The deals in American cannabis just keep getting bigger.
Case in point: Florida-based cannabis company Trulieve (TCNNF) set a new record Monday with its $2.1 billion all-stock deal to acquire Arizona-based Harvest Health. The combination sets Trulieve up to increase its national footprint from six states to 11, and sets it up to be the most profitable multi-state operator with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) forecasted to top $460 million on the year.
It also goes to show how much America's largest cannabis companies are willing to pay to gain access into states that recently legalized marijuana, like Arizona, since federal laws still restrict operating across state lines. As Trulieve CEO Kim Rivers told Yahoo Finance, sometimes it can make sense to build in a new state from the ground up — but with Harvest's lead in Arizona, which only started recreational marijuana sales in 2021—sometimes it makes more sense to buy the leader.
"In this industry, it’s important to not only ensure that you’re in the right markets and that you have the right products at the right value propositions for customers," she said. "It’s also important that you’re proving that profitability because of the limitations that we have in this industry due to federal constraints."
Trulieve, which has long flexed its lead over other cannabis companies when it comes to profitability, also flexed in the announcement that Harvest recently tripled profitability during their latest quarter as Arizona's market leader. Harvest also now gives Trulieve important ground to build on with their presence in Nevada, Colorado, and Utah. It also expands the total retail footprint to 126 dispensaries. While it remains illegal for cannabis to cross state lines, Rivers says the deal allows Trulieve to establish distribution channels in key markets.
The calculus on a major deal, of course, is always a bit easier to justify when one cannabis company doesn't have an existing footprint in the states it's paying to pick up. Where Rivers says this deal also stands out, though, isn't just in added revenue, but also in benefiting sustained profits.
"I think it’s easy to go out and acquire top-line [growth,]" she said. "It’s quite a different story when you’re talking about converting that top line into bottom-line value for shareholders over the long term."
Meanwhile, Massachusetts-based multi-state operator Curaleaf (CURLF) has boosted both its top and bottom lines with its own expansions to boast the largest U.S. footprint at 23 states. In 2019, the company paid nearly $1 billion for the Select cannabis brand to bolster its presence on the West coast. Later that same year, the company paid an additional $875 million in cash and stock to pick up seven more states in a deal to acquire Grassroots. Curaleaf CEO Joe Bayern told Yahoo Finance that Trulieve's expansion as a sign of more consolidation was not unexpected.
"We know there's going to be continued consolidation in the market and there's going to be plenty of space to participate in the industry," he said. "Everything we've done for the last several years has been in preparation of building out that national foundation."