Goodness Growth blames New York exit on failed Verano deal

Goodness Growth Holdings (OTCQX: GDNSF) this week blamed Verano Holdings Corp. (Cboe CA: VRNO) (OTCQX: VRNOF) for leaving it no choice but to unload its New York subsidiary.

The firm, which entered into a binding term sheet to sell Vireo Health of New York to ACE Venture Enterprises, expects to close the deal before June 30.

“Although we’re displeased with how the terminated Verano merger is forcing our exit from New York, we’re excited to support Ace, who stands to become the only minority-led R.O. license holder in the state,” CFO and interim CEO Josh Rosen said during an investor call to discuss the company’s latest earnings report.

The deal includes a collaboration agreement with Ace for a 15% share of net profits moving forward.

Rosen said that the focus of the partnership would be on supporting Ace’s operations and their development of New York-centric brands.

“I think the starting point is with our brand simply because they’re there and we have them ready to go,” he said. “But I think that ultimately will really lead more heavily into Ace’s camp from a decision-making standpoint than our own. We hope that we can provide that support from that vantage point.”

According to the company, the purchase price was between $3 million and $5 million for the licenses, inventory, and assets.

“There are a couple of moving pieces and closing conditions that go along with this,” Rosen said. “But, really, the key component is capital at risk in their vein. So, they need to close in the capital piece, something that we’ve got – as I referenced before, never guaranteed, but really optimistic that they’ve got the pieces put together for that part.”

What’s next with Verano?

Verano Holdings, a large publicly traded U.S. cannabis company based in Chicago, initially agreed to acquire Goodness Growth, which has licenses in New York and Minnesota, in an all-stock deal valued at $413 million in February 2022.

However, in October 2022, Verano called off the acquisition, claiming that Goodness Growth had breached certain unspecified “covenants and representations.”

Goodness Growth shot back, saying that Verano tried to back out of the deal without proper justification, possibly due to “buyer’s remorse” as cannabis stocks nosedived shortly after the deal was announced. Since then, the companies have been trading barbs in Canadian courts, where both companies are listed, seeking unspecified (but substantial) damages for the failed deal.

The termination of the deal rocked Goodness Growth’s stock price, which dropped by 60% following the announcement.

Rosen, who said the litigation is “progressing,” admitted to analysts on Monday that the timeline on some sort of legal resolution is still a bit foggy.

“There’s not a lot of certainty,” he said.

The company plans to file a motion for summary determination with the court in British Columbia within the next 30 days. If the motion is successful, it would lead to a quicker, or “truncated,” resolution of the case in Goodness Growth’s favor, he said.

However, if the motion is unsuccessful, the case would go to a full trial, which would likely extend the timeline for resolution.

“Our litigation with Verano remains an extremely important event and potential asset for us,” Rosend said. “And as we referenced earlier today, we’re seeking considerable damages for the harm caused to our business and our shareholders.”