A weakness in pot stocks has scuttled MedMen Enterprises Inc.’s planned acquisition of PharmaCann less than a month after it received antitrust approval.
The Los Angeles-based cannabis company said Tuesday that it will terminate the all-share deal, which was valued at $682 million when it was announced last October and MedMen was trading at about $4.45 a share. Cannabis shares have tumbled since then, with the Horizons Marijuana Life Sciences Index ETF down about 50% and MedMen’s stock down 65% to $1.52.
“The cannabis sector has evolved tremendously since we first announced the PharmaCann transaction and based on the current macro environment and future opportunities that exist for our business, we believe it is now in the best interest of our shareholders to deepen, rather than widen, our company’s reach,” MedMen Chief Executive Officer Adam Bierman said in a statement.
MedMen shares fell as much as 9.6% in early trading Tuesday.
The move comes as a surprise, as MedMen said last month that it had received antitrust approval for the deal after a waiting period expired. It was one of the first of several U.S. cannabis mergers that were under Department of Justice review to get the green light, and MedMen said then it expected the acquisition to close by the end of 2019.
As part of the termination, PharmaCann will transfer cannabis licenses and related assets in Illinois and Virginia to MedMen for no additional consideration other than the forgiveness of $21 million of debt, the companies said.
The recent underperformance of cannabis stocks has “made it increasingly more critical to allocate capital efficiently” and some of PharmaCann’s assets required significant expenditures, MedMen said Tuesday. It added that it has decided to increasingly focus on the California market, where it plans to have 30 stores open by the end of 2020.