RIV Capital, Inc. and an investment vehicle of Scotts Miracle Gro announced last week an agreement to purchase Etain LLC, a New York based, woman-owned cannabis cultivation and medical dispensary operation, also known in New York as a “Registered Operator”, for an estimated price of $247 million cash. One of Etain’s dispensaries is in Midtown Manhattan.
The deal is for one the 10 vertically integrated licenses in New York with four dispensaries attached. According to last year’s adult use legalization law, New York’s ten Registered Operator (RO) licenses are the only ones allowed to be fully vertically-integrated with cultivation, processing, dispensaries and delivery, and will be allowed to add three adult use dispensaries that can be integrated with the operators’ existing four medical dispensaries.
“One of the things we are going to be focused on is scaling up capacity in advance of adult use,” said Mark Sims, who was named as President and CEO of RIV Capital. “Currently the Chestertown facility is undergoing expansions. We are looking to build out a 100,000 square foot canopy facility to bring online in preparation for the increase in demand in the adult use space.
“[Expansion] is a big area of focus for us.”
The Etain deal is considerably richer than previous deals for New York ROs. One license was snapped up in 2018 by Acreage Holdings for $48 million in cash and stock, another that same year for $18 million in cash and stock by financing company iAnthus Capital Holdings, Green Thumb Industries purchased an RO in 2019 for $59.6 million in cash and stock in 2019, and Ascend is litigating its 2021 purchase of 86.7% of MedMen’s New York RO for $73 million. Earlier this year, Verano Holdings also purchased Goodness Growth’s New York license, along with others in Arizona, Maryland, and other states for $413 million in stock.
The $247 million price tag also sets a significant benchmark many will be watching. One important RO sale coming up: Cresco Labs is now in the process of merging with Columbia Care, which would require the new company to divest one of its two RO licenses, since owners are only allowed one.
In New Jersey, a densely populated state compared to New York, Ayr Wellness purchased Garden State Dispensary, one of the 12 vertically integrated license holders in New Jersey, late in 2021 for an estimated $100 million.
“This definitely pushes up the asking price,” said Jennifer Cabrera, counsel for Vicente Sederberg in New York. “Etain played the long game and held on to the license for a long time and got a good number.”
Asked if other cannabis deals could fetch similar prices in New York, Cabrera doesn’t think so. Etain was the only remaining independently owned registered organization, with multi-state operators taking the other four licenses. The ability to add an additional four dispensaries is a major benefit, as that number will be capped at three once new licenses are opened.
“They will be looking for it, but not sure they will get it,” said Cabrera. “It is a very rare opportunity and RIV was able to jump on it.
“RIV is making a bet on a really valuable asset and it’s a pretty safe bet.”
Etain is New York’s only women-owned and operated cannabis business and one of the first five organizations to receive a medical license. Its four dispensaries are located in Manhattan, Kingston, Syracuse, and Westchester.
“This agreement marks the most significant transaction for a women-owned business in cannabis history,” said Hilary Peckham, Etain COO, via press release.
Peckham also announced that while her family will be stepping away from company control, they will continue to actively partner with RIV for any ongoing efforts, specifically in regards to women in the cannabis industry.
“They were one of the original five and guided the success of the market,” said RIV Capital CFO Eddie Lucarelli. “They should be super proud of selling for [$247 million]. It’s an incredible accomplishment and should be celebrated by the New York market.”
“I think it’s a win,” said Sims. “Talking with the founders Hilary and Amy [Peckham, CEO of Etain] over the last couple of days, I think they see this as joining a larger team and they can really execute their vision.
“It doesn’t negate or relegate their vision. It gives them more resources.”
Although the deal is nominally led by Toronto-based RIV Capital, it was also backed in part by The Hawthorne Collective, an investment vehicle created by Ohio-based Scotts Miracle-Gro Company. Last year, Hawthorne also purchased 42% of RIV for $150. The purchase of a plant-touching company is also a strategic change for Scotts, which up to now has been limiting investments to ancillary services. RIV Capital owns some cultivation and processing facilities in Canada.
RIV’s CEO, Mark Sims, is putting a priority on ensuring there is no delay on increasing production for the pending adult use market and efforts to expand the retail end of the business.
“We met everyone in the four dispensaries and we were really impressed with the passion of the folks and saw them interacting with patients,” said Sims. “We are thinking about [new locations] and where we would launch [dispensaries] five and six. We can do up to eight. We are definitely thinking about it, Etain was already thinking about it, but no decision has been made yet.”
There are no concerns from the RIV Capital team about the assumed pressure of taking over an established business in a competitive market place. Before adult use opens in the state, RIV will focus on continuing to build on the foundation that Etain has already established.
“We’re super bullish on New York and placing a big bet with the amount of money allocated to the purchase,” said Sims. “I definitely think it will be a top three market once recreation launches. We see the opportunity to grow an original east coast brand.
“We want to make the Etain brand as successful as possible. It means a lot to the consumers and to the employees. So we want to take it and scale it up and make it as successful as possible.”
Said Lucarelli: “New York coming online is such a significant catalyst to the market. It’s good to see the evolution of the attitude [toward cannabis]. It’s a massively exciting moment for the industry.”