Sol Global Sells Portfolio Company for a Big Gain, Emerging as the Best Deal Maker in Cannabis

Bottom Line

The investment team at Sol Global Investments is looking like the most accomplished deal-making team in cannabis today.

The cannabis industry has been full of deals done at premium multiples, justified by rosy future projections that may or may not come true.

In contrast, Sol is one of the few firms to have created cannabis assets from scratch and sold them for an impressive profit on multiple occasions.

The market had its doubts about the team at Sol after the questions raised in December’s short seller report, but time has shown the only sure thing about Sol is that they make their investors money, something that can’t be said for most other cannabis businesses.

Before the deal, Sol had a net asset value of $4.26/sh. The implied gain from the sale of Verano bumps the NAV up to $6.30/sh, representing 80% upside to the current stock price.

Sol is one of the very few undervalued names in Cannabis and with management’s investment track record expect we would not expect the discount to NAV to last for long.

SOL Net Asset Value

Net Working Capital$ 85 million *
Private Investments at Cost$ 210 million
Tax Liability$ (20) million
Gain on Sale of Verano$ 133 million
Net Assets$ 408 million
Diluted Shares65 million
Net Asset Value Per Share$6.30
Current Share Price$3.47
% Upside to NAV81%

*Net working capital includes $37 million of proceeds from the exercise of warrants. Dilution from warrants is included in diluted share count. Source: SOL Global & Capital 10X Estimates

Details

On Monday multi-state operator Harvest Health announced the acquisition of privately held MSO Verano Holdings for stock worth $850 million USD.

Harvest was already one of the largest U.S. operators and is now the second largest with a 16 state footprint, rivaled only by Acreage at 18 states.

State Footprint by U.S. Multi-State Operator

Source: Sedar Filings

Sol Global Investments reportedly paid $135.9 million for their current 28% stake in Verano, which is now worth $238 million only months later.

If Sol is able to dispose of the Harvest shares at the current stock price of $9.68/sh the company will have C$394 million of cash and liquid securities on the books, a significant war chest.

Sol will likely use the cash to build out the recently formed U.S. CBD business, Heavenly Rx, into a national competitor.

In the interest of full disclosure, Capital 10X employees’ own shares in Sol.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Avatar
Scott has over 12 years of institutional investment management experience analyzing both debt and equity securities. He has held senior investment research roles at Credit Suisse, and TD Asset Management. His core areas of investment coverage at Grizzle include marijuana, energy and crypto. Scott is a Chartered Financial Analyst and has been featured on Bloomberg, CBC, CNBC and Macleans. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

Leave a Reply

avatar
  Subscribe  
Notify of