Curaleaf Holdings (CSE: CURA) (OTCQX: CURLF) has agreed to acquire the state-regulated cannabis business of Cura Partners.
Cura is the owner of the leading cannabis wholesale brand Select. Under an agreement, Curaleaf will acquire Select’s manufacturing, processing, distribution, marketing and retailing operations and all adult-use cannabis products marketed under the Select brand name, including all intellectual property, in an all-stock transaction valued at C$1.27 billion or US$948.8 million.
Oregon-based Select is the well-known cannabis wholesale brand in the country. Its THC products are sold in more than 900 retailers and it is a popular cannabis brand in many Western states, including California, Arizona, Oregon and Nevada.
Transformational Acquisition
The acquisition brings together two of the big cannabis brands, Curaleaf and Select, to offer a full-range of products across the U.S. The combination will provide immediate geographic diversification with Curaleaf’s footprint on the East Coast and Select’s brand strength on the West Coast, according to Curaleaf.
The proposed transaction combines Curaleaf’s retail locations, vertical integration, wellness brand and strong East Coast market presence with Select’s wholesale model, lifestyle brand and leading West Coast market presence.
“The transformational acquisition of Cura and the Select brand is another step in our journey to create the most accessible cannabis brands in the U.S.,” Joseph Lusardi, the CEO of Curaleaf, stated.
“The combination of Curaleaf and Select is a perfect fit. With our industry leading capacity, expansive retail distribution network and Select’s impressive sales and marketing capabilities, we intend to meaningfully accelerate our topline growth trajectory with the addition of the Select Oil product range. In addition, we intend to create significant operational synergies from the integration of Select’s wholesale business with our vertically-integrated cultivating, processing and retail platform,” Lusardi added.
Acquisition Terms
At closing, Curaleaf will acquire all outstanding equity securities of Cura through the issuance of approximately 95.6 million subordinated voting shares, which based on Curaleaf’s closing price of C$13.30 on April 30, 2019, the last trading day prior to the announcement of the transaction.
The deal is valued at C$1.27 billion or US$948.8 million. Post-transaction, Cura will have approximately 16% pro forma ownership of Curaleaf on a fully-diluted basis.
Curaleaf said that the all-stock transaction structure will allow the company to preserve financial flexibility to pursue additional M&A and other strategic opportunities.
Additionally, Cura equity holders will be eligible to receive an earn-out of up to $200 million from the issuance of additional subordinated voting shares, subject to Curaleaf exceeding certain 2020 revenue targets for its combined wholesale extracts business and Select-branded retail extract sales. For the purposes of paying the earn-out payment, the earn-out shares shall be valued according to a formula based on market value at the time they are issued.
The transaction is expected to close in 2019, subject to customary closing conditions, regulatory approvals, Cura stockholder approval, and the receipt of an agreement from the holders of Cura’s convertible debentures with respect to the conversion of such debentures into equity.
The deal has been approved by independent special committees of the boards of directors at both companies.
Following the deal closure, Cameron Forni will join Curaleaf as president of Select, which he created in 2015 having had prior VC-backed exits in consumer goods. Forni will also become the member of Curaleaf’s board of directors, expanding the board to six members.
Additionally, Select Chief Marketing Officer Jason White will be appointed by Curaleaf to the newly-created role of chief marketing officer. Prior to Select, White was the global head of marketing for Beats by Dr. Dre, the headphone and speaker maker that was acquired by Apple in 2014.
