As the year comes to a close, the cannabis industry is on a consolidation binge. Two big deals were announced today piling on after last week's big move by Aphria (APHA) and Tilray (TLRY) . Ayr Strategies (AYRWF) is buying Liberty Health Science (LHSIF) in a deal valued at $290 million, and Columbia Care (CCHWF) is buying privately-held Green Leaf Medical in a deal valued at $240 million.
Ayr Strategies
Florida
Ayr Strategies has grown quickly through acquisition and this latest purchase gets the company exposure in two of the three best medical markets in the country. The all-stock deal for Liberty is valued at $290 million. In this transaction, Ayr will be getting Liberty's 387-acre cultivation campus in Gainesville, FL with over 300,000 sq. ft. of current production facilities in operation, 28 open retail dispensaries, seven completed and ready-to-open dispensaries, and seven dispensaries currently under construction. Liberty currently employs 335 people, all of whom are expected to be retained by Ayr. Ayr said it plans to spend approximately $15 million in capital expenditures in 2021 to improve and expand the Gainesville cultivation campus, as well as expand Liberty's dispensary footprint.
The fact that there was no cash involved in this transaction shows that Liberty was ready to deal. The company's CEO Victor Mancebo resigned in October after shareholders expressed dissatisfaction with the company's disappointing cannabis production in Florida. A recent state report from the Office of Medical Marijuana dated October 16-22 showed that Liberty, with 26 dispensing locations, had produced only 3,937,111 mg. of medical marijuana with THC. AltMed Florida, which also has 26 locations, produced 14,854,911 mg. of medical marijuana with THC. The same report listed Liberty producing 1,189,520 ounces of "marijuana in smoking form" while AltMed produced 3,410,551 ounces.
The same report showed that Liberty's sales fell 26% in the THC category, but rose 75% in flower sales. However, Liberty only sold 1,200 ounces of flower versus AltMed's 3,400 ounces of flower. While Liberty recorded a net income in the second quarter ending in August of $11.5 million, this was a huge drop from last year's net income of $23 million for the same time period.
In addition to the poor showing on production and sales, Liberty asked its debt holders for a 12-month extension on Senior Secured Convertible Debentures from the original November 22, 2020 maturity date, issued on November 22, 2017. They were offered to increase the interest from 12% to 13%. $6 million is currently outstanding. If Ayr Strategies can fix the issues at Liberty, the bones are there to really turn this portfolio into a promising operation. Surely the Liberty shareholders are pleased with this move.
New Jersey
In addition, Ayr said it was buying the membership interests in GSD NJ (Garden State Dispensaries), a licensed operator in New Jersey, for an upfront price of $101 million which includes $41 million in cash, $30 million in stock, and $30 million in the form of a promissory note. GSD has 30,000 sq. ft. of production space with another 75,000 sq. ft. of expansion space, and is one of only six operators that is approved to increase its footprint to roughly 150,000 sq. ft. GSD is the only licensee in the state that has already opened the maximum three store allotment allowed in this medical-only state. The company said on its call that the stores are running at a $10 million annualized rate. With the expectation that New Jersey will be legalizing adult use cannabis in 2021, this was a great time to acquire an original operator in the state. Including these and other pending transactions, Ayr said it will have operations in seven states covering 73 million people, which include four adult-use markets and three medical markets.
Columbia Care
Columbia Care Inc. is buying privately held Green Leaf Medical, LLC for approximately $240 million with the potential for additional performance-based milestone payments. Columbia will make a payment of $240 million, consisting of a cash payment of $45 million with the balance of $195 million being satisfied by the issuance of 43,900,144 common shares of the company. The deal is expected to close in the summer of 2021 and Columbia said the deal is immediately accretive.
Taking a page out of the Cresco Labs (CRLBF) playbook, Columbia is eyeing the wholesale markets in Pennsylvania and Maryland, and this deal helps push them to the top of the list. By acquiring Green Leaf, Columbia said it substantially expands its footprint and operating scale in the East Coast and Mid-Atlantic. It adds roughly 400,000 sq. ft. of cultivation and production capacity, four operating dispensaries and six undeveloped, but permitted dispensaries, in key limited license markets.
Green Leaf, better known as gLeaf, was founded in 2014. It was set to deliver $150 million in annual revenue for 2021 and produce almost 4,600 pounds of cannabis a month. Philip Goldberg is the CEO of gLeaf, which raised $10 million in April of this year, in order to expand operations in Virginia and acquire dispensaries in Pennsylvania.
"This combination affirms Columbia Care's position as one of the largest cultivators, manufacturers, and retailers in four key states - PA, VA, OH and MD - three of which are expected to convert from medical to adult-use in the next 24 months," said Nicholas Vita, CEO of Columbia Care.
Like Ayr, the company has also been on a buying binge. It acquired Green Solution this past summer in an all-stock deal, and in September it bought California-based Project Cannabis for $69 million. This latest acquisition is going to easily set Columbia Care in the top tier of cannabis companies in the U.S.
