Following what’s been a rather disappointing 2.0 legalization of CBD-derivative products in Canada, cannabis companies have begun to do something that was previously unthinkable. Some of the largest cannabis stocks have started to dial back and even back down from previously announced acquisitions.
Whereas just earlier this year cannabis companies were breaking records for multi-billion-dollar buyouts, this enthusiasm has all but evaporated as companies now begin to hunker down. Curaleaf (OTC: CURLF) took a dip today after it announced that it was backing off from a major acquisition it agreed to.
While Curaleaf had agreed to buy the Select brand from Cura Partners in a $948.8 million transaction, the company had recently announced it was changing the terms of the deal. While not canceling the agreement altogether, it was changing how it paid Cura Partners. Instead of providing the 95.5 million shares originally agreed upon in this all-stock transaction, Curaleaf will instead provide only 55 million shares upfront, with the remaining 40.6 million share payable upon certain revenue targets once they are hit.
While Curaleaf also added that a federal antitrust review has finally concluded, allowing the deal to come through, the overall situation surrounding cannabis M&A’s have slowed down even from a regulatory perspective. Whereas authorities had been quicker to approve these deals, now it appears that federal authorities are slowing down and taking more time to consider the implications of these potential deals.
“Select valuation has fallen dramatically over the last few months, but Curaleaf was able to lower immediate dilution and make total dilution more contingent on performance,” commented MKM analyst Bill Kirk. With the HSR waiting period having now expired, “this is a small net positive for Curaleaf,” he added.
Other major cannabis deals have either taken a back seat or have been stopped altogether following this decline in the market. MedMen Enterprises ended up canceling a $682 million deal to buy PharmaCann earlier in October. Cresco Labs has also alluded to the possibility of potentially changing it’s agreed-upon acquisition of Origin House, which was originally valued at C$1.1 billion.
Shares of Curaleaf ended up tumbling by 8.8% on Thursday in response to the news, adding to its already extensive losses over the past few months. Over the past six months, Curaleaf’s stock has tumbled by 58%, a decline that unfortunately hasn’t been uncommon for cannabis stocks across the board.
With further declines seeming to be on the horizon, the industry as a whole has shifted to a less-exciting, more conservative stage. Some industry experts and analysts, such as Alan Brochstein, have argued that pot stocks have now gotten so cheap that they are appealing to value investors.
Curaleaf Company Profile
Curaleaf is headquartered in Wakefield, Massachusetts, and cultivates and sells medicinal and recreational cannabis in the U.S. The company has operations in 19 states, including the assets from the Cura Select and Grassroots acquisitions. Curaleaf offers multiple products under three brands: Curaleaf, Curaleaf Hemp, and UKU Craft Cannabis. The company does not currently export into the global medical market as Canadian cannabis producers typically do. – Warrior Trading News
