Why Financial Firm Jefferies Sees Value In Green Thumb-Boston Beer Merger

Green Thumb Industries GTBIF, a prominent U.S. cannabis multi-state operator (MSO), is reportedly seeking a merger with Boston Beer Company. This move could allow GTI to list on a major exchange, leveraging Boston Beer's legal status.

Additionally, it could facilitate GTI's entry into the growing market for Hemp THC beverages, which are eroding alcohol sales.

What Happened: Merger Proposal

According to the Wall Street Journal, GTI sent a letter to Boston Beer on Sunday to discuss a potential merger. GTI has not commented on the reports, and Boston Beer has remained silent. This development follows reports of Japanese whisky maker Suntory being in early talks for a possible acquisition of Boston Beer, which Boston Beer denied. GTI's CEO claims a superior offer could be made compared to Suntory's.

Financial Engineering And Market Sentiment

Jefferies reports that two Canadian cannabis operators and two U.S. MSOs have structured their businesses to list on major exchanges. They achieve this by listing legal assets and issuing non-voting shares for U.S. cannabis assets which are still illegal under federal law.

"There are now two Canadian cannabis operators and two other US MSOs that have created structures that allow listing on a major exchange. This involves having a legal business as the listed assets and then ring-fencing the illegal US assets via issuing non-voting shares," reads the report.

Other companies have used legal cannabis assets outside the U.S. for this purpose. This would be the first time non-cannabis legal assets are used. Jefferies notes, "It would also be significant for sentiment as it would give credibility to cannabis as a proper consumer goods sector and potentially open up GTI to investment from traditional alcohol investors."

Potential Exchange Listing

A merger with Boston Beer could enable GTI to circumvent restrictions preventing U.S. cannabis operators from listing on major exchanges. Other companies have used legal cannabis assets outside the U.S. for similar purposes. This would be the first attempt to use non-cannabis legal assets, potentially boosting the credibility of the cannabis sector and attracting traditional alcohol investors.

While NASDAQ has approved such structures, Boston Beer is listed on the NYSE, which might require an exchange move if the NYSE needs to be more receptive.

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Capitalizing On Shifting Trends

The merger could help GTI capitalize on the increasing trend of cannabis replacing alcohol, particularly among young people. Addiction Journal reported that daily cannabis use in the U.S. has surpassed daily alcohol use. A merged company could benefit from the growth of federally legal Hemp THC beverages, a market estimated to be worth $25 billion. GTI could leverage Boston Beer's distribution network to expand its presence in this market.

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