America’s most valuable cannabis company Curaleaf Holdings Inc. (CSE:CURA) said it’s acquiring Chicago-based Grassroots for US$875 million to expand its footprint into the potentially lucrative Illinois and Michigan markets. Curaleaf’s announcement on Wednesday sent shares 17 per cent higher.
The Massachusetts-based company said the deal with Grassroots will make it the largest marijuana company in the world and will bring its products into 19 states, up from 12. The deal is mainly made up of shares, with just US$75 million coming via cash.
Curaleaf, which has a market value of $3.3 billion, built its initial footprint growing and selling cannabis in East Coast states such as New York, Maryland and Florida. In May, the company acquired West Coast cannabis-oil maker Cura Partners Inc. and its popular Select brand in a deal valued at nearly $1 billion, the largest transaction between two U.S. pot firms.
But the deal Wednesday with Grassroots will give Curaleaf access to the Midwest markets, especially in Illinois and Michigan which have both recently legalized adult use and stores have yet to open. Grassroots has 20 dispensaries open today in 12 states, but with 61 dispensary licenses, it will help accelerate the company’s expansion across the U.S. into other key markets such as Pennsylvania.
This really fills in the map for us.
The deal is expected to close early 2020, and once the transaction is complete, Curaleaf will officially have 131 dispensary licenses — on top of 1-million square feet of cultivation space combined — which could help it become the premier cannabis company.
With the acquisition of Grassroots and the pending acquisition of Select, Curaleaf is the world’s largest cannabis company by both revenue and operating presence.
BREAKING NEWS: We've announced the acquisition of Illinois-based Grassroots, a market leader across the Midwest, confirming our position as the world’s largest cannabis company by revenue, and the largest in the U.S. across key operating metrics. https://t.co/jsYM88rvtn pic.twitter.com/gwI8IGeJ0B
— Curaleaf (@Curaleaf_Inc) July 17, 2019
Curaleaf building cannabis fortress
With Curaleaf acquiring Grassroots on Wednesday and Portland-based Cura in May, the deals make the company an emerging cannabis giant with plenty of potential added to its top line.
The Massachusetts pot company recorded US$35 million in sales in its most recent quarter and combined with Cura that total jumps to US$75 million. The companies are on track to generate US$300 million in revenues or more this year (without factoring Grassroots sales), putting Curaleaf well ahead of Canopy Growth and the CAD$226 million that it has generated over the past 12 months.
With more U.S. states legalizing recreational pot, competition is becoming more fierce. The fast-moving industry is experiencing rapid consolidation, with more than 200 deals already taking place in 2019, according to Viridian Capital Advisors cited by Reuters. And through its deals, Curaleaf has put itself in a good position to succeed in the burgeoning U.S. cannabis market.
While Canopy Growth and other Canadian producers look to enter the U.S. CBD market as their current only legal avenue, a company like Curaleaf isn’t restricted to access the adult-use market. As a result, the company will have more growth potential while the U.S. federal government mulls legalization.
Curaleaf’s market value still dwarfed by Canopy’s
Curaleaf’s projected US$300 million in sales this year will potentially make the pot company a revenue leader. But with a market capitalization of roughly CAD$3.3 billion, it’s still nowhere near the size of Canopy Growth Corp. (NYSE:CGC)(TSX:WEED). Industry-leading Canopy has a CAD$16 billion market valuation, while Aurora Cannabis Inc. (NYSE:ACB)(TSX:ACB) sits in second with roughly CAD$10 billion.
An obstacle for the company might be its listing on the Canadian Securities Exchange (CSE) rather than on the New York or Toronto Stock Exchange, where both Aurora and Canopy are traded on. But without federal legalization, Curaleaf won’t be able to list on major exchanges and it may be years before it becomes possible to do so.