Gage executive chairman and Creso Pharma strategic advisor Bruce Linton joins The Dales Report once again to discuss the $545 million all-stock deal that saw TerrAscend purchase Gage Cannabis. Linton also discusses another topic that has perked the interest of cannabis investors worldwide, as he details the fallout between Creso Pharma and Red Light Holland.
Through the purchase, TerrAscend gains access to the third-largest cannabis market in the United States in Michigan, a state which boasts more than a $2 billion annual market. Gage currently holds both city and state approvals for 19 “Class C” cultivation licenses, 15 dispensaries, and three processing licenses.
Once finalized, the deal will see TerrAscend operational in five US states and Canada, with 23 medicinal and recreational cannabis dispensaries and seven growing and processing facilities within the space.
Linton goes into his thought process when making all stock transactions, highlighting some of the difficulties that often come about when trying to structure a deal of this magnitude.
“One is asking if the target in which I’m getting stock prices a little bit cold, a little bit warm, or a little bit hot? And clearly, TerrAscend is a little bit cold, and it’s cold for not great reasons because it’s a great company. So you are getting more of their company.”
“The second thing is why are we not fully valued, and in the case of Gage being super good in one state, being Michigan, leaves a lot of investors saying ‘I like that, but what if something went wrong in Michigan? You would have any other choices other than where you are.’ So when moving our value to their value you become a multi-state. So you get a premium for what we’re about.”
“The third thing you look at is if there are a ton of synergies? Can we help with their accelerated growth in Pennsylvania? Because we are really good at that. Can they drop our cost at capital? Yes.”
While the deal sees Linton step down from his executive chairman position, “Maybe it’s one of those deals where if you want to buy a stock in the morning and be rich by lunch, maybe that’s not the one. But if you want to actually have something that should be solidly growing and all of these things make sense, I think that’s fun.”
Linton believes that the current legislative climate only adds to this deal’s potential upside, as TerrAscend comes in at a discounted rate and any positive momentum will payoff quickly for Gage shareholders.
Linton further explained that the partnership eliminates some of the largest growth concerns faced by each brand.
“The assemblies of the two companies takes away the knock on Gage being in a single state, gives them a bigger revenue number, and gives them a name in the conversation.”
Creso Pharma Looking To Establish International Footprint?
The conversation shifts its focus to Creso Pharma and the possibility that the cannabis producer could be looking to expand its international footprint.
Linton reveals that Creso has recently developed a CBD product in Switzerland with the expectation that the product could be readily available in America. CBD products are more popular than ever with American consumers, and while legalities still restrict what Creso can offer to the American consumer, this product manages to skirt around legal hurdles while still opening the door for Cresp to enter into the US THC market.
“In the Canopy days I couldn’t buy a US operator, so I didn’t pay the US operator acreage anything. What I did was pay the shareholders of the acreage for the right to buy them when it was federally permissible.”
Creso already offers a THC product in the Canadian market, and Linton makes it clear that Creso’s brain trust has already put a number of strategic plans in place to facilitate entry into the US market.
Linton makes a compelling case for the bright future that lies ahead for Creso Pharma, and he did take the time to answer the million-dollar question on the minds of marijuana stock investors around the world by explaining last week’s announcement of the termination of an agreement between Creso and Red Light Holland.
“We’ve had a breakup. Am I sad or happy? I’m sad because I do think the two companies could have done something together.”
“Now, that said,” Linton continues, “in the case of Creso, I think they still have a ton of optionality, as does Red Light. Just different paths. One is ‘time for a party,’ and the other is how do we bring science results?”
Covid has changed the way business is performed, and Linton discusses the difficulties in trying to execute a deal of this magnitude without ever having a face-to-face discussion. Everything from the initial ‘getting to know you’ phase to the high-level conversations took place virtually and via zoom calls.
“It didn’t really catch on in a way, because people were trying to figure out what’s there and who is doing what. It’s just not easy to do a 60-40 smash together when there’s been zero chance to meet.”
The pair dive deeper into the Creso Pharma and Red Light Holland saga and on to a number of other topics. Linton’s knowledge in the space is evident as he sheds his insight on the current state of the cannabis industry and the untapped future potential that he is helping to create.
Cannabis investors know the importance of keeping their ears close to the ground, and Linton’s customary insightful conversation and expertice is a must-listen for anyone looking to turn a profit in the marijuana stock space.