Shares of cannabis-focused ancillary products and services providers KushCo Holdings, Inc. KSHB and Greenlane Holdings, Inc. GNLN are trading up by double-digits on Wednesday morning after the companies confirmed they will be merging.
Under the agreement, KushCo will become a wholly-owned subsidiary of Greenlane, and its stockholders will obtain around 0.2546 shares of Greenlane Class A common stock for each share of KushCo common stock. With this exchange ratio, KushCo shareholders should end up holding around 49.9% of the combined company, and Greenlane shareholders the remaining 50.1%.
In relation to the transaction, Greenlane Class C shares will be transformed into Greenlane Class B shares on a 3-to-1 basis.
The boards of directors of both companies, as well as a special independent committee comprised of Greenlane’s independent directors, unanimously approved the transaction, recommending shareholders to do so as well.
Following the completion of the transaction, KushCo’s co-founder, chairman and CEO, Nick Kovacevich will become CEO of the joint company. Greenlane’s Bill Mote will be appointed as CFO, while its co-founder Aaron LoCascio will become president.
The combined company’s board of directors will have seven members: four from Greenlane and three from KushCo.
The transaction should be finalized either late in the second quarter or early in the third quarter of 2021.
Canaccord Genuity Corp. was chosen as financial advisor to the Special Committee of Greenlane’s board of directors, while Potter Anderson & Corroon LLP has taken the role of legal counsel to the Special Committee.
Why It Matters
The combined company is projected to offer more value to customers across the supply chain, serving multi-state-operators, licensed producers, many smoke stores and millions of retail consumers.
The transaction should yield around $15 to $20 million of yearly run-rate cost synergies in the two years following the closing of the transaction, driven by economies of scale.
From the financial aspect, the combined company is projected to have a pro forma revenue of $250 million for the full year 2020, and a market capitalization of over $350 million (based on the share prices of both companies on March 30).
The joint company is projected to yield pro forma revenue of around $310 to $330 million in 2021.
“This transformative transaction is expected to create a broad and complementary platform that we expect to deliver substantial synergies at an important inflection point in the cannabis industry,” Aaron LoCascio, CEO of Greenlane stated. “As an industry leader, the combined company will be well-positioned to grow profitability and maximize value for all stockholders while also providing enhanced product offerings and expanded ancillary services to our valued customer bases. “
Nick Kovacevich, CEO of KushCo added he is thrilled to form “a leading, innovative supplier of cannabis ancillary products serving the most valuable segments of the supply chain.”
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