Another Chicago weed company acquired—this time, for $850 million

John Pletz, Crain’s Chicago Business

The land grab in the cannabis business continues with another Chicago-area company getting acquired.

Phoenix-based Harvest Health & Recreation, which went public on the Canadian Stock Exchange, is buying Chicago-based Verano Holdings for $850 million in stock. Like Verano, Harvest has licenses to operate growing and distribution facilities in multiple states. The deal gives Harvest a foothold in Illinois, the nation’s sixth-largest state, where new Gov. J.B. Pritzker favors legalizing recreational use of marijuana.

Verano also has a strong retail brand with 150 products that are sold in 150 retail locations, according to analysts at Cannacord Genuity.

The two companies combined will have 200 licenses in 16 states. Verano has 44 licenses in 11 states. It has 350 employees, including 140 in Illinois. Its executive offices are in Chicago, but it has a growing facility in downstate Albion.

The companies say that Verano’s management team, including CEO George Archos, is expected to remain with Harvest, running their combined operations east of the Mississippi, while those in the Western U.S. are run from Phoenix.

It's the second major acquisition of a Chicago-area cannabis company in recent months. Los Angeles-based Medmen bought Pharmacann for $682 million in stock in a deal announced last fall.

Chicago has been a major player in the cannabis industry, with several companies that quickly won licenses in multiple states as legalization of marijuana for medical and recreational use took off in the past few years.

Consolidation started fast and gathered steam, favoring companies that could pull in large amounts of capital. But because marijuana remains a scheduled narcotic under U.S. federal law, companies generally had to go to Canada to access public markets. Green Thumb Industries raised $67 million last summer on the Canadian Securities Exchange. through a reverse takeover of a shell company that already was public. Today, it is valued at $3.5 billion.

Companies were faced with the choice of trying to go public on their own or being acquired by others who had. Cresco Labs went public on the market in Canada in December after raising $100 million. It’s valued at about $2.4 billion. Pharmacann and Verano decided to sell.

What’s driving the surge in acquisitions now? Hopes that federal legislation could clarify states’ authority to legalize cannabis and to allow banks to freely provide services to cannabis companies, including allowing access to the U.S. stock market. Last year, the Farm Bill legalized hemp products.

“There’s a huge land grab, and people are racing to bulk up,” said Michael Gruber, managing partner at Salveo Capital, a Chicago-based cannabis investment fund. “People are trying to get a big enough footprint in the belief some of the legislation happens and provides them an incredible position.”

Sean Doyle