November 8, 2018 / 9:13 PM / 11 days ago

U.S. pot firm Harvest eyes listing at $1.5 billion valuation: sources

TORONTO (Reuters) - U.S. cannabis retailer Harvest Enterprises Inc is set to raise $230 million (C$303 million) in a deal that would value the company at about $1.5 billion when it goes public in Toronto as early as next week, people familiar with the situation told Reuters on Thursday.

The Tempe, Arizona-based company had initially targeted $50 million through the offer, but increased the deal value to $230 million in response to strong demand, the people said. The offer, which is set to be priced at $6.55 per subscription receipt, is expected to close as early as this week. A subscription receipt can be exchanged for shares when the company goes public.

An external spokesman for the company declined to comment on the details of the offering. The sources declined to be identified as the information is not public.

Harvest plans to list on the Canadian Securities Exchange (CSE) through a reverse takeover (RTO).

“The level of interest is high,” the company’s chief executive, Steven White, a former lawyer who helped found Harvest in 2011, told Reuters.

While federal illegality currently casts a shadow over the U.S. market, “everybody understands that the U.S. market is going to be the biggest market globally in the foreseeable future,” he added.

The United States is expected to account for over three-quarters of global legal cannabis sales over the next three years, according to Arcview Market Research and BDS Analytics.

A raft of U.S-based cannabis retailers and producers have opted to go public in Canada to fund their rapid growth as access to capital remains tight for the industry in the United States.

Harvest’s competitors, including Medmen Enterprises (MMEN.CD), Green Thumb Industries (GTII.CD) and Curaleaf Holdings (CURA.CD), have all listed on the CSE this year through reverse takeovers.

An RTO allows a company to go public by rolling into a listed shell corporation, which typically has a faster timeline than a traditional initial public offering.

Harvest expects to have about 16 stores open by the end of 2018 and 50 by 2019, from nine now, according to a confidential investor presentation document reviewed by Reuters.

Harvest projects earnings before interest, taxes, depreciation and amortization of $226 million on revenue of $559 million in 2020, the presentation showed. Its valuation multiple, at about 6.7 times the projected 2020 EBITDA, is lower than some of its peers.

Curaleaf’s offering last month valued it at $4 billion, or 12.4 times its projected 2020 EBITDA.

Cannabis stocks received an added boost this week on voter approvals of medical cannabis in Missouri and Utah and recreational marijuana in Michigan, and on the firing of U.S. Attorney General Jeff Sessions, a staunch opponent of federal legalization.

Eight Capital, GMP Securities and Canaccord Genuity are the lead banks advising Harvest.

Reporting by Nichola Saminather and John Tilak; Editing by Denny Thomas, Susan Thomas and Leslie Adler

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