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Trulieve Cannabis Corp. said on Monday it will buy medical pot producer Harvest Health & Recreation Inc. for US$2.1-billion, creating the largest U.S. cannabis company by revenue.

The prospect of U.S. reforms gives companies a chance to further capitalize on consumer appetite for pot products, which has risen since the onset of the COVID-19 pandemic, leading to a jump in cannabis deal making in recent months.

The deal gives Trulieve a foothold in Florida, Pennsylvania and Maryland, and in core markets including Arizona, where the recreational adult use of cannabis was recently legalized.

Harvest Health’s shares rose 15 per cent in afternoon trading to $5, while Trulieve fell more than 4 per cent to $47.62 on the all-stock deal.

“I think this is the beginning of a trend we are likely to see in the industry,” said Robert Leidy, founder at investment manager Teneo Capital Management.

“[The deal] puts pressure on companies like Curaleaf, Green Thumb, and Cresco to think about how they want to build out their footprint,” he said.

The combined business will have a retail network of 126 dispensaries across 11 states in the U.S., with a total capacity of 3.1 million square feet, Trulieve said.

“We see years of M&A and expect Merger Mondays, like today’s announcement of Trulieve and Harvest combining, to be a continued theme for years to come. It won’t be long until we are talking about companies doing US$2 billion a year in sales,” said Morgan Paxhia, co-founder of investment fund Poseidon.

Trulieve and Harvest’s 2021 revenue estimate adds up to around US$1.2-billion, more than double that of Canadian producer Canopy Growth Corp., currently the world’s most valued pot stock.

“The deal is accretive to Trulieve and I think it will be one of, if not the most profitable MSOs (multi-state operators),” said Michael Murphy, portfolio manager at Teneo Capital.

“That is certainly worth the premium being paid right now.”

Harvest shareholders will get 0.1170 of a Trulieve voting share for each Harvest subordinate voting share held, a 34-per-cent premium to the stock’s last close.

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