The deal will give the Ontario-based cannabis company 49.9 percent of the equity of State Flower for a total of US$2.85 million.
The new acquisition for the Canadian cannabis firm, ABI SF, owns a cultivation facility in the state’s San Francisco Bay Area, and also owns the State Flower brand of cannabis products.
The deal will give the Ontario-based cannabis company 49.9 percent of the equity of State Flower for a total of US$2.85 million. It is subject to regulatory approvals under a securities purchase agreement.
TerrAscend has also agreed to purchase the remaining equity of State Flower based on future revenue over a predetermined 12 month period.
The company’s shares opened at C$6.17 on Wednesday and had risen to C$6.41 by 12:15 p.m. EDT, an increase of almost 4 percent in value.
As part of the transaction, TerrAscend has extended a line of credit to State Flower of up to US$3.75 million to be used for improving its cultivation facility and expanding its production capacity.
In a press release, TerrAscend President Matthew Johnson commended the team behind the success of the cannabis brand — including President Daniel Wacks and his partner Jeremy Cohen — and complimented their skills and experience gained from navigating the California market.
Wacks continued the positive sentiment, stating, “We look forward to working together to build best-in-class cultivation capabilities in all jurisdictions where TerrAscend operates.”
California has earned a reputation as a diverse, lucrative cannabis market for brands, though the state still struggles to fend off illicit options available to consumers. In a previous interview, Matthew Pallotta, equity research analyst with Echelon Wealth Partners, called the state “the wild, wild west” of state markets with its current fragmentation and regulatory question marks.
“You don’t want to just dive in head first … (multi-state operators are) trying to see how things shake out before they really make huge investments there,” he told the Investing News Network.
California is the largest US market for marijuana and has been a hub for several cannabis companies.
According to a recent report by Arcview Market Research and BDS Analytics, legal cannabis sales in the state are on track to reach US$3.1 billion this year and consumer spending is expected to reach US$7.2 billion by 2024.
TerrAscend isn’t the only Canadian company strengthening its presence in the coastal state. On Wednesday, Origin House (CSE:OH,OTCQX:ORHOF) released its results for Q2 and noted that the company has closed on the acquisition of Cub City, a California-based cannabis producer, and has doubled the production capacity for FloraCal’s facility in Sonoma County, California.
Products from State Flower are currently sold in dispensaries in California and Nevada, including in The Apothecarium, a chain of recreational and medical cannabis dispensaries owned by TerrAscend.
The company closed the transaction for the purchase of the retail chain in June. The transaction included the three entities operating San Francisco store locations, two additional stores and Valhalla Confections, a cannabis-infused edibles company.
TerrAscend also plans on closing on the Nevada entities of the dispensary after receiving regulatory approvals, which is expected to happen sometime this year.
As part of its Q2 2019 results, TerrAscend reported revenue of C$17.6 million, a 21 percent increase from its Q1 result of C$14.6 million.
The company has adjusted its projections for its yearly revenue thanks to its most recent quarterly earnings. TerrAscend now expects to exceed C$141 million this year on a pro forma basis, including pending transactions.
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.