Scotts Miracle-Gro’s RIV Capital to Merge with Cansortium in Cannabis Tie-Up

MIAMI- In a strategic move to consolidate and strengthen their positions in the cannabis industry, Florida-based Cansortium Inc. has announced an all-stock merger with RIV Capital Inc., a company backed by Scotts Miracle-Gro Co. The merger is set to eliminate $175 million in debt for Scotts Miracle-Gro, creating a financially robust entity with a significant market presence.

Deal Structure and Financial Details

Cansortium, which operates under the Fluent brand, will acquire all issued and outstanding Class A common shares of RIV Capital. Shareholders of Toronto-based RIV will receive 1.248 common shares of Cansortium for each RIV share, valuing RIV Capital at approximately 20 cents per share—more than double its previous closing price of 9 cents. With about 108.2 million shares outstanding, RIV Capital will be valued at around $21.6 million in Cansortium stock. Following the announcement, Cansortium’s stock rose by 1.4%, RIV Capital’s stock jumped nearly 32% to 12 cents a share, and Scotts Miracle-Gro’s stock increased by 1%.

Strategic Impact and Industry Significance

The merger is significant for several reasons:

1. Geographical and Market Expansion: The combined company will include eight cultivation and processing facilities and 42 stores across Florida, New York, Pennsylvania, and Texas. This expansion will enhance market reach and operational efficiency, allowing the combined entity to compete more effectively against the illicit market by offering safer products at comparable prices.

2. Financial Strength: The deal will create a pro forma cash balance of approximately $74 million, providing the combined entity with the capital necessary for growth and strategic investments. It also significantly de-leverages the company, converting $175 million in RIV Capital’s debt into non-voting exchangeable shares of Cansortium.

3. Operational Synergies:  Cost efficiencies in cultivation, processing, and administrative expenses are expected to range between $5 million and $10 million, improving profitability and operational efficiency.

4. Enhanced Management: The merger will bring together a powerful management team, with Cansortium CEO Robert Beasley continuing as CEO of the combined company, driving innovation and performance.

Regulatory and Market Challenges

RIV Capital, which operates cannabis dispensaries in New York, brings about $66 million in cash to the merger. Despite facing challenges from unlicensed cannabis sellers and difficulties in securing retail space, the regulated market in New York is expected to benefit from recent policy changes aimed at shutting down illegal stores. These developments are crucial as valuations of New York cannabis businesses have declined significantly since RIV Capital’s 2022 acquisition.

Historical Context and Future Outlook

RIV Capital has a storied history, tracing its roots to Canopy Growth Corp., which established it as Canopy Rivers in 2017. It was rebranded as RIV Capital in 2021, the same year Scotts Miracle-Gro’s Hawthorne Collective acquired $150 million in convertible debt from RIV Capital. This strategic investment allowed Scotts Miracle-Gro to gain exposure to the U.S. cannabis market while managing regulatory risks.

The combined company, which will operate under the Cansortium name, is projected to have generated $105 million in revenue in 2023. With a strong cash position and reduced debt, it is well-positioned to capitalize on growth opportunities in the expanding U.S. cannabis market.

Why it Matters to Cannabis

This merger is a landmark event in the cannabis industry, setting a precedent for future mergers and acquisitions, particularly in managing debt through innovative financial structuring. The combined entity will leverage its expanded geographical footprint, enhanced financial strength, and operational efficiencies to drive growth and value creation for shareholders.

Moelis & Co. advised RIV Capital on the deal, which is expected to close by the end of the year, subject to shareholder approval.

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