The Pennsylvania merger and acquisition activity is sizzling. Deals valued at more than $ 400 million have been announced since March alone as local cannabis companies make money and multi-state operators seek to gain a foothold in the fast-growing mid-Atlantic market.
Cultivation and processing operations bring in $ 100 million and more. And pharmacy licenses cost $ 20-35 million for each store front as the state’s retail sector consolidates.
M&A activity is brisk in other marijuana states like Illinois, Massachusetts, and New Jersey.
But Pennsylvania is particularly notable for a variety of factors – including the expectation that the state will approve adult use, but likely not this year.
Chicago-based Verano Holdings, TerrAscend with offices in Toronto and New York, and Florida-based Trulieve are among the MSOs looking to establish or expand in Pennsylvania through acquisitions.
It’s like Pennsylvania hung a “Everything Must Go” sign in the window 45 days ago, said Steve Schain, a senior state cannabis lawyer with the Hoban Law Group. Schain has represented parties that were involved in some deals.
“Marijuana licenses sell like hot cakes and move at breakneck speed,” Schain said. “The only question is when the feeding frenzy ends.”
A multitude of factors boost business:
- A fast growing medical cannabis market that could reach or exceed $ 1 billion in sales this year.
- A structure with limited licenses that still allows a company to open up to 15 pharmacies through five pharmacy permits. Three storefronts are permitted per pharmacy permit. Six showcases are allowed per vertically integrated clinical research license.
- One of the highest registered medical marijuana patients in any state in the country – 528,000, according to the newly released MJBizFactbook. Only Florida is higher with 551,000 registered patients.
- High average consumer purchases.
MMJ shoppers are spending
Seattle-based cannabis data analytics firm Headset, which recently rolled out market coverage, found that Pennsylvania’s medical marijuana patients are avid buyers of MMJ products: the state stands out from other US markets at $ 123.88 a year with the largest average basket sizes so far this year. “
Headset added that Pennsylvania’s average basket size is twice that of Michigan’s and 1.5 times that of Oregon’s.
The MJBizFactbook predicts medical marijuana sales in Pennsylvania will be between $ 775 million to $ 925 million in 2021, compared to around $ 475 million to $ 600 million in 2020.
The headset is even more optimistic and estimates sales for the past 12 months at $ 904 million and the current sales rate at over $ 1 billion per year. Some companies provide Headset POS data that the company uses to make forecasts.
St. Louis-based investment banking firm Stifel wrote in a May 7 research report that Pennsylvania retail sales exceeded the company’s forecasts for the first quarter of 2021 and wholesale prices remained relatively robust.
Chicago-based Green Thumb Industries and Cresco Labs, as well as TerrAscend and Trulieve, made up most of the retail sales growth, according to Stifel.
Verano Holdings, TerrAscend and Trulieve have signed agreements to acquire operations in Pennsylvania since March (see chart above), with Verano being the most aggressive acquirer.
Verano’s three deals since March alone add up to $ 285 million.
In March, Verano agreed to spend $ 110.3 million to acquire the Healing Center, which has three pharmacies in the Pittsburgh area. The Healing Center has been named without exception the best MMJ pharmacy in the area by Pittsburgh City Paper.
Verano also signed definitive agreements for $ 175 million to acquire a large facility in Pennsylvania, as well as interest in six pharmacies and one additional facility.
Sell while the market is hot
Schain and others noted that while market values are high and sales are hot, some local businesses have decided to sell. In some cases, the buying MSOs were already involved in the MMJ operators they wanted to acquire.
Indeed, local businesses are finding they are at the height of a wave – after seeking capital from family and friends and seeing a gradual roll-out of the state’s MMY program in 2018.
The coronavirus pandemic also spurred state regulators to triple the amount allowed for purchases, bringing in roadside sales, home delivery and easy online patient registration. This in turn increased the value of their businesses, said Schain.
However, the writing is on the wall.
“Yes, adult use is on the way and we expect existing medical marijuana companies to move into adult use,” Schain said.
But with adult use there will be a lot more competition. And marijuana will just be a commodity for the most part, he noted.
“This was a good wave to ride,” said Schain.
The company had already acquired Ilera Healthcare, a vertically integrated operation. for $ 225 million in 2019 and marked a leadership position in flower production in Pennsylvania.
Ilera had previously invested 10% in Keystone Canna Remedies (KCR).
The move was a “small bonus” to TerrAscend’s deal last month to buy the remaining 90% stake in KCR for $ 63 million, Jason Wild, executive chairman of TerrAscend, told MJBizDaily.
KCR has three pharmacies in northeast Pennsylvania. The deal was closed on May 3rd.
With the acquisitions of Ilera and KCR, TerrAscend now has six stores in Pennsylvania. Still, the company wants to buy more, said Wild.
The attraction: One of the most populous states in the country with nearly 13 million people, an annual MMJ revenue rate of around $ 1 billion, a strong medical marijuana program, and the cap of 18 pharmacies “higher than most other states” is said Wild.
“The numbers work. It’s strategic and the numbers work, ”he said.
In fact, it assumes that Pennsylvania lawmakers fail adult legalization this year as neighboring New Jersey moves forward.
“Sure, (New Jersey) is going to take something away from Pennsylvania,” said Wild.
But TerrAscend has that base covered too: it has a vertical MMJ operation in New Jersey with a pharmacy right across from Pennsylvania.
Consolidation of retail
Pennsylvania currently has 117 pharmacies operating, 14 of which have opened since the first of the year, according to the latest state data.
But the retail side will clearly become more consolidated as more MSOs move to the state or expand their operations.
For example, Green Thumb Industries has 15 Rise pharmacies in Pennsylvania. This is evident from the state’s list of MMJ pharmacies and the company’s website.
Arizona-based Harvest Health & Recreation has 10 pharmacies, and Florida-based Jushi Holdings has 11 pharmacies under the Beyond Hello brand.
A number of other MSOs, including Columbia Care, Cresco, Curaleaf, TerrAscend, Trulieve, and Verano, each have multiple pharmacies.
MSOs also use capital to grow their operations in Pennsylvania.
Jushi, for example, raised $ 30 million last month from San Diego-based real estate investment trust Innovative Industrial Properties to expand its cultivation center in Scranton.
Miami-based Cansortium, which operates the Fluent brand, recently raised $ 71 million in debt financing in addition to a $ 17.1 million capital increase.
In a press release, Robert Beasley, CEO of Cansortium, highlighted Florida and Pennsylvania as two markets the company plans to expand into.
Anyone Know About Adult Legalization In Pennsylvania?
Governor Tom Wolf made recreational marijuana legalization one of his government’s top legislative priorities this year.
However, the state’s Republican-controlled Senate is seen as a major hurdle.
Meanwhile, the state’s medical marijuana market continues to accelerate.
Jeff Smith can be contacted at [email protected].