8-K: Goodness Growth Holdings to Sell New York Assets to ACE Venture Enterprises

Goodness Growth Holdings has agreed to sell its New York subsidiary, Vireo Health of New York, to ACE Venture Enterprises for a price between $3 million and $5 million, plus the assumption of liabilities.

Summary

• Goodness Growth Holdings has entered into a binding agreement to sell its New York subsidiary, Vireo Health of New York, to ACE Venture Enterprises.
• The sale includes VireoNY's licenses, assets, and the assumption of its lease with Innovative Industrial Properties (IIP) for the Johnstown cultivation and manufacturing campus.
• The purchase price ranges from $3 million to $5 million, depending on the timing of a loan from ACE to VireoNY, plus the repayment of a $2.5 million loan from Goodness Growth.
• ACE will also assume VireoNY's financial liabilities, including operating losses, starting April 1, 2024.
• Goodness Growth will provide a $2.5 million unsecured loan to VireoNY and may receive a 15% interest in ACE's adjusted net profits after the closing.
• ACE plans to invest $20 million in the development of the Johnstown campus and intends to acquire it from IIP.
• The transaction is expected to close by June 30, 2024, pending regulatory approval and other closing conditions.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the divestiture of assets and potential future profit share, but tempered by the relatively low sale price and the risks associated with the transaction.

Positives

• Goodness Growth is divesting its New York operations, potentially streamlining its business.
• The deal provides Goodness Growth with an initial cash infusion through the repayment of the $2.5 million loan.
• Goodness Growth retains a potential upside through a 15% interest in ACE's future net profits.
• ACE's $20 million investment in the Johnstown campus could enhance its value and future profitability.
• The transaction allows Goodness Growth to focus on other markets.

Negatives

• Goodness Growth is selling its New York assets for a relatively low price of $3 million to $5 million.
• The deal is contingent on regulatory approvals and other closing conditions, which could delay or prevent the transaction.
• Goodness Growth is providing a $2.5 million loan to VireoNY, which may not be fully recovered if the deal falls through.
• The 15% interest in ACE's net profits is subject to future performance and may not generate significant returns.
• Goodness Growth is losing control of its New York operations and future potential in that market.

Risks

• The transaction is subject to regulatory approvals, which may not be granted.
• The definitive agreements may not be mutually agreed upon, potentially derailing the deal.
• ACE may not be able to secure the necessary capital commitments to complete the transaction.
• The 15% interest in ACE's net profits is subject to ACE's future performance and may not generate significant returns.
• There is a risk that the sale of the New York assets may not improve Goodness Growth's overall financial position.

Future Outlook

The company anticipates regulatory approval for the transfer of the New York licenses and closing of the VireoNY transaction by June 30, 2024. Goodness Growth also anticipates meaningful opportunities for future collaborations with the Ace team.

Management Comments

• Steven Acevedo commented, 'We are thrilled to reach this agreement with Goodness Growth and are excited to enter New Yorks cannabis industry.'
• Steven Acevedo also stated, 'We are prepared to showcase the strength of our team and to support a thriving industry in New York that benefits both consumers and communities that have been impacted by the failed War on Drugs.'
• Josh Rosen said, 'We're excited to support the Ace team as they bring the benefits of a tremendous legacy within the industry and a deep network of relationships that we believe can help both Ace and Goodness Growth thrive moving forward.'

Industry Context

This announcement reflects the ongoing consolidation and restructuring within the cannabis industry, as companies seek to optimize their operations and focus on core markets. The entry of a minority-owned business like ACE into the New York market also highlights the industry's increasing focus on social equity and community engagement.

Comparison to Industry Standards

• The sale of VireoNY's assets for $3-5 million is relatively low compared to other cannabis asset sales, which can reach tens or hundreds of millions of dollars, however, the deal includes the assumption of liabilities and a potential 15% profit share.
• The $20 million investment by ACE in the Johnstown campus is a significant commitment, but is not unusual for large-scale cannabis cultivation and manufacturing facilities.
• The 15% net profit share for Goodness Growth is a common structure in the cannabis industry, allowing for continued participation in the upside of the business without direct operational involvement.
• Other cannabis companies such as Curaleaf, Trulieve, and Green Thumb Industries have made similar acquisitions and divestitures as they expand and consolidate their operations.

Stakeholder Impact

• Shareholders of Goodness Growth may see a positive impact from the divestiture and potential future profits.
• Employees of VireoNY will be absorbed by ACE, subject to certain conditions.
• Customers of VireoNY may experience changes in the business under new ownership.
• Suppliers and creditors of VireoNY will be impacted by the transfer of liabilities to ACE.

Next Steps

• The parties need to finalize the definitive agreements for the transaction.
• ACE needs to secure the necessary capital commitments.
• Regulatory approvals for the transfer of licenses are required.
• The transaction is expected to close by June 30, 2024.

Key Dates

Keywords

cannabis, acquisition, vireo health, goodness growth, ace venture enterprises, new york, johnstown campus, lease, iip, asset sale