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One of the biggest deals in the cannabis industry just fell apart. What the MedMen-PharmaCann breakup means for marijuana in Illinois.

Chicago Tribune

Tuesday, October 8, 2019  |  Article  |  Ally Marotti

Marijuana, Medical, Recreational

MedMen Enterprises ended a $682 million deal to buy Chicago-based marijuana company PharmaCann on Tuesday, less than three months before recreational marijuana sales are set to start in Illinois.


When MedMen agreed to buy PharmaCann last year, it was one of the biggest deals in the history of the legal weed industry. It led a flurry of big-dollar acquisitions in Illinois and around the country, and came in the midst of an outpouring of investment into rapidly expanding marijuana companies.


But the atmosphere surrounding cannabis investments has shifted. Share prices of publicly traded marijuana companies in the U.S. and Canada have seen steady declines in the past six months. Investors are more sheepish, and the big-dollar deals that dominated the end of 2018 and the beginning of this year have slowed down.


Meanwhile, regulatory hurdles at the state and federal levels delayed the closing of the MedMen-PharmaCann deal, according to a news release from the California-based company. MedMen co-founder and CEO Adam Bierman said in statement in the release that the deal is no longer the best move for shareholders.


“The cannabis sector has evolved tremendously since we first announced the PharmaCann transaction," he said in the statement. "We believe it is now in the best interest of our shareholders to deepen, rather than widen, our company’s reach.”


MedMen will increase its focus on its home state of California, where it has licenses for 17 stores. But the company still has its eye on Illinois.


As part of the agreement to terminate the deal, PharmaCann had to pay a fee to MedMen, according to the release. It is also handing over its cultivation facility in Hillcrest, its dispensary in Evanston, its license to open another marijuana shop in the Greater Chicago area, and a license for a facility in Virginia.


“Looking at the PharmaCann portfolio today, Illinois has emerged as the most attractive opportunity for our longer-term, strategic growth plan," Bierman said in the statement. "The addition of those assets, without dilution, is a win for MedMen and our shareholders.”


MedMen already operates one retail location in Oak Park. As part of the recreational cannabis law in Illinois, current operators may also apply to open a second storefront to serve customers when recreational marijuana sales start Jan. 1.


That means MedMen could operate four marijuana stores and one of the 21 cultivation facilities in the state.


It also gives MedMen a leg up in Illinois’ recreational market. Existing operators will be the only ones allowed to grow weed for recreational customers. The law does not allow any more large cultivators to supply the Illinois market until 2021 at the earliest, and then only if demand warrants them.


PharmaCann, which was one of the largest operators in Illinois, will be left with one cultivation facility and four operational retail locations in the state, plus the option to open four more stores.


Last week, PharmaCann’s two grow facilities were among the first in the state to receive licenses to start growing marijuana for recreational sales. It’s cultivation facility in Dwight is undergoing an expansion that will more than double its production capacity by next year.


Representatives from MedMen and PharmaCann did not immediately respond to requests for comment.


More to come.