Verano Holdings Corp. is entertaining an entrance into Virginia’s exclusive medical cannabis market, but company officials made no mention of that intention during their most recent earnings call with investors.

The Chicago-based multistate cannabis operator entered into a $5 million cash agreement July 7 to acquire all of the issued and outstanding equity interests in PharmaCann Virginia LLC (now a MedMen subsidiary). The agreement includes “certain real property,” specifically a 6.6-acre site in Staunton, Va., which PharmaCann intended to use as a home base for a medical cannabis license. That license, which is currently tied up in a lawsuit, includes sole rights to operate in a 10,650-square-mile region in the commonwealth—roughly a quarter of the state.

Verano’s acquisition agreement with PharmaCann Virginia was listed under “subsequent events” on the company’s second quarter 2022 report filed Aug. 19 with the U.S. Securities and Exchange Commission (SEC). Company officials did not disclose the possibility of entering the Virginia market during a second quarter earnings call with shareholders three days earlier. 

Verano officials declined to provide a comment to Cannabis Business Times on the company’s interest in Virginia and also declined to confirm the acquisition agreement—a public record.

Eight days after the earnings call, Aaron Edelheit, CEO of Mindset Capital, reacted to the SEC filing on social media: “Did [Verano] just buy a coveted Virginia license for $5 million? It looks like they bought PharmaCann’s license that is in dispute. Massive call option if it works.”

Much of Verano CEO George Archos’ focus during the earnings call centered on capital expenditure projects in Pennsylvania and Florida, as well as the company’s market share gains in Illinois and expansions in New Jersey, where adult-use sales launched on April 21, 2022. Verano, which went public in February 2021, had 17 cultivation facilities, 127 retail locations and active operations in 16 states as of mid-August.

Archos also discussed third-quarter happenings on the call, such as the launch of Verano’s product line in Pennsylvania.

Because Verano’s accounting books remained open during the company’s restatement period, Chief Financial Officer Brett Summerer told listeners on the call that the company updated its acquisition consideration payable amount to reflect payments made subsequent to the quarter’s end (June 30, 2022). 

“As some of these payouts were based upon specific profitability hurdles, we must estimate those payments until such hurdle time periods have been reached,” he said. “Once that exact amount is apparent, or once paid out, we will adjust acquisition considerations payable appropriately.”

Verano’s $5 million option to acquire PharmaCann Virginia would mean exclusive licensing to a 24-county region of more than 1.5 million people in the commonwealth—the Health Service Area (HSA) I license. That region hasn’t had a retail operation since medical sales commenced in October 2020. 

In Virginia, a state of roughly 8.6 million people, five medical cannabis licenses were established for five HSAs, but only three companies currently operate in the state: Columbia Care with two licenses following its 2021 acquisition of Green Leaf Medical; Jushi Holdings with one license; and Green Thumb Industries with one license following its 2021 acquisition of Dharma Pharmaceuticals.

The Virginia Board of Pharmacy currently lists a vacancy in HSA I, which encompasses the northern region of the state that borders West Virginia—the license Verano is after—because that provisional permit remains tied up in a lawsuit following the failed 2019 merger between Los Angeles-based MedMen Enterprises and Chicago-based PharmaCann Inc. However, MedMen did end up acquiring the subsidiary PharmaCann Virginia LLC and its HSA I license as part of a debt settlement package following the failed merger, according to MedMen’s termination announcement.

Editor’s note: MedMen owns PharmaCann Virginia, which remains the current name of the subsidiary.

As one of the original five “pharmaceutical processors”—the overarching term for vertically integrated operators in the commonwealth—PhamaCann Virginia purchased land in May 2019 in Staunton for $212,352, the Staunton News Leader reported. That 6.6-acre site was to serve as a starting point for cultivation and retail operations for the HSA I license.

In accordance with 2020 legislation and with regulations set forth by the Board of Pharmacy, licensees must run and upkeep a seed-to-sale business with at least one retail location in their designated regions. The law provides the option for licensees to open an additional five dispensaries in each region: six total per HSA.

But when state regulators from the Virginia Department of Health Professionals went to inspect the Staunton facility in December 2019, there was nothing to inspect, the News Leader reported. And PharmaCann Virginia, under its new parent company MedMen, missed the state’s site construction deadline.

Following the inspection of a vacant site, the Board of Pharmacy voted to rescind the HSA I conditional license, but PhamaCann Virginia/MedMen filed a lawsuit in September 2020 in the Henrico County Circuit Court in an effort to reclaim the license.

The circuit court ruled in the Board of Pharmacy’s favor, but PharmaCann Virginia recently appealed the decision, Diane Powers, communications director for the health department, told CBT.

“PharmaCann appealed the Board of Pharmacy’s rescission of conditional approval and denial of its application in Health Service Area I,” Powers said. “Following the Henrico Circuit Court’s ruling in the favor of the Board of Pharmacy, PharmaCann submitted an appeal to the Virginia Court of Appeals. The board must wait for the resolution of PharmaCann’s appeal before moving forward with a permitted pharmaceutical processor in Health Service Area I.”

Jaimie Kiracofe, the deputy clerk supervisor at Henrico Circuit Court, confirmed with CBT that the matter is now on appeal in the Virginia Court of Appeals. According to the lawsuit, the Virginia Board of Pharmacy filed an appellee brief on Aug. 24, and PharmaCann Virginia filed a reply brief on Sept. 7.

As that litigation unfolds, Virginia’s three active medical cannabis operators continue to expand and build for the future as a Jan. 1, 2024, retail launch date for an adult-use market hangs in the balance of forthcoming legislation.

While that launch date was included in the Cannabis Control Act, Virginia’s nearly 300-page adult-use cannabis legalization bill—signed by former Democratic Gov. Ralph Northam in April 2021—adult-use license types were not codified under the act and left on the table for reenactment by the 2022 General Assembly. But with Republicans taking control of the Virginia House and governorship, that reenactment never happened.

In turn, the earliest that new legislation to promulgate regulations for the industry could take effect would be July 1, 2023—unless House Republicans somehow find a supermajority to expedite that process with an emergency clause.

Regardless, state officials would still have to publish regulations, adopt those regulations, publish licensing application instructions, open an application portal and then review and award those licenses. The chances of that happening in a sixth-month turnaround for a Jan. 1, 2024, retail launch is highly unlikely, NORML Development Director JM Pedini recently told CBT for a separate article.

“Could [adult-use sales] begin through medical operators?” Pedini questioned. “Yeah, absolutely. That’s why state after state after state does that.”

On that note, Verano’s $5 million option to acquire PharmaCann Virginia has implications beyond the commonwealth’s current medical market.