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Law360 (April 3, 2020, 7:49 PM EDT ) Cannabis company Acreage Holdings Inc. announced Friday that it has terminated a $120 million deal to acquire Nevada-based marijuana cultivator and manufacturer Deep Roots Medical LLC, among other company cutbacks, citing a significant impact from the coronavirus pandemic.
New York-based Acreage said in a press release that the ongoing moratorium on the sale and transfer of marijuana business licenses imposed by Nevada's Department of Taxation prevented the companies from getting the necessary approvals to complete the merger on time. Acreage had announced the cash and common units deal in April 2019, noting that it would be the company's first foray into Nevada.
The state's moratorium on the sale and transfer of marijuana business licenses started last year, amid concerns about lax product inspections, according to local news reports. That also followed allegations that associates of President Donald Trump's lawyer, Rudy Giuliani, funneled Russian cash to Nevada political candidates in a bid to obtain a cannabis license.
"The COVID-19 crisis was the nail in the coffin, but the moratorium on deals that's been in place by the state of Nevada was the hammer," Acreage spokesperson Howard Schacter told Law360.
The company announced a series of other measures in light of the pandemic, including the termination of a securities purchase agreement related to a proposed acquisition of a dispensary in Rhode Island and the resignation of Executive Vice President Steve Hardardt. Acreage also said it has temporarily furloughed 122 employees and temporarily closed certain operations.
Deep Roots' operations include cultivation, manufacturing and processing, a wholesale and distribution business and seven retail dispensary licenses, according to Acreage's April 2019 announcement. The Nevada company sells and distributes its Deep Roots, Chillers, Bluebirds and Helix Twist branded products, as well as other brands, at nearly 80% of Nevada's retail dispensaries, according to that announcement.
The deal included $100 million in common units of Acreage subsidiary High Street Capital Partners LLC, and $20 million in cash. High Street had planned to issue up to more than 4.7 million units at a value of $21 per unit, Acreage said last year.
Acreage CEO Kevin Murphy said in a statement Friday that he remains optimistic about the cannabis industry and Acreage.
"These bold measures will help to ensure that we emerge from this very challenging situation stronger than ever before," Murphy said.
A representative of Deep Roots did not immediately respond to a request for comment Friday.
The coronavirus has contributed to a number of soured deals in recent weeks, including Softbank's tender offer for up to $3 billion of WeWork shares and Xerox's $34 billion hostile takeover bid for HP Inc.
Cannabis businesses are facing a unique set of challenges in light of the coronavirus pandemic. While they are deemed "essential" in many cities that have implemented retail restrictions to prevent the spread of the virus, cannabis businesses can still face problems sourcing workers with the right licenses and keeping workers safe as they deal in cash transactions.
--Additional reporting by Diana Novak Jones, McCord Pagan, Jack Queen and Benjamin Horney. Editing by Jack Karp.
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