earlier this year after promising to sign a bill allowing adult-use sales to begin, dashed those hopes earlier this week when she vetoed the bill.

Among the reasons Spanberger gave for what many advocates saw as a flip-flop was a desire to avoid “mistakes” made by other states when launching adult-use markets, though she did not specify what those mistakes were.

The sales framework advanced by the state General Assembly that Spanberger vetoed would have required medical operators to pay a $10 million fee to convert to adult-use. It’s unclear whether Arboretum would have to pay one fee or two.

A CCA spokesperson said the agency could not comment on “pending legislation.”

However, advocates for small businesses in the state said the situation illustrates the need to meaningfully account for existing operators’ head starts.

Is Virginia boxing out small cannabis operators before adult-use begins?

“There’s definitely concern from our end around the consolidation we’re seeing,” said Barbara Biddle, who operates several Washington, D.C.-area hemp shops and cofounded the Cannabis Small Business Association.

Among the flaws in the legislation Spanberger vetoed was an allowance for existing medical operators to run up to nine retail stores each, with smaller newcomers to the industry limited to five, she said.

“Even the idea of having a regional monopoly is absurd in the first place,” she said, referring to the regional medical permits.

“But the fact that the same company can control two of those is further absurd.”

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.