Verano Holdings Corp: Pot Company Announces $413-Million Acquisition

Verano Stock Could Triple in Price

Verano Holdings Corp (CNSX:VRNO, OTCMKTS:VRNOF), a U.S. marijuana multistate operator, has been facing industry headwinds, just like most other U.S. pot stocks.

As of this writing, VRNOF stock is down by 10% over the last six months and approximately 50% from its February 2021 initial public offering (IPO).

With regulatory headwinds in Washington, D.C., it doesn’t look like there will be much movement on federal legalization of cannabis, at least not until after the November mid-term election.

With the recent announcement of a large acquisition, one that will see Verano Holdings Corp move into Minnesota, New York, and New Mexico, it might be the perfect time for investors to take advantage of those headwinds.

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Even conservative Wall Street is on board, with analysts providing a 12-month low target of $26.00, average target of $31.80, and high target of $37.85. That points to potential gains of 104%, 150%, and 200%, respectively.

Chart courtesy of StockCharts.com

About VNROF Stock

Verano might be one of the top five marijuana multistate operators in the U.S. based on revenue, but few people seem to be talking about it. That might be about to change.

Verano’s business operations encompass 15 U.S. states, with 89 retail locations in 12 states and plans to eventually have in excess of 100 retail locations. The company also has 12 production facilities that cover approximately 1.0 million square feet. (Source: “Fact Sheet,” Verano Holdings Corp, last accessed February 10, 2022.)

Verano Holdings Corp designs, builds, and operates marijuana dispensaries under numerous brand names, including “Zen Leaf” and “MÜV.”

Unlike many U.S. cannabis companies, Verano is profitable. Not only that, but it’s been profitable since its inception.

The company quietly became one of the biggest cannabis multistate operators in the U.S. through a large number of acquisitions: 13 since its IPO.

About a year ago, Verano merged with Florida-based Alternative Medical Enterprises, LLC (aka AltMed). (Source: “Verano Holdings Announces Completion of Reverse Takeover and Completes Merger With AltMed to Create a Profitable Market Leader in the U.S.” Verano Holdings Corp, February 11, 2021.)

Before the acquisition, Verano was active in 12 U.S. states. With AltMed, the company has gained a sizeable presence in Florida’s fast-growing medical marijuana market and a vertical license in Arizona.

The merger came eight months after Harvest Health & Recreation, Inc terminated its $850.0-million merger with Verano Holdings Corp, citing the COVID-19 pandemic, financial obstacles, and regulatory hurdles as the causes. (Source: “Harvest and Verano Announce Mutual Termination of Business Combination Agreement,” Harvest Health & Recreation, Inc,” March 26, 2020.)

Had the merger with Harvest Health & Recreation gone through, it would have been the biggest such deal in the legal cannabis industry.

Expansion Into Nevada, New York, Minnesota, & New Mexico

As noted above, Verano Holdings Corp has announced a number of strategic acquisitions.

In July 2021, Verano announced that it had entered an agreement to acquire all of the equity interests of WSCC, Inc (doing business as Sierra Well) for $29.0 million. (Source: “Verano to Acquire Sierra Well, Expanding Nevada Distribution With Two Top-Performing Dispensaries,” Verano Holdings Corp, July 26, 2021.)

The acquisition adds two operational dispensaries, an active cultivation and production facility in Nevada, and two real estate properties in Carson City and Reno.

In early February 2022, Verano announced that it had signed a definitive agreement to acquire Goodness Growth Holdings Inc (CNSX:GDNS, OTCMKTS:GDNSF) for $413.0 million. (Source: “Verano to Enter Coveted New York, Minnesota and New Mexico Markets With Proposed Acquisition of Goodness Growth Holdings,” Verano Holdings Corp, February 1, 2022.)

With its acquisition of Goodness Growth, Verano expands into the lucrative Minnesota, New York, and New Mexico markets. The deal also includes operations in Arizona and Maryland.

New York and New Mexico legalized recreational cannabis in 2021, Arizona launched legal recreational marijuana sales in January 2021, and Maryland is expected to do the same in the next year or two.

With this acquisition, Verano Holdings Corp acquires 18 dispensaries, five cultivation and processing facilities, a research and development facility, and several product brands. Verano also acquires:

  • One of 10 vertically integrated marijuana licenses in New York
  • One of only two vertically integrated medical marijuana licenses in Minnesota
  • Four medical marijuana dispensaries and an 18,650-square-foot cultivation facility in New Mexico
  • Two medical marijuana dispensaries and a 143,500-square-foot greenhouse in Maryland
  • An 18-acre cultivation facility in Arizona

Strong Q3 Results

In November 2021, Verano announced that its revenue for the third quarter ended September 30, 2021 increased by 106% year-over-year and four percent sequentially to $199.0 million. (Source: “Verano Announces Third Quarter 2021 Financial Results,” Verano Holdings Corp, November 16, 2021.)

The company’s third-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $111.0 million, or 54% of its revenue. That’s compared to $81.0 million, or 41% of its revenue, in the prior quarter. Its adjusted third-quarter EBITDA were $107.0 million, or 52% of its revenues.

Verano Holdings Corp’s third-quarter net income was $104.0 million, compared to $81.6 million in the same prior-year period and $6.8 million in the prior quarter. Its cash flow from operations was $6.0 million and its free cash flow was $35.0 million.

“Our third quarter results demonstrated the company’s fundamental strengths, highlighted by our industry-leading bottom-line performance…” said George Archos, Verano Holdings Corp’s CEO and founder. (Source: Ibid.)

He added,

We’ve expanded the Verano platform considerably, adding vertically integrated operations in Connecticut ahead of the adult-use transition and adding depth in Pennsylvania, Nevada and Florida. We believe that we’re positioning the company well for long-term topline growth while targeting a low-40s EBITDA margin profile heading into 2022 and beyond.

(Source: Ibid.)

Analyst Take

Verano Holdings Corp is an excellent cannabis multistate operator with a growing footprint and extensive business portfolio.

The company reported wonderful third-quarter financial results, continuing its run of profitability. That trend is expected to continue with the completion of its Sierra Well and Goodness Growth Holdings acquisitions.

As such, Verano stock is worth watching.