MIAMI – Andy DeFrancesco was in a celebratory mood.

The controversial cannabis investor and chairman of SOL Global Investments Corp. had just caught wind of the latest round of M&A in the cannabis sector, after Harvest Health and Recreation Inc. announced it will buy Verano Holdings LLC in a US$850-million all-stock deal. DeFrancesco’s company owns a significant minority stake in Verano Holdings, which explained his Cheshire grin and buoyant demeanor during a recent lunchtime meeting with BNN Bloomberg on a hotel rooftop in Miami’s glamourous South Beach.​​

Alongside plates of edamame doused in yuzu and cracked black pepper, organic guacamole and two orders of spicy tuna rolls, DeFrancesco tucked into his wagyu hamburger, delivered “extra crispy” as requested and stripped of all condiments save for a bun and a single pickle, before launching into a broad outlook for the global cannabis industry.

“Canada needs M&A. There's too many fly-by-night or small players that just can't survive due to economies of scale,” DeFrancesco said, before taking a sip of ice-cold lemonade. “But I really think that the smarter players will be focused on the U.S.”

Andy DeFrancesco. (Handout)

While the Canadian recreational cannabis industry has suffered through growing pains in the first six months of legalization, the U.S. cannabis market is becoming the big prize that investors are quickly warming up to. The country already has 33 states which have legalized medical cannabis and another 17 that greenlit recreational usage, including California whose population exceeds Canada's.

New York-based investment bank Jefferies Group LLC recently released a report forecasting the U.S. pot market could be worth US$21.7 billion in the next 10 years compared to its estimate of US$5.8 billion for Canada.

“The real focus right now is consolidation in the U.S. industry and it's not even federally legal,” DeFrancesco said. “There are some powerhouses with some real market caps, strong balance sheets and good capital that we want to get into.”

DeFrancesco, who has commuted between the Miami area and Canada for more than a decade, has had a keen eye for deals in the pot industry, being one of the industry’s early proponents and investors following a two-decade career on Bay Street.

However, DeFrancesco has had a run-in with one Canadian financial regulator after appearing as a witness in a grievance by the Investment Industry Regulatory Organization of Canada (IIROC) in 2009 regarding an associate who engaged in "unbecoming or detrimental" business conduct regarding undisclosed financial dealings. DeFrancesco stated he's never had any formal issues with regulators throughout his career as an investor or advisor.

He was one of Aphria Inc.’s (APHA.TO) first shareholders with his Delavaco Holdings Inc. investment vehicle acting as an advisor during the cannabis producer’s reverse-takeover of Black Sparrow Capital Corp. in July 2014, netting him 5.6 per cent of the company. He has also taken stakes in other cannabis companies such as Liberty Health Sciences Inc., Kalytera Therapeutics Inc., and purchased marijuana cultivation licences in several U.S. states and South America.

But it was his ties to Aphria and investments in certain cannabis assets that recently landed DeFrancesco in hot water.

In December, a report by Hindenburg Research and Quintessential Capital Management, who both shorted Aphria shares, alleged that Aphria overpaid for the companies it acquired in Jamaica, Argentina, and Colombia from SOL Global Investments. The short sellers also made numerous allegations of insider self-dealing between the two companies. A second report alleged a Florida property controlled by DeFrancesco was flipped to Liberty Health Sciences after a week of owning it for about $5 million in profit.

DeFrancesco disputes the allegations, citing an independent investigation conducted by Liberty Health Sciences that determined the short-sellers’ report was “materially inaccurate” and “should not be relied upon” and that the purchase of the Florida property was in fact below fair market value and any allegation about improprieties is “misleading to investors.”



Andy DeFrancesco with Aphria co-founders John Cervini (left) and Cole Cacciavillani (right) at the Toronto Stock Exchange in an April 2017 Instagram photo that has since been deleted. (Instagram)

“I got out and I defended what I thought needed to be defended, rightly or wrongly,” DeFrancesco said. “All of the reports, from Scotiabank to Cormark, came out verifying the assets, verifying the licenses, verifying even the values albeit at the high end. Great. That means I did my job for SOL shareholders. My job is to sell for the best possible price I can get.”

He added that he hasn’t been questioned by the U.S. Securities and Exchange Commission or the Ontario Securities Commission about the allegations.

“I offered on Twitter for our team to go in [to the SEC or OSC] with our files on the Aphria assets and for the short sellers to go in with their report,” he said. “I’m happy to talk to the regulators at any time if they have something to ask me.”

With the short-sellers’ reports in his rearview mirror, DeFrancesco isn’t resting on his laurels now that the Harvest-Verano deal is announced.

He carries three iPhones – the screen of one is broken and he hasn’t had any free time to switch over his data to the other devices – which are constantly buzzing with messages and phone calls about potential deals.

Amid phone breaks and another glass of lemonade, DeFrancesco said that Canadian companies have a big advantage compared to their U.S. counterparts, especially Canopy Growth Corp. (WEED.TO) and Tilray Inc. (TLRY.O) Those producers are among a select few that have inked significant partnerships in the beverage and pharmaceutical sectors and already have a head start if they find a way to enter the U.S. market.

“This is going to be one of those sectors where everybody looks to the Canadians,” he said. “You're not going to take away Bruce [Linton, Canopy’s CEO] success, because he's Canadian and in the U.S., Constellation Brands Inc. (STZ.N) has already validated his model and said this is the horse we’re betting on. Bruce has done an incredible job in Canada and in certain other markets, he’ll find a way to be a dominant player in the U.S. He has to in order to move the needle.”

With SOL Global, DeFrancesco described the company acting more as a private equity firm rather than a cannabis operator and openly mulled about a day when he could offer shareholders a dividend. He’s still actively looking for pot-related assets or licences in several U.S. states and has explored opportunities in Brazil, Italy, the U.K., Spain, and Macedonia.

“The team is living on airplanes right now, talking to [companies] and certain regulatory bodies, [U.S.] senators, lobbyists; we’ve got teams in multiple states in the U.S. that we think are very important to get in to,” DeFrancesco said. “There are some key states where you can have a phenomenal business, such as Florida, California, Nevada, and Texas.

“For some, it’s too early. Right now, it’s going to be a big [cash] burn for the foreseeable future. How many companies are going to want to take on that burn when you have shareholders demanding cash flow and wanting to see EBITDA?”

And with that, DeFrancesco spots an acquaintance arriving at the hotel’s rooftop and greets him with a firm handshake. One of his phones rings again, and he’s suddenly off, seeking privacy in a corner of the restaurant. Another deal may be in the works.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.