On December 15th, 2020, Verano Holdings, LLC announced it will be going public.

But rather than completing an initial public offering (IPO), the go-public transaction will include a reverse takeover (RTO) of Majesta Minerals Inc. and a merger with AltMed, which was announced in November 2020.

If this all sounds confusing and complicated, well, welcome to cannabis transactions.

So, lets break this down.

First, what is an RTO?

It’s when a private company buys enough shares of a publicly-traded company to take over control.

Then the private company exchanges its shares for shares of the public company.

With no private shares and all shareholders holding public shares, the private company has effectively become a publicly with no IPO.

Specifically in this case, Verano will acquire enough shares of Majesta Minerals to take over control, then exchange Verano shareholders’ shares of Verano stock to Majesta Minerals stock but rename the resulting company to “Verano Holdings”.

But wait!

Majesta Minerals Inc. isn’t currently publicly traded. True, but a condition of closing this RTO is that the resulting issuer/company, renamed Verano Holdings Corp., will be listed on the Canadian Securities Exchange (the CSE).

Next is the merger with Alternative Medical Enterprises, LLC, Plants of Ruskin, LLC, RVC 360, LLC and affiliated companies (collectively, AltMed).

This is a key part of this two-part transaction because this merger is expected to result in one of the largest multi-state operators (MSOs) in the US.

The merger will happen concurrently with the RTO and all of this is expected to close in the first quarter of 2021.

Source: Verano Investor Presentation, February 2021

The Newly Created MSO’s Footprint

In their investor deck, Verano categorizes their operations into core states and key developing states.

The core states in which the company operates, or will operate following the completion of the above-described transactions, include Illinois, Florida, Maryland, Arizona, New Jersey and Pennsylvania.

As depicted above, most of these sates are medical only with exception of Illinois, Arizona and soon-to-be New Jersey.

This is noteworthy because not having adult use/recreational use legalized significantly impacts total addressable market (TAM) size and thus, revenue opportunities.

That being said, laws are changing quickly.

In both Florida and Maryland, bills to legalize adult-use cannabis have already been filed: FL Bill H.B. 343 would legalize cannabis for adults 21 and older and MD Bill H.B. 32, which would legalize the personal possession and home cultivation of cannabis for adults.

Key developing states for Verano are Massachusetts, Nevada, Ohio, Michigan and Arkansas.

As you can see in the image above, the company is focusing its future efforts into states which already have adult-use legalized and as such, larger TAMs.

Today VRNO Began Trading

Verano announced that it will begin trading today on the CSE under the ticker symbol VRNO.

The stock was offered at $10 and immediately spiked to $30 in the opening trade demonstrating the strong investor appetite for fast-growing cannabis stocks. 

This also means that today there is a filing statement that was made available to investors, this filing includes historical financial information for all the entities as well as consolidated pro-forma statements.

If you are looking for more detailed information on the company check out the filing HERE

Let’s Talk Numbers

We’ve done some back-of-the-envelope calculations to help you see how Verano stacks up against the four other large US cannabis companies. 

Source: SEDAR, Grizzle Estimates

Year over year growth is estimated at 232%, which puts them second only to Cresco and well ahead of Green Thumb which is trading at an ever so slightly higher EV/Trailing EBITDA multiple.

Note that we use trailing twelve months (what they did over the last year) because they have not provided forecasts, typically we would want to see multiples based on future projections (what they are expected to do over the next year).

In addition, while the smallest in terms of trailing twelve-month (TTM) revenue, Verano has the second-highest EBITDA margin of 46%.

This is impressive considering they are still growing rapidly but margins are on par with more mature competitors such as Trulieve.

It is normal for newer, faster-growing companies to have lower margins because capital is being invested in growing the business rather than improving margins – so the fact that Verano is able to both grow faster than competitors and achieve higher margin than competitors, gets them an A+ from us.  

Potential for Multiple Expansion

Source: http://www.ycharts.com

Today, after its first day of trading, VRNO closed at $31.40.

Even though the stock is up 3x from its opening price of $10/sh it could still go higher, based on the multiples of peers. 

If Verano traded in line with Cresco’s multiple of 85x, the price would go to $40/share, and could go even higher to $45/share if it traded in line with Curaleaf’s 94x multiple. 

Therefore, if Verano can grow faster than competitors and still maintain these higher margins, we believe there is a good chance that the stock will at some point trade inline with these higher multiples.

Verano is definitely a true contender for the multi-state operator crown and worth a hard look from any cannabis investor. 

About Author

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.