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Sol Global’s (SOL.C) undervalued stake in Verano makes it the best way to invest in soon public US MSO

12/08/2020

If you believe the well founded rumours that US Multi State Operator (MSO) Verano will be going public in Canada this month, you’re probably keen on getting into the stock.

If Verano completes its RTO and lists on the CSE, it would immediately become the third largest cannabis operator in the U.S. by revenue, and the fifth largest by valuation behind such rivals as Curaleaf Holdings Inc. and Cresco Labs Inc.

Why does it pull in such revenue?

Verano operates its cannabis business in 14 states with 1,600 employees, 46 retail locations, and eight production facilities. The company generated US$121 million in revenue and US$42 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) last year. The company estimates it will end 2020 with as much as US$380 million in revenue and US$160 million in adjusted EBITDA, according to an investor presentation.

Holy shit. Obviously there’s going to be interest in that RTO. It might just kick off a renewed weed run on the markets.

But if you really want to make bank on Verano, you shouldn’t be buying that stock. You should be buying SOL Global (SOL.C).

Of course, there are many who will flat out refuse to buy stock in SOL because they don’t like long-time weed asset wheeler-dealer Andy DeFrancesco.

DeFrancesco collects weed assets, and along the way has accrued a 12% stake in Verano for SOL, valued at around US$360 million if the almost US$3 billion valuation that company is going public with makes any sense.

According to a term sheet distributed to investors, Verano is planning to offer up to US$75 million in shares through a reverse takeover of Majesta Minerals Inc. – a shell company listed on the Canadian Securities Exchange – that would value the company at US$2.88 billion. Canaccord Genuity and Beacon Securities are joint book runners on the deal.

You might not like how DeFrancesco makes money, or his reputation for buying cheap early stage assets and selling them on at late stage prices to clueless cannabis CEOs are ignorant at best, and pumpy at worst, but the guy has had more than a few big wins for his shareholders.

And that Verano bet has taken his stock from $0.40 to $3.00… In less than four months.

Even after that crazy run, and with its Verano stake worth a potential $360 million, SOL Global’s market cap right now sits at just US$128 million.

This means SOL’s share price could rise 200% and still not have any of its other assets or cash priced in, assuming Verano holds its value after the RTO.

That’s likely. Today they added Arizona and Florida assets to the mix.

SOL Global Investments Corp.’s largest core investing holding, Verano Holdings LLC, has signed a definitive merger agreement to acquire and combine operations with Alternative Medical Enterprises LLC, Plants of Ruskin LLC and affiliated companies, vertically integrated medical cannabis companies that apply pharmaceutical industry standards to developing, cultivating, producing and dispensing medical cannabis and medical cannabis products in Florida and Arizona.

The transaction is expected to result in a highly accretive combination of Verano and AltMed with the resulting company operating under the Verano name.

Sure, you can buy Verano stock if you want.

But Imma be buying it at 35% of its RTO price by buying stock in SOL Global instead.

— Chris Parry

FULL DISCLOSURE: SOL Global has previously been an Equity.Guru marketing client.

 

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