A California-based multi-state operator (MSO) is backing out of one of its pending merger agreements due to the volatility the marijuana market has seen in the past few months.
MedMen Enterprises (CSE:MMEN,OTCQX:MMNFF) confirmed on Tuesday (October 8) it would be terminating the planned union with the privately-owned PharmaCann originally valued at US$682 million.
The all-stock deal was first announced in October last year and signed a few months later in an effort to expand MedMen’s reach across the country. After the merger, the company would have had operations in 12 states with a combined total of 79 cannabis facilities.
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Give me my free report!.Now, in light of a particularly dreary summer for the cannabis sector, MedMen is looking to narrow its plans to its currently existing addressable markets.
“The cannabis sector has evolved tremendously since we first announced the PharmaCann transaction and based on the current macro-environment and future opportunities that exist for our business, we believe it is now in the best interest of our shareholders to deepen, rather than widen, our company’s reach,” MedMen CEO Adam Bierman said.
MedMed shares dropped a bit over the course of the trading day, falling 9.2 percent from an open at C$2.18 to C$1.98 by 2:45 p.m. EDT.
The MSO said more value will be created by continuing to develop its branding, expanding its current position in California’s cannabis market and focusing on its digital platform. All these actions, according to the firm, will be more valuable long-term over completing the acquisition.
The company mentioned the downward shift in both the American and Canadian cannabis industries since March this year, which is why it has taken a harder look at how it’s going to allocate capital moving forward.
For PharmaCann’s part, the private cannabis company’s Executive Director Greg Cappelli said in a statement that the board of directors is confident it will continue to grow as a business following the end of the merger deal with MedMen.
MedMen isn’t coming away empty handed, however. As a part of the dissolution of the deal, PharmaCann has agreed to transfer some of its cannabis licenses and assets in Illinois and Virginia instead of paying a traditional termination fee.
Being left with assets in Illinois is a “win” for the firm, Bierman said. These licenses give the company a foothold in the most recent addition for the US’ growing number of states that have legalized recreational marijuana use.
The Midwestern state legalized adult use back in June, becoming the first state to do so through its legislature, and the laws are to come into effect in January 2020. In August, the state awarded its first retail licenses. According to Marijuana Business Daily, the state’s cannabis sector could generate up to US$2.5 billion a year once the legislation is in place.
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.