Owner of Zen Leaf marijuana shops soars on first day of trading, boosting Chicago’s role as corporate weed capital of U.S.
By ROBERT CHANNICK
FEB 17, 2021 AT 3:48 PM
Verano Holdings began trading Wednesday on the Canadian Securities Exchange, becoming the third Chicago weed company to go public north of the border.
The company completed a complex reverse merger last week, raising $100 million through a subscription offering that valued Verano at $2.9 billion. The stock will trade under the ticker symbol VRNO.
The deal included a merger with a Florida-based cannabis company, Alternative Medical Enterprises, giving Verano a 14-state footprint with production facilities and retail dispensaries operating mostly under the Zen Leaf and MUV banners. MUV is the name of Alternative Medical Enterprises’ stores and product.
George Archos, 41, a co-founder and CEO of Verano, said going public will enable the company to continue to expand as more states legalize recreational marijuana.
“We would like to continue to expand within our current footprint, if we’re allowed by regulatory bodies within those states,” Archos said. “Then depending on our bandwidth and how things are moving along and what’s happening across the country, we’ll look at expansion outside of our footprint.”
The Verano IPO priced 10 million shares at $10 each, which is about $12.70 in Canadian dollars. The stock closed at CA$31.40 a share on the first day of trading Wednesday, boosting Verano’s market cap to nearly US$7.2 billion.
Verano was started as an Illinois medical marijuana growing operation in 2014 by Archos, a restaurateur whose culinary portfolio includes four Wildberry Pancakes and Café locations in Chicago and the suburbs.
Illinois remains at the center of Verano’s operations, with eight retail locations in the state. The newest is a Zen Leaf dispensary in northwest suburban Prospect Heights, which opened in December.
About a third of the company’s 1,600 employees are in Illinois, Archos said, a number he expects to grow as the company scales up.
Weed is legal in 36 states, including 15 that allow recreational use, though a November ballot initiative that legalized it in South Dakota is being challenged in court. Illinois legalized recreational marijuana at the beginning of 2020, and last year topped $1 billion in sales at more than 80 retail dispensaries across the state.
Chicago, by way of Canada, has become the corporate nexus of publicly traded weed companies in the U.S.
Verano joins Chicago-based competitors Green Thumb and Cresco Labs on the Canadian Securities Exchange. Companies are unable to trade on U.S. exchanges because weed is a still a federally controlled substance.
A fourth Chicago-based company, Choice Consolidation, filed an updated prospectus last week looking to raise $150 million through an initial public offering, also on the Canadian exchange. The company, led by Joe Caltabiano, co-founder and former president of Cresco, plans to use the proceeds to buy existing cannabis businesses across the U.S.
Archos said stricter Illinois regulations weeded out less business-savvy operators and helped Illinois companies succeed in other states as well.
“Illinois started its program as one of the most heavily regulated the industry,” Archos said. “And for the first time you had some real entrepreneurs that were business-oriented that entered the cannabis industry. So I think that you have seen some of the strongest multistate operators come out of Chicago.”
Research firm Euromonitor projects legal cannabis sales will more than triple to $98 billion globally by 2025.
The appetite for investing in the cannabis industry is growing, but has been limited because the substance remains illegal under federal law, which has discouraged some banks from lending money and forced public companies to trade in Canada.
The regulatory climate may be changing, however.
Green Thumb, which began trading in Canada in 2018, broke new ground with an initial public offering last week registered with the Securities and Exchange Commission, with an undisclosed institutional investor buying $100 million worth of the subordinate voting shares.
“The capital forming around the business is important, because it tells you that people see the upside, and they see the potential going forward,” said Andy Grossman, head of capital markets for Green Thumb, which has a market capitalization of about $8 billion.
Grossman said the promise of a more favorable federal regulatory environment under the Biden administration, from less restrictive banking laws to full legalization, may be emboldening investors and unleashing pent-up demand.
But Eric Berlin, an attorney with the Chicago-based cannabis legal team at the law firm Dentons, said trading may still be exiled to Canada for a few more years, with the U.S. exchanges unwilling to list companies that sell a federally controlled substance.
“I think that we have a good chance of getting some cannabis reform passed through Congress in the next two years,” Berlin said. “I am skeptical that we’ll see a truly plant-touching company listed on one of the exchanges this year.”