Under a merger agreement, marijuana-focused agriculture company Terra Tech Corp. will acquire 100% of the outstanding shares of retail medical marijuana dispensary Blum Oakland, which is located in Oakland, California.

With the acquisition, Terra Tech is the first U.S.-based, publicly traded company that handles all aspects of the marijuana lifecycle, including cultivation, extraction, branding, and retail sale. Investors can buy shares of Terra Tech, which appears to be poised for growth based on the acquisition terms.

Most of the merger payments will be made in Terra Tech stock with the deal being made on a forward looking basis. Under the terms of the agreement, Terra Tech is purchasing Blum Oakland for 1.5 times forward looking revenue for the 12 months following the closing of the merger. That forward looking revenue is expected to be over $14 million, so the purchase price would be $21 million.

To appease stockholders, 80% of the equity will be held in escrow subject to performance adjustments at the end of the 12 month term. The anticipated closing date of the deal is no later than March 31, 2016. While Blum Oakland and its shareholders are obligated to close the deal on or before that date, Terra Tech can cancel the merger as late as March 1, 2016 as a result of additional due diligence.

Clearly, Blum Oakland’s shareholders are putting their faith in Terra Tech. After all, the merger payments won’t be made in cash but rather in all Terra Tech stock. And while Terra Tech has the option of cancelling the deal, it’s unlikely that it will.

If Blum Oakland doesn’t hit its revenue projections, Terra Tech will pay less than $21 million. If Blum Oakland has a banner year, Terra Tech will pay more. Either way, Terra Tech wins because this merger isn’t about short term gains. It’s about establishing Terra Tech’s position in the marijuana industry as a market leader. The 1.5x valuation isn’t about profit margins. It’s about revenue growth. There’s a big difference.

In fact, this is something that SaaS startup investors are very familiar with. Even mobile gaming companies are being acquired based on growth, not revenues as evidenced by Activision’s acquisition of King Digital (the maker of that frustrating addiction Candy Crush) at 2.5x forward revenue.

How does the acquisition price compare to other marijuana dispensaries? Cannabiz Media dug into the data in the Cannabiz Database and discovered that the largest marijuana dispensary in Washington has a 12-month trailing revenue of nearly $18 million. If we apply the 1.5x valuation factor to $18 million, we get a valuation of nearly $27 million!

There’s More Going on Here than Meets the Eye

Terra Tech CEO Derek Peterson’s vision is to set up growing facilities in multiple states that will grow herbs and eventually switch those facilities to marijuana as state laws change. In a company press release announcing the merger agreement, he said:

“In addition to enhancing our cash-flow, this merger positions us to capitalize on the new regulatory landscape in California. The new legislation, which more strictly regulates the medical marijuana industry, should both reduce our competition and increase our total addressable market. In addition, the new legislation allows companies to operate on a for-profit basis. Also, California’s pursuit to legalize adult use cannabis is gaining significant traction and support by major stakeholders in the state. This merger with Blum strategically enables us to take advantage of the regulatory changes and to maximize value for Terra Tech stockholders.”

So what does that mean?

In simplest terms, changing laws in California (and in other states in the future) mean that expansion is a significant opportunity for Terra Tech. To expand, you need cash flow. But Terra Tech doesn’t just want to expand. It wants to dominate, and it’s taking steps to do so. Why build from the ground up when you can acquire another company and do it faster and cheaper? Enter Blum Oakland, which has over 42,000 registered patients and services over 1,000 patients per day at its retail store.

Blum Oakland already has a track record of success since it began operations in November 2012 and brings a fully integrated supply chain to Terra Tech, including its retail location, an onsite cultivation facility, and a portfolio of proprietary strains. Investment analysts are calling the acquisition of Blum Oakland a game changer for Terra Tech.

Is this merger a sign of things to come? Some people are speculating that Terra Tech will pursue a franchise model for dispensaries in California and across the country as laws change in additional states. With the acquisition of Blum Oakland, Terra Tech is the first company to manage the entire marijuana supply chain from cultivation all the way to retail sale. A franchise system doesn’t seem like a far-stretch.

In fact, Peterson may have been giving hints as early as 2014 about his franchise aspirations when he told the Orange County Register that he decided to leave his lucrative career as a portfolio manager for Morgan Stanley when he learned that a friend in Northern California was collecting about $18 million per year from his medical marijuana dispensary, which Peterson said was, “the size of a Starbucks.”

Investors Like Growth and Marijuana is No Exception

Big businesses and investors have been taking notice of the growing marijuana economy for some time now, and as social taboos fade away and legalization comes to more states, the marijuana industry will follow the path that most growth-oriented industries follow. It’s highly likely that we’ll see more and more mergers and acquisitions as well as public funding for companies in the marijuana industry.

As with all growth-oriented industries, investors want in, and in time, the idea of a publicly-traded marijuana company won’t seem so strange to us anymore. In fact, we might already be there. What do you think?