“The cannabis market has changed significantly in the 15 months since we agreed to acquire Dispensary 33,” Ayr President David Goubert said in a statement. “Both parties have acknowledged this reality and engaged in good-faith dialogue as we came to the mutual decision to terminate the proposed arrangement.”
It’s the second time an acquisition of a Chicago company has been scuttled by changing fortunes in the industry. Not only is there a broad-based market correction, but cannabis is particularly volatile because the stocks are held largely by retail investors rather than institutions. Three years ago, the $850 million acquisition of Verano Holdings was called off after a change in fortunes for marijuana stocks.
Cancellation of the D33 deal is just one example of how large, publicly traded weed companies are scrambling to adapt to the industry’s woes. Last week, Curaleaf, which became the largest US cannabis company three years ago after buying Chicago-based chain Grassroots, pulled out of California, Colorado and Oregon, and laid off 10% of its staff.
States such as these, along with Michigan, are much more competitive because there are few barriers to getting a license to grow or sell marijuana. As a result, prices in those markets have collapsed. Even in Illinois, which has had among the highest marijuana prices in the nation because regulations limit number of licenses, has seen prices fall even as other costs have risen for cannabis companies because of inflation in equipment and labor prices.
Inflation elsewhere in the economy also has put pressure on consumer spending. Although most marijuana users are still buying weed, many have traded down to lower-priced brands. Sales growth slowed in Illinois in December.
The belt-tightening by large players such as Curaleaf, which have the best access to capital, is an ominous sign for the 192 winners of new retail licenses in Illinois who are trying to get their stores open.
For Dispensary 33, it’s back to business as usual, says co-owner Bryan Zises. “We’re back to where we’ve always been. The market just turned against them. There’s no hard feelings or animosity. The deal didn’t work out.”
Zises also is a co-owner of Spark’d, a new dispensary chain being opened by a social-equity applicant that won licenses under the name Green & Bransford. Spark’d opened its first store in Hoffman Estates.
“We’ve always been committed to being good operators, and none of that has changed,” Zises said. “We’ll take this as an opportunity to try to be at the cutting edge. We’re just going to ride it out as best we can.”