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 Shares||65 million|
|Net Asset Value Per Share||$6.30|
|Current Share Price||$3.47|
|% Upside to NAV||81%|
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
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.
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