Emerging marijuana giant Curaleaf Holdings says it will pay $875 million, mostly in stock, for Chicago cannabis company Grassroots. Curaleaf claims the deal will make it the largest marijuana company in the world.
Wednesday’s acquisition is the second blockbuster deal for Massachusetts-based Curaleaf this year. In May, it announced plans to buy Portland’s Cura Cannabis in an all-stock deal initially valued at nearly $950 million.
The recreational marijuana industry is experiencing rapid consolidation, with more than 200 deals in 2019 alone, according to data from Viridian Capital Advisors cited by Reuters. The big players are joining forces to reduce their costs and establish early market leadership for their brands.
The market remains highly volatile, though, with a great deal of uncertainty. While recreational marijuana is legal in 10 states, including Oregon, Washington and California, it remains illegal under federal law. Curaleaf, like other recreational marijuana companies, trades on a Canadian stock market because U.S. exchanges won’t list cannabis stocks.
Curaleaf shares fell significantly in the weeks after announcing the purchase of Portland-based Cura, reducing the deal’s value by more than a third. It’s due to close later this year.
Shares rebounded sharply on Wednesday’s news, though, jumping 18% to $7.68. Even so, the value of Curaleaf’s deal for Portland-based Cura has dropped by more than $200 million since it announced the transaction in May.
Curaleaf is backed by a Russian billionaire, Andrei Blokh, and by Boris Jordan, an American investment backer who made a fortune helping privatize state-controlled industries after the collapse of the Soviet Union.
Portland-based Cura, meanwhile, emerged from a pair of scandals.
The company started as a real-estate scam that cost dozens of Oregon investors $1 million in retirement savings, diverting some of their investments into marijuana startups. Due to an early legal settlement, the investors apparently have no claim to the hundreds of millions of dollars in the Curaleaf deal.
Cura’s executive chairman and former CEO, Nitin Khanna, was a Portland tech entrepreneur who retreated from the city’s technology scene in 2014 after settling a civil suit brought by his wife’s hairdresser who accused him of rape.
Curaleaf has declined to address the plight of the investors or the accusations against Khanna. It plans to market its recreational marijuana under Cura’s Select Oil brand and make Cura’s CEO, Cameron Forni, president of Curaleaf.
Cura and Curaleaf had $205 million in combined revenue last year, according to the companies, and is on track for sales of $300 million or more this year. Curaleaf reported a $56 million loss last year; it hasn’t reported profitability figures for Cura.
Grassroots brings an additional 61 dispensary licenses to the Curaleaf and Cura combination. The companies didn’t report financial data for Grassroots, but it’s in a prime market — Illinois, the nation’s sixth-most-populous state, legalizes recreational marijuana January 1.
Wednesday’s deal consists of $75 million in cash and Curaleaf stock valued at roughly $800 million.