What's In It For Verano? Analyst Thoughts On $413M Goodness Growth Acquisition

Verano Holdings Corp. VRNO VRNOF and Goodness Growth Holdings, Inc. GDNS GDNSF announced their plan to merge on Tuesday.

The Deal Details

Under the deal valued at $413 million, the Chicago-based company agreed to take over Goodness’ active operations, including 18 dispensaries, five cultivation and processing facilities, a research and development facility as well as Vireo's, 1937, LiteBud, Kings & Queens, Hi-Color and Amplifi brands.

Verano will issue 0.22652 shares for every Goodness Growth's share, with Its shareholders owning 10.1% of Verano’s shares puts the deal on a fully diluted share count.

Moreover, the acquisition of Goodness is expected to expand Verano’s operational footprint with the addition of New York, Minnesota and New Mexico markets.

Will Exposure To New York Cannabis Market Work? That's The Idea

Cantor Fitzgerald’s analyst Pablo Zuanic said in his latest note that the deal is “mostly about NY and medical license scarcity” as the current state in the cannabis space “may lead to more consolidation.”

Besides obtaining one of the ten medical licenses in New York, which appears to be the main value of the deal, the transaction also allows Verano to take one of the two licenses in Minnesota, including eight stores and 87 000 square feet of cultivation. In New Mexico, where recreational sales are set to launch next month, Verano will get ahold of four stores and 19 000 square feet of cultivation space.

Goodness also issued CY22 guidance of $140-$180 million in sales and EBITDA of $35-$55 million.

Zuanic noted that the value of “existing incumbent stores may not be much down the road in New York” in the next two to three years with $2.8 billion in sales, as New York regulator is aiming to 3,000 stores.

However, exposure to one key state where licenses are scarce, “may work,” he said.

“NJ exposure is a plus, although more medical licenses being issued may dilute the value of the current incumbents,” Zuanic explained.

In the third quarter of 2021, Goodness’ four stores generated $2.8 million in sales.

“If we assume the total NY market is $220 million at present, this could mean equivalent share (grossing up wholesale) of 6.5% share,” Zuanic said.

Industry Peers In The Space

Other players in the New York cannabis field include Green Thumb Industries GTBIF, which paid $60 million for a NY license in the form of $46 million in cash in 2019: Cresco Labs CRLBF, which purchased a NY license for $103 million in August; Acreage Holdings. ACRDF, which paid $48 million for the NY license owned by NYCanna; Columbia Care CCHW CCHW CCHWF; Curaleaf Holdings CURA CURLF, iAnthus Capital Holdings IAN ITHUF; PharmaCann and finally Etain Heal, which Zuanic called “a seller in the near term.” And then there's Ascend Wellness AAWH AAWH that was set to pay $73 million for 86.7% of the MedMen's MMEN MMNFF NY license, prior to MedMen canceling the deal. Keeping in mind that some form of settlement may follow, Ascend’s role should be taken into account.  

VRNOF Price Action

Verano’s shares traded 2.65% lower at $11 per share at the time of writing on Wednesday.

GDNSF Price Action

Goodness Growth’s shares traded 2.5641% lower at $2.28 per share at the time of writing on Wednesday.

Photo: Courtesy of Yiorgos Ntrahas on Unsplash