🗣️ Ayr Wellness Rumored to buy Cultivauna (LEVIA) for up to $60M ($20M upfront)

Cresco Labs Closes New $200M, 9.5% Senior Secured Credit Facility with Existing Lenders. Cresco Labs ($210M Q2 Revenue), Goodness Growth ($14.2M Q2 Revenue).

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🌿Industry

Cannabis CEOs signal confidence on banking law reform. This week, Trulieve CEO Kim Rivers and Curaleaf Executive Chair Boris Jordan both wagered on Yahoo Finance Live that the nation's onerous banking restrictions on cannabis companies could finally be lifted as soon as early next year. "I think they are first going to vote in the fourth quarter [of 2021] on a more comprehensive bill. I don't think it will get through," he said Wednesday, pointing to a high hurdle of attracting the 10 Republican votes needed to clear a 60-vote threshold in the Senate. "I do think, though, we've got the votes in the Republican party to get SAFE Banking through." Rivers, the CEO of Florida-based cannabis giant Trulieve, also reiterated her belief that the SAFE Banking Act is likely the first federal reform that will make it across the finish line and echoed Jordan's timeline of next year. "I'm there on SAFE Banking for Q1 2022," she said Thursday on Yahoo Finance Live. "The votes are there now, it just has to get brought to the floor."

John Thomas Burnette, husband of Trulieve CEO, Convicted Of Five Counts. A federal jury in Tallahassee has convicted John Thomas Burnette, 44, of Tallahassee, Florida of one count of Extortion Under Color of Official Right, two counts of Honest Services Fraud by Bribery, one count of Use of Interstate Commerce Facilities to Promote Bribery, and one count of Making False Statements to a Federal Officer. The guilty verdict was returned August 13, 2021, at the conclusion of a fifteen-day trial. Burnette’s sentencing hearing is scheduled for October 28, 2021, at the United States Courthouse in Tallahassee. Burnette faces maximum penalties of 20 years in prison for Counts Two, Five, and Six (the Extortion and Honest Services Fraud offenses) and 5 years for Counts Eight and Nine (the Use of Interstate Facilities to Promote Bribery and Making False Statements to a Federal Officer offenses).

Four things to watch in the cannabis market amid earnings season, possible legislation. Things are heating up in the cannabis space. The group’s earnings season has shown promising signs for some of the largest Canadian and U.S. cultivators, with many quickly growing and looking ahead to increasingly favorable legislative backdrops. Here are four things investors should be watching in this hot market, according to Tim Seymour, founder and chief investment officer of Seymour Asset Management and portfolio manager of the Amplify Seymour Cannabis ETF (CNBS). 1. Profitability, 2. M&A, 3. Technicals, 4. Macro.

Lessons From California - Brands In Cannabis, Part II (Bengal Capital). Building brand affinity among consumers who are new to a product is extraordinarily difficult when they have nothing in their internal database to compare it to. Oftentimes, even if the interaction with the product was delightful, it emboldens the customer to try other types in order to experience more of that category. Eventually, they may come back around to the first brand that they enjoyed but it's often a long and circuitous path. Bengal Capital sees this trend when looking at flower sales. The top-selling cannabis brands in California in 2019 were Flow Kana and Candescent, two brands that pride themselves on consumer education and also increasing transparency and accessibility in the cannabis space. Both of these values are incredibly important, but it looks like after consumers were introduced to legal cannabis by these brands they quickly started experimenting, oftentimes landing on bulk brands such as Pacific Stone or with higher-end, premium brands such as Cannabiotix—which went from last in our cohort in 2020 to be on a run rate to being the #1 selling flower brand in California. (Disclaimer: granular retail sales data is not always accurate, but can generally show trends well)


💵Deals

Ayr Wellness — Rumored to buy Cultivauna, a maker of cannabis-infused seltzers and water-soluble tinctures. The purchase would be for 100% of the equity interests in Cultivauna, including $10 million in cash and another $10 million in stock up front, with up to another $40 million if certain revenue targets are met, the source said. Cultivauna owns the leading beverage brand, LEVIA, in MA.

