This MSO pays $ 42 million to rule Colorado


In an effort to tighten an already strong hold on a historic marijuana market, Colombia treatments (OTC: CCHWF) recently announced a new acquisition in Colorado. Last month, the multi-state operator (MSO) finalized a deal to acquire a vertically integrated counterpart Medicine Man Denver for an initial consideration of $ 42 million, most of which will be paid in Columbia Care shares.

Like many marijuana businesses, Columbia Care likes to grow through acquisitions. He also likes the idea of ​​dominating a local market. Owning Medicine Man helps tick both boxes, but is it a good deal for the business in the end?

Image source: Getty Images.

Green medicine

It’s no coincidence that when the stock prices of marijuana companies are relatively high, they like to shop. We’ve seen this dynamic in play recently with, for example, Trulieve Cannabis(OTC: TCNNF) A $ 2.1 billion deal for Harvest Health and leisure (OTC: HRVSF) and HEXO‘s (NYSE: HEXO) purchase of approximately $ 765 million from Redecan.

The smartest swingers can exploit these fattened prices to pay for their acquisitions, which is the case with Columbia Care and Medicine Man. Of that upfront payment of $ 42 million, only $ 8.4 million is to be paid in cash, with the remainder coming from the shares of the old company. The total amount is a multiple of about 4.5 times Medicine Man’s expected EBITDA, according to Columbia Care.

Medicine Man will also be eligible for additional milestone payments next year, although the terms and amounts for these have not been specified.

Even with this acquisition, along with other recent and pending purchases – such as the recently struck deal for Ohio-based dispensary operator CannAscend – Columbia Care still has a relatively large war chest. Thanks to successful capital raising activities, its liquidity totaled more than $ 176 million at the end of its last quarter.

For its $ 42 million, Columbia Care gets a grow facility and a quartet of dispensaries (three of which, despite the Medicine Man name, only sell recreational weed). Of the four, one is located directly in Denver proper, two are in neighboring municipalities, and one is less than an hour’s drive north of the city.

Columbia Care was quick to mention that Medicine Man is faring even better than Colorado’s still thriving cannabis market. He said Medicine Man saw sales growth of 42% in 2020, surpassing the state’s overall rate of 24%. It doesn’t appear to be one-off, as those respective figures were 64% and 25% from January to May of this year. Outlets in and around Denver – by far the most populous city in the state, as well as the capital and a key destination for visitors – help immensely.

Colorado Consolidation

The acquisition of Medicine Man is part of another recent Columbia Care deal, in which it made relatively inexpensive, small-scale purchases to strengthen its presence in certain states. This is not the nine- or ten-digit redemption route that HEXO and Trulieve have recently taken.

Nonetheless, “Medicine Man will further consolidate our position as the premier vertically integrated operator in Colorado, in tandem with our ongoing integration of The Green Solution, and have a positive impact on our financial performance for years to come,” said Columbia Care. . CEO, Nicholas Vita, as the saying goes. However, the company did not provide detailed projections of the effect of future assets on its finances.

The Green Solution was Colorado’s largest vertically integrated marijuana company, according to its acquirer, when it announced its roughly $ 140 million deal to buy the business in late 2019.

Columbia Care’s current opportunistic piece-by-piece acquisition strategy makes sense. It’s not too taxing on the finances, and judging by this latest purchase, Vita and her company have a knack for making great deals. Medicine Man should be a great remedy for his new owner, helping him stay on the list of weed stocks for investors to watch in the months and years to come.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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