“Curaleaf indicated the discussions with Grassroots to amend the transaction had been ongoing for some time,” says Rob Fagan, an analyst with Stifel in Canada. “Grassroots’ leadership was ultimately amenable to reduce the transaction’s cash component, given a stronger balance sheet for the resulting company would likely be a beneficial factor for valuation, and thus a positive for Grassroots as an eventual large shareholder.”
Grassroots declined to comment. Its shareholders still have to approve the deal. They will have about 119 million shares, or 18 percent of Curaleaf’s stock, or about 1 percentage point more ownership than under previous terms. At the current stock price, the 119 million shares of Curaleaf are worth about $715 million.
If they greenlight the new terms, Grassroots shareholders will be giving up about $25 million to get a deal done that will create the largest grower and seller of marijuana in the U.S., with more than 135 dispensary licenses and 22 cultivation sites. The companies say the deal is on target to close in the next several weeks.
The deal was announced when cannabis stocks were near their peak. Since then, prices have fluctuated wildly and capital markets have tightened dramatically, even before the COVID-19 outbreak. Curaleaf’s stock peaked at $8.11 per share about two weeks after the deal was announced but fell below $5 by November. Shares bottomed at $2.64 March 19, during the worst of the market’s reaction to the coronavirus, and have recovered to about $6 per share.
Two acquisitions of large Chicago-based marijuana companies, Verano Holdings and PharmaCann, fell apart as stock prices of the acquirers declined and once free-flowing capital markets tightened up.
Because marijuana remains federally illegal in the U.S., traditional sources of funding are not available. U.S. companies such as Curaleaf, which is based in Waltham, Mass., went public in Canada. But Canadian marijuana stocks took a hit last year amid a rocky rollout of recreational cannabis use in that country.
The $75 million in cash that Grassroots is giving up will come in handy for Curaleaf as it builds out dispensaries in markets such as Pennsylvania and Illinois. The companies also said today that Grassroots will have to sell assets, such as dispensaries, in Illinois and other states. But it did not disclose which assets the company will sell.