Three is a trend.
Verano Holdings, a Chicago-based multistate cannabis operator, is circulating an investor deck to raise $75 million while concurrently moving to obtain a publicly-traded status on the Canadian Securities Exchange.
Asserting a $2.88 billion valuation, Verano, along with publicly traded Green Thumb Industries and Cresco Labs, is forming a hashish hat-trick of hot pot stocks emerging from Chicago. This cohort of cannabis companies, if Verano successfully captures its asking price, would be valued in the 11-digits by public investors.
As first reported by Bloomberg, Verano is planning a reverse takeover of publicly traded entity Majesta Minerals Inc. Described as a “shell company”, Majesta’s primary attribute in the deal is its publicly traded status on the Canadian Securities Exchange. Cannabis operators in the United States seeking to go public, through a myriad of workarounds, typically find themselves interacting with investment markets north of the border where their product is not deemed federally illegal. Vancouver-based investment bank Canaccord Genuity and Toronto-based investment dealer Beacon Securities are named in the term sheet.
Verano in 2014 was among the first cannabis companies to operate in Illinois at the onset of the state’s medical marijuana program. The company’s Ataraxia cultivation and manufacturing center in Albion is among the state’s largest cannabis producers. Verano also owns multiple Zen Leaf branded dispensaries.
Leveraging its vertically-integrated status in Illinois, a limited-licensed state with high profit-margins, Verano in 2018 raised $120 million from private investors. The company subsequently expanded to multiple limited licensed states including New Jersey, Arizona, and Florida through licensure and acquisition.
Earlier this year, a merger with Tempe, Arizona-based and publicly traded MSO Harvest Health and Recreation was killed as cannabis companies across the board were slumping at the onset of Covid-19. That deal, initially put together in March 2019, would have valued Verano at $850 million.
Verano’s more than 3-times jump in valuation from March is in line with other publicly-traded companies with comparable operations and assets. Those stocks, including GTI and Cresco, are again trading at near all-time highs after a correction a year ago. Last month Verano “joined forces” with Florida and Arizona-based operator AltMed, enhancing its valuation and national footprint.
According to the investor deck, Verano anticipates generating $380 million in revenue and $160 million in adjusted earnings in 2020 before interest, taxes, depreciation, and amortization (EBITDA). More than 1,600 employees work at the company’s 46 retail locations and eight production facilities throughout 14 states.
Verano did not reply to a request for comment about its plans by publication.
“Getting these limited licenses now and early is the key to building any kind of competitive advantage in the industry,” said Morningstar cannabis analyst Kristoffer Inton, who tracks publicly-traded cannabis companies.
Inton went on to say that while investors are increasingly betting on cannabis after the U.S. national elections, which may result in federal legalization in 2021, operations are already pretty good for companies that have scale within the existing state-driven regulatory environment.
“Cannabis companies don’t need federal legalization in the United States right now,” he said. “There is so much runway for them in new states. And for the states that are already in, there is so much food to be eating. The national press is paying attention to national indicators, but from a local standpoint these companies are doing just fine.”
While the large cannabis companies get bigger through acquisition and application expansion in multiple states, times right now are less groovy for smaller operators not yet able to obtain traditional financing.
“What we are seeing is that there is more bifurcation now.” explains Jarrett Annenberg, Director of Acquisitions for Chicago-based NewLake Capital, which acquires assets from cannabis companies through sale-leaseback transactions.
“The better equity performance of the public companies is illustrating the upside opportunity for investors and is certainly elevating the industry’s profile. However, investors remain focused on profitability and cash flow, creating haves and have-nots in the private sector, which is a marked difference from the run-up public companies enjoyed in late 2018 into early 2019.”
As a publicly traded entity, Verano could more easily finance continued acquisition and expansion. This includes acquiring more dispensaries in its home state of Illinois, where independently-owned dispensaries are being snatched up by multistate operators.
Verano currently operates dispensaries in St. Charles and Aurora, and is a suitor for other licensed dispensaries that are asking for tens of millions of dollars per Illinois location. Verano also operates a dispensary in Buchanon, Michigan and has licenses to open dispensaries in Missouri.
“If you are a multistate operator in the United States you will quickly hit stops of how fast you can grow because you can’t go to a bank,” says Bryan Whitehead, treasurer of Illinois craft grow applicant The Flower Shop and an accountant familiar with cannabis transactions. “The value prop for publicly traded entities is access to public market capital which can be used to buy other operations in other states.”
Another value proposition for early stakeholders is liquidity for their holdings. Longtime Chicago restaurateur and self-described “logistics and operations guru” George Archos is the co-founder, chairman and CEO of Verano. Lawyer and real estate broker Sammy Dorf is the company’s co-founder and Chief Growth Officer.
Assuming Verano becomes public, the largest remaining privately-held Chicago-based cannabis company is PharmaCann. Operating in multiple limited licensed states, PharmaCann, which raised $100 million from financial technology pioneers and GETCO co-founders Dan Tierney and Stephen Schuler in 2016 and several millions more since, was nearly acquired for $682 million in 2019 by Los Angeles-based MedMen. That deal was killed in October 2019 and Medmen later became a poster child for corporate cannabis excess.
Pharmacann can continue to access capital from a wide array of private investors as it chews over merger and acquisition scenarios to also become publicly-traded, presumably at a 10-figure valuation.