Trulieve Buys Harvest Health, and It's a Big Deal

Soft Secrets
11 May 2021

The new company would practically operate in 11 states, owning 22 cannabis cultivation and processing facilities, with a total capacity of 3.1 million square feet.

Welcome a new cannabis giant. When Truelieve Cannabis Corp announced on Monday (May 10) it has agreed to acquire Harvest Health & Recration Inc. in an all-stock deal worth $2.1 billion, it has moved on to position itself as one of the world's largest cannabis operators in terms of sales. 

It's a big deal because it shakes the capital markets and rings loud and clear that reform of the U.S. cannabis legislature is urgent. 

The merger entails two cannabis operators that are present in multiple states across the U.S. The new company would practically operate in 11 states, owning 22 cannabis cultivation and processing facilities, with a total capacity of 3.1 million square feet. Add to that the total of 126 dispensaries that serve both medical and recreational users of cannabis. 

Dubbed the U.S. largest cannabis transaction, following the announcement, Harvest shares went up 15%, while Trulieve was down by 3%. 

The merger between Trulieve and Harvest comes only a week after Canadian operators Tilray Inc. and Aphria Inc. announced the closure of their union, creating the world's biggest cannabis company in terms of revenue.  Under the new agreement, Trulieve, the State of Florida's first and largest fully licensed medical cannabis company, will retain a business focus on the U.S. northeast and southeast regions. Harvest, which is based in Arizona, will retain a focus on the west coast and northeast regions.   

The deal strengthens Trulieve's expansion in U.S. northeast and southeast hubs in Florida, Pennsylvania, and Maryland, and it establishes a southwest hub in core markets such as Arizona, the state which only recently legalized the adult use of cannabis and did so faster than any other state that has adopted such cannabis legislation. 

Trulieve CEO Kim Rivers described the transaction in a statement as "the largest and most exciting acquisition so far in our industry, creating the most profitable public multi-state operator."

"Importantly, our companies share similar customer values with a focus on going deep in core markets. This combination offers us the opportunity to leverage our respective strong foundations and propel us forward with an unparalleled platform for future growth," Rivers said. 

"We look forward to providing best-in-class service to patients and customers on a broader national scale as we create an iconic US cannabis brand," he said. 

What's the time? It's about bring the full cannabis legal reform o'clock.

"We are thrilled to be joining Trulieve, a company that has achieved unrivaled success and scale in its home state of Florida," said Steve White, CEO of Harvest. 

"As one of the oldest multi-state operators, we believe our track record of identifying and developing attractive market opportunities combined with our recent successful launch of adult-use sales in Arizona will add tremendous value to the combined organization as it continues to expand and grow in the coming years," White said. 

Under the terms of the deal, Harvest shareholders are to receive 0.1170 of a subordinate voting share of Trulieve for each Harvest subordinate voting share owned. The exchange rate suggests a price per Harvest share of $4.79, equal to a 34% premium over its closing price Friday. According to business analysts, the deal is further evidence that the U.S. is a crucial cannabis player worldwide, and therefore legal reforms need to unfold faster. 

Cannabis continues to be classified as a Schedule I drug at the federal level, which is an obstacle to the development of the legal sector, keeping cannabis operators out of regular banking services.  Despite that, the cannabis industry has, in the course of 2020, generated more than 320,000 jobs across the U.S. as well as $18 billion in legal sales without federal banking, according to MarketWatch. Those numbers are expected to go up for 2021. While the U.S. House of Representatives voted in April the SAFE Banking Act, which should give cannabis companies access to regular banking services across the U.S., the Senate still needs to act on its part of the vote. 

The American Bankers Associations, which has persistently advocated for the SAFE Banking Act, has said earlier in a statement that “banks find themselves in a difficult situation due to the conflict between state and federal law, with local communities encouraging them to bank cannabis businesses and federal law prohibiting it.” 

Once much-anticipated cannabis reforms take place, it should bolster the U.S. cannabis sector, and especially companies like Trulieve, which have continually, year after year, been working with good profits. The growth is such that a lot of these U.S. companies are currently outperforming Canadian companies, which in contrast are losing money, quarter after quarter. 

Soft Secrets