The Largest Cannabis Buyout in U.S. History Falls Apart
On October 8, two major players in the legal marijuana industry announced their decision to cancel a $682 million acquisition agreement. Last year, MedMen Enterprises, a publicly-traded, Los Angeles-based cannabis retailer, signed up for an all-stock purchase of PharmaCann LLC, a privately-held medical marijuana company headquartered in Illinois. The acquisition would have been the largest buyout in the history of the U.S. marijuana business.
Nevertheless, the MedMen Board of Directors determined that focusing on growing market share in states where MedMen already operates “will create greater shareholder value” than acquiring PharmaCann, according to a press release from the company. MedMen considers California, Florida, Massachusetts, New York, and Nevada to be its “core retail markets.”
The cannabis sector has evolved tremendously since we first announced the PharmaCann transaction and based on the current macro-environment and future opportunities that exist for our business, we believe it is now in the best interest of our shareholders to deepen, rather than widen, our company’s reach.
On the same day that MedMen and PharmaCann cancelled the buyout, MedMen fired its CFO without explanation.
If MedMen had acquired ownership of PharmaCann, MedMen would have been able to expand its operations in Illinois as the state begins to allow recreational marijuana sales next year. While PharmaCann conducts most of its business in Illinois and Virginia, the company also operates facilities in New York, Massachusetts, Ohio and Pennsylvania.
For its part, PharmaCann was never desperate for a buyer. In fact, the CEO of PharmaCann recently announced that his company tripled its revenues last year and will be opening more facilities in several different states in 2020. “I am extremely excited and confident about what the future holds for PharmaCann, our employees, our customers, and our shareholders,” CEO Bret Novey affirmed in a statement on October 8. “Our future has never been brighter.”
While the two companies jointly decided to cancel the acquisition, cannabis market experts believe that MedMen investors were concerned about the company managing a buyout while struggling with high executive turnover, antitrust investigations, and uncertainty from drug regulators. Since MedMen announced its intention to purchase PharmaCann, the value of its stock had fallen by 61%.
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When MedMen and PharmaCann decided to abandon the buyout, they agreed to an exchange of assets for debt relief as part of the termination agreement. In preparation for the acquisition, MedMen lent PharmaCann about $21 million. Since the federal government still classifies marijuana as a Schedule I controlled substance, many banks are not willing to loan money to cannabis startups, so PharmaCann accepted a line of credit from its then-future owner. PharmaCann will now relinquish facilities and licenses to MedMen to pay back the loan.
As MedMen walks away, it will receive a cannabis cultivation facility in Hillcrest, Illinois, a retail store in Evanston, Illinois, a marijuana retail license for Chicago, and a license for a marijuana facility in Virginia. According to MedMen President Adam Bierman, “Illinois has emerged as the most attractive opportunity for our longer-term strategic growth plan.”
Before cancelling the buyout, the company only had one retail location in the entire state. Now, MedMen will have a larger presence in Illinois as well as permission from the state to sell recreational marijuana to its residents. Earlier this year, the Illinois government began the competitive process of rewarding businesses a limited number of licenses for growing and selling recreational marijuana. As an established cannabis company in Illinois, PharmaCann was one of the first companies to receive licenses, some of which now belong to MedMen.
With licenses and thirteen dispensaries in six states, PharmaCann will now be one of MedMen’s competitors. With its sights set on a future without a buyout, PharmaCann plans to rebrand its facilities and products as Verilife.
Nathan Yerby is a writer and researcher. He is a graduate of the University of Central Florida.
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