Curaleaf is acquiring Grassroots Cannabis for $875 million

Curaleaf is buying Chicago-based Grassroots Cannabis in an $875 million cash and stock transaction.

The acquisition will ramp up Curaleaf's presence in the Midwest, and the combined firm will be the largest cannabis company by revenue, the company said.

Business Insider spoke to Curaleaf's CEO Joe Lusardi about the deal and the company's future.

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US cannabis retailer Curaleaf on Wednesday said it's snapping up Chicago-based Grassroots Cannabis in an $875 million cash-and-stock deal.

The deal will fill out Curaleaf's presence in the Midwest. Once the transaction closes, Curaleaf will be the world's largest cannabis company by revenue and have a foothold in 19 states, with 131 dispensary licenses and access to 177 million people, the company said.

Curaleaf's stock jumped close to 20% on Wednesday.

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The deal is expected to close early next year, pending state approvals and potentially a Justice Department review under federal antitrust laws, Curaleaf CEO Joe Lusardi told Business Insider

Massachusetts-based Curaleaf has been an on an acquisition tear in the last few months. In May, the company bought Cura Partners in a $949 million all-stock transaction, adding West Coast operations in the process.

“We have a strong presence on the East Coast and we're working to fill out the West Coast,” Lusardi said. “What we really didn't have was a Midwest presence, and so Grassroots really fills in the map.”

Lusardi said Grassroots' licensed operations in Illinois — which became the 11th state to legalize recreational marijuana in June — as well as Pennsylvania and Michigan, were particularly attractive.

“We have been very carefully studying the Midwest and those markets,” Lusardi said. When he started negotiations with Grassroots' leadership team, Lusardi said, he was impressed by the business as well as the management team under CEO Mitch Kahn.

Kahn, who joined Grassroots in 2014, will take a board seat at the combined company.

Lusardi said that the deal took a while to consummate, given the scale of both Grassroots' and Curaleaf's operations and the complexities involved with the cannabis industry. Because cannabis is federally illegal in the US, each state — and even each local jurisdiction — is governed by unique rules.

Eight Capital, a boutique Canadian investment bank, acted as a financial advisor on the transaction, and Stikeman Elliott LLP and Loeb & Loeb LLP were legal advisors. Grassroots was advised by Canaccord Genuity and boutique firm Stoic Advisory, and Katten Muchin Rosenman LLP acted as a legal advisor.

While Lusardi said his focus is on executing Curaleaf's strategy to become the “most accessible” cannabis company in the US, he didn't rule out potentially selling equity to a major consumer packaged goods company down the line.

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Canadian cannabis giant Canopy Growth in April entered an agreement to purchase the US-based Acreage Holdings under a novel structure where the deal would be triggered as soon as there is a “federally permissible” pathway to legalization in the US.

“I think the Canopy transaction is actually an interesting sort of framework for how other big CPG companies could potentially take an option on a US cannabis company,” Lusardi said.

A number of cannabis execs told Business Insider that Canopy Growth's move could spur a cross-border M&A boom in the cannabis industry.

Jonathan Sherman, a partner at Canadian law firm Cassels Brock who led Canopy's involvement in the deal, told Business Insider in April that the deal would likely pique interest from alcohol, tobacco, and pharmaceutical companies that aren't in the space right now.

Lusardi said that if Curaleaf focuses on creating value for shareholders, “good things will come our way.”

Curaleaf is listed on the Canadian Securities Exchange — the preferred exchange for US marijuana companies given federal illegality — and traded over-the-counter in the US.

While some US cannabis operators, including Vertical Brands, have publicly stated plans to spin off their hemp and CBD businesses to list on major US exchanges, Lusardi said Curaleaf has no immediate plans to do so.

“I think, in general, our objective is for Curaleaf to list on a US exchange, full stop,” Lusardi said. “That's our first and highest priority, but of course we're subject to factors that are not in our control at the moment.”

Hemp and hemp-derived CBD were legalized in the US via the Farm Bill late last year, though CBD as a food additive remains mired in a legal grey area. The FDA has put together a working group to iron out these issues.

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