Although its headquarters are in New York City, cannabis multistate operator Ascend Wellness Holdings (AWH) is no longer going to roll the dice with a market entrance in its home state.
After resolving a monthslong legal battle over a definitive acquisition agreement with MedMen New York (MMNY) in May—with the two companies finally agreeing to an $88-million deal—Ascend founder and CEO Abner Kurtin said this week his company is no longer interested in closing the transaction.
Kurtin told investors during a second quarter 2022 earnings call Aug. 15 that due to concerns about the status of MMNY’s assets, “which have deteriorated materially” since Dec. 31, Ascend is no longer moving forward with the transaction.
“We have been engaged in negotiations with MedMen for 17 months and because of the state of MedMen’s assets, it is time for all of us to move on,” Kurtin said. “Because we will not be moving forward with the MedMen transaction, we have $70 million of unencumbered cash at a time when cash is dear.”
Ascend had already paid $4 million to MMNY as a deposit toward the $74-million closing consideration at the time of the settlement in May. Also in the settlement, Ascend was to make a subsequent payment of $14 million upon the first sale of adult-use cannabis in an MMNY dispensary.
According to Ascend’s financial results, the company ended the second quarter (June 30, 2022) with $140.6 million in cash and cash equivalents—which includes the unspent $70 million from the canceled MMNY deal—enough to fuel its near-term initiatives as business operations are now geared toward generating cash flow, Kurtin said.
Looking Ahead to New Acquisitions
Plans are already in motion for that newly liberated $70 million, Rebecca Koar, the company’s senior vice president of investor relations, told Cannabis Business Times Aug. 16.
Ascend announced Aug. 15 the signing of a definitive agreement providing the option to acquire 100% of the stock of Ohio Patient Access LLC. That transaction will add three medical dispensaries to Ascend’s current portfolio of two retail stores and one cultivation/processing facility in the state, bringing it to the imposed five-dispensary cap in Ohio.
That transaction “will require $11 million of capital at sign, $11.3 million at close, and then $7.3 million for the start of adult use,” Koar said. “Theoretically, that would already be called for from that $140.6 million, which includes the $70 million [from the canceled MMNY deal.]”
The $140.6 million would also cover an Illinois acquisition that includes two dispensaries.
“And then, also, [Kurtin] alluded to on the call that we’re in late-stage negotiations in Maryland,” Koar said. “That would also come out of there.”
Kurtin told attendees on the earnings call that Ascend is “actively pursuing multiple opportunities” to enter Maryland, where voters will have a say in legalizing adult-use cannabis through a ballot measure sponsored by state lawmakers this November. Commercial sales could begin by the end of 2023 if the measure is passed.
Kurtin also told attendees that Ascend remains “laser-focused” on limiting nonessential capital expenditures to help work toward becoming a cash flow-generating company in 2023. The company ended Q2 2022 with $153 million in net debt but does not have material debt maturities for the next three years on its balance sheet.
At the end of Q2, Ascend’s footprint included 22 operating dispensaries and five cultivation facilities in six states: Illinois, Massachusetts, Michigan, New Jersey, Ohio and Pennsylvania. Maryland could be a seventh.
While Kurtin said the company is well on its way to becoming a premier multistate operator in its target markets east of the Mississippi River, New York’s medical market and forthcoming adult-use market are no longer in the company’s short-term vision.
“As many of you know, the regulatory environment in New York remains highly uncertain, given the unknown timing of the commencement of adult-use sales, unclear licensing process, and the lack of policing of the illicit market,” he said. “As a result, the New York market is not a priority for AWH, but we will continue to monitor it closely.”
A Market Emerges
New York regulators from the state’s Office of Cannabis Management and its decision-making body—the Cannabis Control Board (CCB)—have provided a tentative timeline to launch commercial adult-use sales by the end of 2022.
This spring and early summer, CCB members approved more than 200 adult-use conditional cultivator licenses for existing hemp farmers in the state to be the first growers for the new market.
In their most recent meeting Aug. 15, CCB members approved 15 adult-use cannabis processor licenses and additional grower licenses.
Much of New York lawmakers and regulators’ focus has been on creating a program around inclusive licensing. That focus includes a $200-million Social Equity Cannabis Investment Program that is a key component of the state’s Seeding Opportunity Initiative—an effort to promote social equity through positioning individuals with prior cannabis-related criminal offenses to make the first adult-use cannabis sales in New York.
Those efforts have led to many investors shying away from the state’s forthcoming adult-use market because “there’s no money for them,” Wei Hu, Esq., a founding partner of MRTA Law, PC, a New York cannabis law practice, told CBT Aug. 16. Hu also teaches Social and Economic Equity in Cannabis at LIM College in New York City.
“[New York] is heavily focused on social justice and economic equity, and hasn’t let either the medical players or MSOs in yet,” Hu said. “Big Canna is pissed at NYS, especially as they can’t really make money until late 2023 [or] early 2024. So, you have players in this industry with MSO clients that are just on the sidelines.”
A Bumpy Road to Calling Off the MedMen Deal
While MMNY attempted to back out and terminate its definitive agreement with Ascend on Jan. 3, 2022, Ascend officials went to court in an effort to force MMNY to honor the original agreement.
The deal was back on—after more negotiating—through the May settlement.
But now the transaction is off again at Ascend’s discretion.
During the Aug. 15 earnings call, Ascend Chief Financial Officer Daniel Neville told listeners that the company had the authority to call off the settled agreement without MMNY agreeing to the decision.
“In terms of New York, there’s really no agreement because we had signed a term sheet for a settlement that ended up not going forward; the remaining litigation is by us to close the original transaction that they failed to close last December,” Neville said. “So, we anticipate this being the end of the matter, though, we can’t control what others do. As we move forward here, we’re looking per the termination agreement to the refund of certain monies that we paid from at the outset of the transaction.”
That refund could include Ascend’s $4-million deposit toward the closing consideration.
Senior Editor Zach Mentz contributed to this report.