New York State Stalls Major Cannabis Mergers

New York State’s Department of Health that oversees the medical marijuana program has yet to approve three outstanding proposed acquisitions. The three deals include the MedMen Enterprises Inc. (MMNFF) acquisition of Pharmacann, The Green Thumbs Industries (GTI) acquisition of Fiorello Pharmaceuticals and the Cresco Labs Inc.(CRLBF) deal with Valley Agriceuticals.

It had looked like New York was fast-tracking full legalization this year, but then at the last minute, cannabis funding was not included in the Governor’s budget. It looked like adult use marijuana was pushed off to another year. Then Governor Cuomo said that wasn’t the case and that in fact, negotiations were continuing. As all the back and forth continues, these companies have to wait patiently for the state to figure out its next moves.

The Department would only say in response to questions, “The New York State Department of Health is currently reviewing MedMen’s formal merger request with PharmaCann, which they submitted in January. The Department initially denied requests from Valley Agriceuticals/Cresco and Fiorello/GTI. Both have recently resubmitted their requests, which are currently under review.”

A GTI spokesperson said, “The transaction is still in regulatory review and we expect an answer in the near future.” MedMen and Cresco have preferred to stay mum on the situation. Although it seems the Pharmacann acquisition has been approved in all the other states, leaving just New York to green light the deal.

MedMen had announced its deal back on October 11, 2018, and said at that time that the resulting pro-forma company was anticipated to have a portfolio of cannabis licenses across the U.S. that would permit the combined company to operate 76 retail stores and 16 cultivation and production facilities.  MedMen is expected to add licenses in Illinois, New York, Pennsylvania, Maryland, Massachusetts, Ohio, Virginia, and Michigan as a result of the deal.

Cresco had stated in a filing that on October 24, 2018, it had entered into a definitive agreement to merge a subsidiary with and into Gloucester Street Capital, LLC, the parent entity of Valley Agriceuticals. Valley Ag is one of
the ten holders of a vertically integrated license from the New York State Department of Health. To date, the only material asset of Valley Ag is the vertically integrated license from the NYSDOH. Cresco said it had expected the closing to occur in the fourth quarter of 2018 or the first quarter of 2019.

Fiorello Pharmaceuticals, also known as FP Wellness, is licensed in New York state only. It is privately owned. The company lists its partners as The Clinic, Plant Consulting Group and LIU Pharmacy on its website. A report in the Daily Gazette said Fiorello Pharmaceuticals is building a medical marijuana production facility in Glenville and plans to open other dispensaries in Monroe, Nassau and New York counties. Green Thumb Industries or GTI (CSE: GTII) (OTC: (GTBIF) ) has plans to acquire FP Wellness, according to a company spokesperson.

The Buffalo News reported that there are two issues holding up the adult use legislation. The first is that Assembly Majority Leader Crystal Peoples-Stokes, who introduced the Marijuana Regulation and Taxation Act in 2013, “has insisted that half of the tax revenue should go toward reinvesting in communities that have borne the brunt of the war on drugs.” It seems the Governor is on board with this, but the tax revenue is estimated to be $300 million and he has also said he’d like to use some of that money for infrastructure projects like fixing the transit maintenance issues.

The paper said that the other issue was regarding the licenses and how to award them. The original five licensees have not made any profits and then the program was expanded to ten licenses. This group wants first dibs on recreational licenses in order to recoup their investments. The state, however, seems to be eyeing substantial license bidding fees that could potentially cause the only female-owned medical marijuana Etain to go out of business.

The state has been facing criticism that the program is heavily tilted towards corporate cannabis with no diversity except for Etain. This could be why the acquisition approvals have been stalled.