Scotts Miracle-Gro's RIV Capital to merge with Cansortium in cannabis tie-up

By Steve Gelsi

Cansortium to add RIV Capital's Etain dispensaries in New York; Scotts Miracle-Gro to eliminate $175 million in debt

Florida-based Cansortium Inc. said Thursday it agreed to acquire RIV Capital Inc. in an all-stock cannabis-company deal that will eliminate $175 million in debt by RIV Capital owner Scotts Miracle-Gro Co.

Cansortium (CNTMF) will pay 1.248 of its shares for each share of RIV Capital (CNPOF) (CA:RIV) in a deal that values RIV Capital at about 20 cents a share, more than double its Wednesday closing price of 9 cents a share.

With roughly 108.2 million shares outstanding, RIV Capital, which is backed by Scotts Miracle-Gro (SMG), will be valued at about $21.6 million in Cansortium stock in the deal.

Cansortium's stock rose 1.4% Thursday, while RIV Capital jumped nearly 32% to 12 cents a share. Scotts Miracle-Gro's stock rose 1%.

Cansortium Chief Executive Robert Beasley told MarketWatch the company plans to work with RIV Capital to compete head-to-head with the illicit market by offering safer products at comparable prices.

Cansortium had been shopping for a deal to grow inorganically for more than a year, but it lacked cash and the ability to issue more debt, so it decided to buy RIV Capital with stock, he said.

RIV Capital and its four dispensaries in New York offer access to many of the same Florida customers who live in the Empire State and travel to and from the two areas of the country, Beasley said.

RIV Capital also brings about $66 million in cash into the mix, he said.

Mike Totzke, interim chief executive and operating chief of RIV Capital, said New York Gov. Kathy Hochul has made progress in shutting down illegal cannabis stores around the state with a new policy to padlock unlicensed stores.

Despite this progress, valuations of New York cannabis businesses have fallen dramatically since RIV Capital paid about $247 million for Etain in 2022, partly due to slower-than-expected growth in the regulated adult-use market.

Cansortium shareholders will own about 51.3% of the combined company and RIV Capital shareholders and the Hawthorne Collective unit of Scotts Miracle -Gro will own 48.75%.

As part of its deal with Cansortium, Scotts Miracle-Gro said it plans to exchange its existing convertible notes in RIV Capital for a new class of non-voting exchangeable shares of Cansortium. The transaction will wipe out $175 million in debt, Scotts Miracle-Gro said.

The deal is expected to close by the end of the year.

Cansortium currently operates in Florida, Texas and Pennsylvania and will add Etain cannabis dispensaries in New York owned by RIV Capital.

The combined company would have generated $105 million in 2023 revenue, with $74 million in cash.

Moelis & Co. advised RIV Capital on the deal.

Since Scotts Miracle-Gro bought Etain in 2022, the New York market has fallen victim to competition from unlicensed cannabis sellers as well as the challenges faced by state-regulated dispensary owners to find retail space and raise capital for start-up costs.

RIV Capital traces its roots to Canopy Growth Corp. (CGC) which set up the business in 2017 as a strategic investment vehicle under the name Canopy Rivers.

In 2021, Canopy Rivers changed its name to RIV Capital, the same year that Scotts Miracle-Gro's Hawthorne Collective unit acquired $150 million in debt from RIV Capital.

RIV Capital stock has traded as high as about $5 a share in 2018, but it fell below $1 a share in 2022. Cansortium's stock rose to nearly $2 a share in 2019 but has been below $1 since 2021.

Also read: Legal-cannabis market in New York gets off to a slow start with $150 million in sales in its first year

Also read: What New Jersey did right - and New York did wrong - with recreational-cannabis launches

-Steve Gelsi

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05-30-24 1527ET

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