For the rest of 2019, cannabis acquisitions are expected to continue being a major trend in the industry. While companies are beginning to shift to embracing brand strategies, marketing, and developing retail presence, there’s still plenty of major mergers that focus on consolidating production capacity under one company.
Curaleaf Holdings Inc (CSE: CURA), one of many vertically integrated cannabis companies operating mainly in the United States, announced today it will be acquiring Acres Cannabis in Nevada, adding around 270,000 square feet in cultivation capacity into its portfolio.
Besides adding over a quarter million square feet in production capacity, Curaleaf will be gaining 37 acres of land in Amargosa Valley, Nevada, as potential areas for facility expansion. Acres Cannabis owns the largest cannabis growth facility in the state and owns other assets like extractions labs and a 19,000 square foot dispensary in Las Vegas outside the Strip.
“The acquisition of Acres is a major step in expanding our vertical platform in Nevada. Acres operates a flagship dispensary in the heart of Las Vegas, complementing our existing assets in the state extremely well, and importantly, we can control the consistency, quality and production cost of our own cannabis products,” said Curaleaf’s CEO Joseph Lusardi. “We have built the most accessible, trusted and reliable cannabis brand and are extremely excited about the prospects in Nevada both for retail and wholesale activity.”
During the fourth quarter of Q4, Acres harvested around 5,000 pounds of marijuana flower. In comparison, once the facility completes its estimated expansions which would see it grow to over 400,000 square feet, it’s expected that output would grow to 100,000 pounds of dry flower annually.
Curaleaf’s management, vision and rapid expansion plans made them the natural fit for Acres,” added John Mueller, CEO of Acres. “Acres believes Curaleaf is very well positioned to continue to be the largest cannabis operator in the U.S. giving our partners significant upside.”
Earlier in the month, GMP Securities analyst Robert Fagon went on to reiterate his “buy” recommendation of the company’s shares, setting a C$20.00 price target for Curaleaf. Overall, he expects CuraLeaf to see revenues of $312.5 million in 2019, and his ambitious C$20.00 target would mean a 120 percent or so increase in strong price from its current position.
“We believe CURA has emerged as the new industry leader amongst public US cannabis operators, with a multi-state retail footprint and production base which is ~2x the size of its peer group average,” said Fagon at the time. “Equally impressive is CURA’s wider breadth of operations which pro-forma recent acquisitions includes 14 facilities currently in operation across 10 states. This is more than triple the number of facilities CURA’s peers are currently operating on average, and across double the number of states. We believe CURA’s industry-leading operating platform argues for the highest valuation metrics in the sector.”
The transaction, estimated at $70 million, will consist of a $25 million deposit in cash with another $45 million to be paid in Curaleaf stock. Additional bonus incentives have been included if certain financial targets are met throughout the year. In response to the news, Curaleaf shares have increased around 3.3 percent, settling the day at C$8.81 per share. While not moving significantly, Curaleaf shares have increased 25 percent in 2019 to date, while the S&P500 has gained half that in the same amount of time.
