This morning, Curaleaf (CNSX: CURA) agreed to close the previously announced acquisition of Cura Partners (a.k.a. Select), but for a renegotiated price.

Originally Curaleaf was going to issue 95.5 million shares valued at C$1.27 billion with an additional earn out of C$260 million if Select was able to meet certain sales milestones.

Now Curaleaf is only issuing 55 million shares, or 42% less, with the rest payable if certain sales milestones are met.

The exact terms of the earnout are not disclosed, but we estimate Select shareholders will end up walking away with at least 80% of the originally agreed upon shares, not a bad outcome.

With stock prices down 50%+ plus since March and the vaping epidemic negatively impacting sales of concentrates, we are not surprised the deal was renegotiated.

The exact terms of the earnout are not disclosed, but we estimate Select shareholders will end up walking away with at least 80% of the originally agreed upon shares, not a bad outcome.

We think the deal ultimately closed because Select management already planned to move over to Curaleaf and did not mind owning shares because they believed there was additional upside in Curaleaf stock after a 50% fall in the last six months.

We think Curaleaf shareholders should expect the $875 million Grassroots acquisition announced in July to be renegotiated as well.

 

Other Deals in the Works Will be Repriced

We think the terms of this deal are now a benchmark other companies will be looking at closely as they decide if deals signed earlier in 2019 will go through.

With Cresco Labs‘ (CNSX: CL) acquisition of Origin House (CNSX:OH) currently in negotiations we think the Curaleaf repricing provides valuable information to investors.

Origin House is currently trading 48% below the price implied by the original terms.

If the Origin House/ Cresco terms are ultimately renegotiated down a similar amount with no earnouts, there would be 10% of upside if you owned Origin House stock today.

With the market already implying Origin House investors will receive 48% less stock than in the original deal terms, if the deal is repriced in line with Curaleaf/Select there would be 8%-38% of upside to owning shares in Origin House.  

Origin House at 48% Discount to Original Deal Terms

Source: Yahoo Finance

The price decline in both company’s stocks haven’t yet changed the cost of the deal from Cresco’s point of view.

Cresco is still on the hook to issue the same amount of shares regardless of either company’s share price.

Origin House is not as exposed to vape sales as Select, which is a good thing, but has a much worse negotiating position unfortunately.

Origin House will owe a breakup fee if the deal falls apart that exceeds the company’s current cash balance.

The CEO of Origin House was recently quoted at an investor conference saying he 100% wants to close the deal.

At this point it is inevitable the deal terms will change, the question is by how much.

With a high probability the deal closes, in our opinion, and Origin House trading at a 48% discount as of Oct. 30, 11:00 a.m., we think there is likely still upside to play for by remaining an Origin House shareholder.