Cresco Labs — Closes New $200M, 9.5% Senior Secured Credit Facility with Existing Lenders. The agreement with lenders upsizes its senior secured term loan (Senior Loan) to an aggregate principal amount of $400 million. The Senior Loan bears interest at a reduced rate of 9.5% per annum, with a maturity date of August 12, 2026. The Company intends to use the proceeds from the Senior Loan to retire its existing $200 million credit facility, fund capital expenditures, and pursue other targeted growth initiatives within the U.S. cannabis sector. The Senior Loan does not include any equity or convertible components and the total facility amount is being provided by a syndicate of five existing, institutional lenders.

Harvest — Acquires Purchase Option For Arizona License And Enters Management Services Agreement. The company has acquired an option to purchase all of the membership interests in an entity that owns an Arizona Adult Use Marijuana Program Establishment License. A subsidiary of Harvest has entered into a management services agreement that allows for the development and establishment of a dispensary for adult use. Harvest operates sixteen dispensaries in Arizona and can expand to 20 locations with existing licenses and agreements. Harvest dispensaries in Arizona are located in Avondale, Casa Grande, Chandler, Cottonwood, Glendale, Guadalupe, Lake Havasu City, Mesa (two locations), Peoria, Phoenix (two locations), and Scottsdale.

HEXO — Transfers U.S. stock exchange listing to Nasdaq. The company has applied to transfer its U.S. stock exchange listing from the New York Stock Exchange to the Nasdaq. While this transfer remains subject to the approval of the Nasdaq, the Company expects the transfer to occur effective August 23, 2021 after market close. “Transferring our U.S. listing to Nasdaq allows us to generate shareholder value through greater cost savings on our path towards profitability, while joining our peers on a leading global exchange,” said HEXO CEO and co-founder Sebastien St-Louis.


📄Company Updates / Earnings

Cresco Labs — Second Quarter 2021 Financial Results

  • Revenue: $210.0 million, an increase of 17.7% Q/Q and 122.8% Y/Y

  • Gross profit excluding fair value markup for acquired inventory of $107.0 million, or 51.0% of revenue, an increase of 22.2% Q/Q and 233.3% Y/Y

  • Net Income: $2.7 million, an increase of $26.8 million Q/Q and $44.4 million Y/Y

  • Adjusted EBITDA: $45.5 million, an increase of 30.1% Q/Q

  • Record net wholesale revenue of $108.7 million, an increase of 13.7% Q/Q and 97.9% Y/Y

  • Record retail revenue of $101.3 million from 33 stores, an increase of 22.3% Q/Q and 157.6% Y/Y

  • Outlook: The Company reaffirms the previously provided guidance of —

    • Annualized revenue run-rate of $1 billion by the end of 2021

    • Gross profit margins in excess of 50% in the remaining two quarters of 2021

    • Adjusted EBITDA margin run-rate of at least 30% by the end of 2021

Goodness Growth Holdings — Second Quarter 2021 Financial Results

  • Total revenue of $14.2 million, up 16.5% Y/Y. Excluding results from the Company's former subsidiaries in Pennsylvania, revenue increased 44.5% Y/Y

  • Gross profit increased by $3.3 million to $6.9 million, or 48.6% of sales as compared to $3.6 million, or 29.4% of sales in Q2 2020

  • During the quarter, the Company completed the planned expansion of its cultivation and processing facility in New Mexico, which is now fully operational. The Company now has four operating dispensaries and 13,000 sq. ft. of cultivation capacity in the New Mexico market, which is expected to transition to adult-use sales in Spring 2022, pending development of operating regulations

  • During the quarter, the Company announced the launch of its ground medical cannabis flower products in the state of New York. The ground flower line is being sold in 3.5-gram and 7-gram jars and will be expanded to feature indica, sativa, and hybrid strains such as Killer Kush, Wedding Cake, and a Kosher-approved Tangie Kush. These products will be available at all four of the Company's dispensaries in New York and via home delivery.

