Jushi Holdings and Vireo Health Ink $37 Million Deal For Pennsylvania Property
A pair of multistate cannabis operators have struck a multimillion-dollar deal in Pennsylvania’s budding medical marijuana sector.
Minneapolis-based Vireo Health today announced plans to sell its medical cannabis cultivation and processing operations in the Keystone State to Florida-based Jushi Holdings for $37 million.
The deal for the Pennsylvania Medical Solutions (PAMS) subsidiary includes $16.3 million in cash and a $3.8 million unsecured seller’s note with 8% interest (payable quarterly) that matures in four years.
Additionally, Jushi will take over a $17 million lease agreement with Innovative Industrial Properties for Vireo's 90,000 sq. ft. Scranton site.
To fund the cash portion of the deal, Jushi raised $15.25 million in debt financing led by company insiders and existing shareholders.
According to a news release, Jushi — which issued 10% senior secured notes and warrants to acquire subordinate voting shares — has already received $12.35 million and $8.3 million has closed.
Jushi chairman and CEO Jim Cacioppo subscribed for $1.5 million of the notes, while other company insiders came in for $3.35 million.
The company also has nonbinding indications of interest for an additional $10 million in financing, it said.
“This acquisition allows Jushi to expand its presence in one of the most attractive medical cannabis markets in the country,” Cacioppo said via the release.
The two companies expect the transaction to close in August, and Jushi said all of its debt financing will be received on or before July 11, 2020.
The transaction illustrates Jushi’s bullish outlook on the Pennsylvania medical marijuana market, where the company owns 15 dispensary permits for its “Beyond/Hello” retail brand. Seven of those outlets are currently operational, according to state records.
Meanwhile, Jushi is also planning to scale indoor cultivation operations at Vireo’s facility, more than doubling the existing canopy from 20,000 sq. ft. to 45,000 sq. ft.
Following the expansion, the company will be able to produce as much as 1,000 pounds of dried flower per month, according to the release.
“Upon completion, Jushi will be able to provide high-quality, indoor flower and concentrates to our Pennsylvania patients who continue to experience constrained supply and high prices,” Cacioppo said. “Furthermore, we will be well-positioned to support an increase in demand and maintain the ability to further scale up the facility if required.”
According to a May 15, 2020 report from the Pennsylvania Department of Health, there are currently 22 grower-processors servicing 80 active dispensaries and more than 306,000 medical marijuana patients. The state currently caps total cultivation licenses at 25, and total dispensary licenses at 150, according to the report.
Meanwhile, more than 12.6 million products have been sold at Pennsylvania dispensaries since the state launched medical marijuana sales on February 15, 2018. Through last November, Pennsylvania dispensaries had sold a total of $309 million worth of cannabis.
In addition to acquiring Vireo’s PAMS subsidiary, Jushi also secured an 18-month option to buy Vireo’s Pennsylvania Dispensary Solutions, LLC subsidiary for $5 million in cash. That transaction would include two operational “Green Goods” dispensaries in Bethlehem and Scranton, as well as a third location in the Stroudsburg Township that is “coming soon.”
However, the maximum number of dispensaries that a company can own is currently capped at 15. If Jushi wants to exercise its dispensary purchase option, the company would need to divest of certain permits, gain approval from the Department of Health to exceed the cap, or state laws would need to change.
For his part, Vireo founder and CEO Kyle Kingsley said the “transaction secures Vireo's capital position for the foreseeable future.”
The deal will allow the company to “comfortably execute” its 2020 strategy, which includes improving near-term profitability and generating positive cash flow in the first half of 2021 without the need for a new capital infusion.
“We're also very excited about the opportunities in front of us to reinvest a portion of these proceeds to increase scale in select markets where we see significant opportunities to improve revenue growth and future cash flow generation,” Kingsley added.
Those markets include New York, Minnesota, Maryland, Arizona, and New Mexico.
Additional information can be found in the news release, linked below.