Verano (VRNO.C) backs out of Goodness Growth (GDNS.C) acquisition like a two-headed baby

Goodness Growth Holdings (GDNS.C) received notice yesterday that Verano Holdings (VNRO.C) sought to terminate the arrangement between the two companies.

The amended arrangement dated January 31, 2022, called for Verano to acquire all the issued and outstanding subordinate voting shares, multiple voting shares and super voting shares of Goodness.

Goodness is of the belief that Verano has no legal right to terminate the agreement and that Verano has committed a variety of material breaches regarding their deal.

Even though Verano’s termination has been acknowledged by Goodness and the transaction will not proceed, Goodness fully intends to raise the matter legally and seek significant damages for the broken agreement and Verano’s various alleged breaches to the agreement.

Verano, on the other hand, claims it had grounds for the termination based on certain alleged breaches committed by Goodness, Goodness’ alleged failure to give reasonable consideration to Verano’s comments on the draft Goodness proxy circular prepared by Goodness and reviewed and cleared by the SEC.

Verano further claimed that Goodness’ BOD refused to re-evaluate the terms of the transaction despite that no material adverse changes had occurred to either Goodness or Verano. Lastly, Goodness’ alleged failure to reaffirm its recommendation to shareholders to vote for the transaction.

Goodness denies all Verano’s allegations and claims to have followed its contractual obligations faithfully. Goodness believes that Verano backed out of the deal after Goodness refused to allow Verano to reduce its agreed-upon consideration payable by Verano under the agreement.

It is expected that Goodness will imminently file suit against Verano for recovery of alleged damages. Goodness is reportedly seeking a termination fee of $14.88 million USD plus the reimbursement of transaction expenses up to $3.0 million.

Verano, a multi-state cannabis operator, sought out Goodness Growth, a cannabis science company, because of Goodness’ wholly owned subsidiary, Vireo health, a medical marijuana firm with operations in limited-license markets like Minnesota and New York.

Goodness and Verano crafted an agreement which outlined a $413 million deal to acquire Goodness for a larger market footprint into 18 states as well as Vireo’s lucrative New York license. The consideration agreed upon represented four times what Goodness 2022 sales targets were estimated to be.

When the deal was first announced, George Archos, CEO of Verano, stated, “We have always viewed New York as a strategic market to solidify our existing east coast presence, particularly ahead of the state’s adult-use rollout. Adding the New York, Minnesota and New Mexico markets to our portfolio, with full vertical integration, provides Verano with a solid foundation for future growth.”

When the termination was made public, Archos went on to explain that capsizing the deal was in the best interests of shareholders and added, “As we work through the termination process, we expect to provide additional commentary.”

In other news, Verano recently announced that it had entered into an agreement to acquire MedMen’s PhamaCann Virgina LLC which has a license tied up in litigation. Verano saw the deal as an entry into Virginia’s medical marijuana market and as such agreed to pay $5.0 million cash for PhamaCann and its license.

It seems oddly coincidental that Verano has gone silent on entering the Virginian market since the MedMen deal was announced at the beginning of July. Perhaps promising to purchase a license tied up in the courts wasn’t the soundest of business decisions. Is there a connection between the two seemingly failed transactions?

Verano currently trades for $6.25 CAD per share, down 59.29% for the year, for a market cap of $2.1 billion. Goodness trades for $0.54 per share, down 73.79% for the year, for a market cap of $45.78 million. Perhaps not the best time for acquisitions.