David George-Cosh

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The head of Trulieve Cannabis Corp. expects to see more M&A activity sweep over the U.S. cannabis market amid looking pressure from federal and state officials to fully legalize the drug.

Kim Rivers, chief executive officer at Trulieve, said alongside reform measures set to be introduced into U.S. Congress that could legalize cannabis federally, there's also been a recent rush of states including New York, New Jersey, and Virginia to create new cannabis markets which will ultimately bring more U.S. pot deals.

"There has just been a continuing of sweeping of cannabis laws coming into effect across the country," Rivers said during a broadcast interview on Monday.

"In markets where some of us may be surprised that in these southern, more conservative states we see the cannabis conversation occuring … It's really happening all around us and that level of activity will certainly spawn additional consolidation in the industry." 

Rivers' comments come after Trulieve announced a deal to buy rival operator Harvest Health & Recreation Inc. for US$2.1 billion in an all-stock deal.

Harvest shareholders will receive 0.1170 shares of Trulieve for each Harvest share they own, Trulieve said.  Harvest shareholders will own roughly one-quarter of the combined company once the deal closes, with Trulieve owning the majority.

The deal, which is expected to close in the third quarter of the year once it receives approvals from state and federal regulators, will see Trulieve supplant Curaleaf Holdings Inc. as the U.S.'s biggest cannabis company by profitability, the company said. It would also create a national cannabis giant with operations in 11 states, 22 cultivation and processing facilities, and 126 dispensaries serving both medical and adult-use markets.

"Trulieve has gotten our name from being fundamentals first. We're focused on growing our business through relationships with our customers and being more significant players in the markets we enter," Rivers said.

Cowen & Co. Analyst Vivien Azur said in a report on Monday that the deal will expand Trulieve's "hub and spoke model" with a dominant operation in the U.S. southwest, where Harvest mostly operates.

"Trulieve gains exposure to a new adult-use market which will enhance its execution capabilities as the company looks to expand to more states that are, or will be, adult-use," Azur said.

Rivers said she has a "high degree of confidence" that the deal to acquire Harvest will close despite significant hurdles ahead. The company needs to win the approval of each state regulator as well as ensure it does not violate U.S. Department of Justice anti-trust conditions before the deal can close. Harvest previously tried to buy Verano Holdings ​in an US$850 million deal but backed out in March 2020​ as the onset of the COVID-19 outbreak made it difficult to get the necessary approvals in time.

"We've done extensive diligence around this transaction for months now and travelling across the country getting to know management, making sure that we've got a full appreciation for the scope and the breadth of the business," she said. "We feel very confident that we'll be able to close this transaction."