Rumors of a merger between two of the largest U.S. pot producers have wafted for weeks. A combination of Green Thumb Industries and Trulieve Cannabis would create a multistate operator that would rival the biggest licensed seller in the country, and the world: Curaleaf Holdings.
The chatter helped set record prices this month for the stocks of Trulieve (ticker: TCNNF) and Green Thumb (GTBIF).
In an enthusiastic note on Thursday morning, Stifel analyst Andrew Partheniou discussed why he’d like to see such a merger.
“A [Green Thumb-Trulieve] merger could create a new behemoth in the U.S. cannabis industry,” wrote Partheniou. Trulieve has cranked out remarkable cash flows in its main market of Florida, he notes, and the profits and free cash flow of a merged enterprise would give shareholders the highest returns in the pot business.
But investors shouldn’t expect anything soon. Green Thumb tells Barron’s that nothing’s in the offing. “We’re focused inside our business,” says Andy Grossman, the company’s capital markets vice president. “Florida has not been a priority because of our first-mover advantage in states like Illinois, Pennsylvania, Ohio, New Jersey, and New York.”
Green Thumb is husbanding its capital to compete in its fast-growing northern base, says Grossman.
A Trulieve spokeswoman said the company does not comment on “market rumors,” while at Curaleaf (CURLF) a spokeswoman said the company doesn’t comment on “rumors or speculation.”
A source tells Barron’s that Trulieve and Green Thumb did have talks, and claims to have seen some of the involved documents. Preliminary discussions aren’t necessarily material and need not be disclosed, under securities law.
Merger rumors and nice June quarter reports lifted Green Thumb and Trulieve shares to respective records of C$21 and C$35 on August 14. On Thursday morning, Green Thumb was flat at C$18.44, while Trulieve was up 1.6% to C$27.15. Companies selling pot in the U.S. states that allow it are only listed on Canada’s small exchanges, because the federally-illegal cannabis operations are shunned by American’s big exchanges.
A Trulieve merger with an operator like Green Thumb would make sense at some point, says hedge-fund manager Jason Wild, of J.W. Partners. Trulieve dominates Florida and many other chains have about all the licenses allowed under the rules of some states where they operate.
In sketching out the potential for the merger, Stifel’s Partheniou said that a combined business could enjoy a market cap above C$7 billion (or US$5.3 billion)—vaulting it ahead of Curaleaf’s C$5.7 billion. The Trulieve-Green Thumb combo would cover fewer states than Curaleaf, but the states in the merged company’s span would be more profitable than some of the competitive places covered by Curaleaf, like California and Colorado.
Trulieve has posted fabulous profit margins. So as either a merger of equals or an acquisition by Green Thumb, a deal would be immediately accretive, wrote Partheniou. Annual sales would be near US$1 billion, with cash earnings from operations of around US$400. Even after capital spending, free cash flow would be $200 million.
One ticklish question in a potential merger is who would run the merged business. Trulieve CEO Kim Rivers and Green Thumb’s Ben Kovler both run very tight ships. They might not want to share the tiller.
Write to Bill Alpert at firstname.lastname@example.org