While this has certainly been an action-packed week in the marijuana industry, perhaps the biggest news is that Curaleaf Holdings (CURLF) has acquired a privately held U.S. multi-state cannabis producer called Grassroots for $875 million. With the announcement, CURLF’s stock skyrocketed and left investors and analysts alike buzzing about the notion of the combined entity.
Headquartered in Chicago, Grassroots operates 20 dispensaries, while holding licenses for 61 total stores and 17 cultivation and processing facilities. With the Grassroots assets, Curaleaf will possess 131 dispensary licenses and be active in 19 U.S. states, adding four central states including Illinois and Michigan to its previously East and West Coasts footprint.
Hundley references Grassroots’ market-leading position and key talent as core strengths of the acquisition. Specifically, the analyst points to Grassroots’ strategic positioning within “important limited-licenses states like Illinois.” Access to Illinois opens Curaleaf to a state with high barriers to entry which is especially fertile given that the state will legalize recreational marijuana sales on January 1, 2020. In terms of Grassroots’ key talent, co-founder and CEO Mitchell Kahn will benefit CURLF as the company works toward attaining new licenses in other U.S. states. The analyst expects him to be an asset as a Curaleaf board member due to his background in real estate development and deal-making in addition to his status as a CPA and attorney.
Beyond the marketplace synergies created from the Grassroots deal, Curaleaf signed an agreement in May to buy privately held Cura Partners for $949 million in stock. The still-pending acquisition will give CURLF access to Cura Partners’ popular Select line of cannabidiol products, furthering the companies reach and exposure. With all these strategic pieces in place, Hundley questions whether Grassroots will initially drag FY2020 EBITDA numbers for Curaleaf as it works to build out its footprint. While Hundley views this as a near-term potential headwind, the analyst ultimately expects “Grassroots to add ~$125MM in revenue for 2020, potentially bringing pro forma FY2020 CURLF sales up over the $1B mark.”
With the Grassroots acquisition expected to close early next year and the Cura Partners acquisition still pending, the Street is unwaveringly bullish. TipRanks analysis of three analysts shows a Strong Buy consensus, with all three analysts saying Buy in the past three months. The average price target among these analysts stands at $19.67, which represents ~98% increase from current levels.
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