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TerrAscend to buy Michigan cannabis operator Gage in $545 million deal

September 9, 2021
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North American cannabis company TerrAscend plans to enter Michigan’s marijuana market after reaching a deal to buy local operator Gage Growth in an all-stock transaction worth $545 million.

TerrAscend, which has operations in both the U.S. and Canada, said the deal will give it a leading position in Michigan, which the company considers the third-largest American cannabis market.

New York- and Toronto-based TerrAscend calculated its “third-largest-market” claim by annualizing Michigan’s record $171 million in marijuana sales for July.

“Combining our market-leading share in our existing states with Gage’s proven cultivation, retail, and marketing capabilities, creates one of the largest and most dynamic companies in the industry,” TerrAscend Executive Chair Jason Wild said in a news release issued Wednesday.

Under terms of the deal, Gage shareholders will receive 0.3001 common shares of TerrAscend in exchange for each Gage share, representing an 18% premium for Gage shares based on the companies’ closing share prices Tuesday.

According to the release, the combined business will:

  • Operate in five states – California, Maryland, Michigan, New Jersey and Pennsylvania – and Canada.
  • Own seven cultivation and processing facilities, including three Gage facilities in Michigan.
  • Own 23 operating dispensaries in medical and adult-use markets, including Gage’s 10 operating dispensaries in Michigan.

Gage plans to open 10 more Michigan dispensaries “in the coming months,” according to the release.

Detroit-based Gage had $32.8 million in cash “with minimal debt” as of June 30.

Jefferies equity analyst Owen Bennett praised the deal in a Wednesday note to clients, observing that Michigan’s status as an unlimited-license jurisdiction for cannabis businesses is arguably contributing to strong growth compared to other states.

Although Michigan’s wholesale marijuana prices “are much lower than other nearby limited license states,” Bennett wrote, “to date, the bigger (multistate operators) have avoided Michigan as (it is) harder to make money, and therefore (there is) less ‘big player’ competition.”

The 2021 MJBizFactbook projects recreational marijuana sales in Michigan this year will total $950 million to $1.2 billion.

The deal, subject to shareholder and regulatory approvals, is expected to close in the first half of 2022.

TerrAscend or Gage may pay a $30 million termination fee “if the transaction is not completed under certain limited circumstances.”

Gage recently revealed details of its plan to bring the U.S. cannabis brand Cookies to Canada, with distribution in Ontario and a retail store in Toronto.

TerrAscend cited Gage’s Michigan licensing agreement with Cookies as a benefit of the acquisition as well as Gage’s licensing deals with other cannabis brands, including Slang Worldwide and Khalifa Kush.

TerrAscend shares trade as TER on the Canadian Securities Exchange (CSE) and TRSSF on U.S. over-the-counter markets.

Gage shares trade on the CSE as GAGE.