Green Thumb’s pursuit of Sam Adams brewer goes beyond beer and cannabis

This story was republished with permission from Crain’s Chicago and written by John Pletz. 

Green Thumb Industries’ courtship of Sam Adams brewer Boston Beer Co. may have as much to do with the Chicago-based cannabis company’s interest U.S. investors as its taste for beer.

After reports that Boston Beer might be in talks to sell, GTI’s CEO Ben Kovler sent a letter to Boston Beer founder Jim Koch, making his pitch for a merger. Kovler, who posted the letter on social media, talks plenty about why a slow-growth beer maker should be drawn to GTI’s faster growth and fatter profit margins.

GTI is the best house in the bad neighborhood occupied by cannabis stocks. At $11.49 per share, the stock trades about one-third of its peak in March 2021. The numbers are even worse for Chicago-based Verano Holdings and Cresco Labs.

A big reason for the weak stock prices is cannabis companies had to go public in Canada because marijuana remains illegal in the United States. Canadian stock exchanges are smaller and much more dependent on retail investors who are far less patient or predictable than the big institutional investors that underpin the U.S. markets. Overly optimistic hopes for legalization of marijuana in the U.S. by those same retail investors have made things even worse.

“Today the American consumer of our product is unable to readily buy Green Thumb stock because it’s not listed on a major U.S. exchange,” Kovler said in his letter. “Following the GTI-SAM combination that will all change.”

GTI and other U.S. cannabis companies have been anxiously awaiting the day when they can move to U.S. stock markets. GTI, along with Cresco and Verano, has been filing financial results with the U.S. Securities and Exchange Commission.

It’s not clear when their date with U.S. exchanges will come. Rescheduling marijuana from the most restrictive class of drugs is expected in the near future, but most analysts say that’s not likely enough to push the U.S. stock exchanges to allow cannabis stocks.

Nor is it clear how a GTI-Boston Beer deal would work in order to get around laws against U.S. listed companies being directly involved in businesses that touch what remains a federally illegal product. Perhaps they would be in position to cash in fast when U.S. exchanges open up to weed, but the deal would no doubt be complicated.

“Rescheduling is probable but not definite and, as of now, the exchanges have not said that rescheduling is sufficient to list U.S. cannabis operators,” says Morgan Paxhia, co-founder of Poseidon Asset Management, a San Francisco-based fund that has been investing in the cannabis industry for a decade. “I think it is smart of them to be vetting pathways that could result in being on an exchange.

“Regardless, question number one should be about the merits of a combination from the shareholder’s perspective. Does a combination make good fundamental sense? Is there cultural alignment? If there is value being created, the exchange matter is just an additional benefit.”

Beer companies, facing slowing sales, already are showing interest in intersection of THC and beverages. Several analysts have cast doubt on the idea that Boston Beer is interested in selling to anyone. And if it does do a deal, they point to spirits or beer companies as more likely partners than GTI.

However, cannabis analyst Pablo Zuanic said in a note to clients that he sees upside for GTI and Boston Beer in a merger:

“We believe (Boston Beer) would benefit by being part of a platform with a better growth outlook and higher profit-margin profile. By the same token, we think Green Thumb shares, despite receiving only probably a small premium from the transaction itself, would rerate given the indirect Nasdaq listing and also due to the strategic benefits of being part of a larger alcohol/cannabis platform.”