Cannabis companies have been on a merger spree to position themselves for the fast-expanding global consumer market that now includes Canada, dozens of U.S. states, and likely the entire U.S. if it becomes legal on a federal level. Curaleaf Holdings Inc. (CURLF), already America's No. 1 cannabis company, has been among the most aggressive acquirers. Now, it's poised to become the world's largest cannabis company by revenue with its $875 million cash and stock acquisition of privately held rival GR Companies, according to Business Insider.
GR Companies is better known by its main business, called Grassroots Cannabis. Earlier this year, Curaleaf scooped up another big property with the acquisition of Cura Partners, the West-coast distributor of Select cannabis products, in a deal worth $950 million.
What It Means For Investors
Curaleaf’s “vertically integrated business model and aggressive acquisition strategy is well-suited to succeed in the rapidly expanding U.S. legal cannabis market,” said Kenneth Shea, a consumer industry analyst at Bloomberg Intelligence.
Indeed, investors in Curaleaf, now with a $3.8 billion market value, like the deal. The company's stock jumped as much as 10% in daily trading on Thursday, and its shares have risen about 60% in 2019 through Wednesday's close, despite pulling back in recent months.
High on Mergers
The combined entity of Curaleaf and Grassroots Cannabis would create the world's largest cannabis company by total sales, with a foothold in 19 states, 131 dispensary licenses, 68 operational locations, and access to 177 million people, Curaleaf says, per Business Insider.
With Curaleaf’s latest acquisition, its combined revenues would have surpassed those of major North American competitors, including Canadian distributors such as Canopy Growth Corp. (CGC) and Aurora Cannabis Inc. (ACB), according to Barron's. Revenues for the combined Curaleaf and Grassroots Cannabis would have exceeded $250 million for 2018, and amounted to almost $90 million in the first quarter of 2019, per Barron's.
Curaleaf's Growth Vehicle
Grassroots Cannabis will help Curaleaf expand its U.S. footprint into the Midwest. It has 20 dispensaries and licenses for 41 additional stores. Curaleaf has retail stores in 12 states clustered on the East and West Coast. “If you think about the map and how complimentary this transaction is, there is virtually no overlap,” said Curaleaf CEO Joe Lusardi in a conference call on Wednesday, per Barron's.
Curaleaf indicates that its newest deal would increase it market capitalization well above rivals. Curaleaf is still unable to list on a U.S. exchange, unlike its Canadian rivals, since it operations in jurisdictions where cannabis is technically not legal on the federal level.
Curaleaf could be an inexpensive way to capitalize on booming growth in this key market, especially if it's legalized federally in the U.S. According to Barron’s, Curaleaf trades at just four times 2019 revenues, based on post-deal market cap and sales expectations. Rivals are generally much more expensive.