Flora Growth — Eyeing Bonanza after Colombian President Changes Cannabis Law. Near-perfect growing conditions, skilled labor and friendly regulations have underscored Colombia’s emergence in the legal cannabis space since the country first allowed the production of medical cannabis just over five years ago. However, until now, dried cannabis flower, or buds, could only be processed for export as a medicinal oil or extract for fear that flowers would find their way to the black market. The new law puts Colombia “at the forefront in terms of regulatory competitiveness,” according to President Duque, adding that his country will now participate in new markets, including food, beverages, cosmetics, and textiles, in addition to pharmaceuticals. These circumstances may play right into the hands of Flora Growth, which is focused on cannabis cultivation and processing operations in Colombia to supply international markets. The new decree could prove to be a bonanza for established licensed producers, especially when considering the extremely low production costs and that dried cannabis flower represents the majority of sales in countries with mature markets, such as the United States, Germany, United Kingdom, and Australia.


🏬Retail

Trulieve — Opens Dispensary in Leesburg, Florida. This is the company’s 88th Florida dispensary in Leesburg, Florida, the Company's 97th location nationwide.

Verano — Opens 36th Florida dispensary in downtown Tampa Bay. This is the Company’s 84th overall location. Later this month, Verano plans to open MÜV Orange City, its 37th Florida storefront.

Gage Cannabis — Will Open Its 10th Retail Location in Burton, Michigan. The location is a few miles from Flint. The 4,600+ square-foot location is expected to create 20+ new jobs in Burton. As a part of Gage's commitment to provide Michigan's best cannabis, the new provisioning center will carry Gage's entire selection of products, as well as award-winning Cookies branded offerings that are exclusively available at Gage locations.

The Parent Company — Opens DELI by Caliva in Hanford, it’s fifth dispensary. The new store will service the Central Valley in conjunction with the brand's existing operational delivery hub.


🧔People | 💻Hiring

Goodness Growth — Appoints Josh Rosen to Board of Directors. Josh Rosen is Managing Partner at Bengal Capital, and former CEO and Chairman of 4Front Ventures. At 4Front, Josh helped lead the transformation of a pioneering industry consulting firm into an operations-focused, MSO, notably including the acquisition of Cannex Capital in 2019. Prior to 4Front, Josh gained PE experience managing the investment portfolio for a large family office and worked extensively in the public markets as an equity analyst, primarily at Credit Suisse.

GTI — SVP, Marketing joins from Gaia Herbs. Ryan Marek joins GTI after 18 months at Gaia Herbs as the company’s VP Marketing and eCommerce. He previously spent 5.5 years at MillerCoors, 2 years at Unilever and 5.5 year at Alberto Culver (Cosmetics).

Surfside — Director Of Sales And Business Development (NYC). Surfside is looking for someone to help lead advertising sales efforts on the East Coast. This person will consultatively work with brands, retailers and agencies, by building and executing advertising campaigns to further develop and grow Surfside's presence. This role relies on cross functional success with product, account management and creative services teams, ensuring client partner success on the Surfside platform.

COVA Software — Director of Strategic Programs (Denver). The Strategic Programs team builds and manages a North American partner ecosystem including Payment partners, Strategic Eco-system partners and Integrated partners. Work to establish product, commercial, and strategic partnerships that help Cova and its partners grow revenues.


🎙️Interviews

Cannabis Packaged Goods Meredith Mahoney, President at Lantern. Learn about the origins of Lantern, how it operates across several US legal cannabis markets, and its unique contributions to social equity.

Trulieve CEO on CNBC Fast Money

Benzinga Cannabis Hour — Talking Cannabis w/ Koach Capital & Union Electric


👋 Highly Objective is curated by Dai Truong. Third-party information presented here and links to third-party content are for informational purposes only and are not intended as a recommendation, offer or solicitation for the purchase or sale of any financial instrument, security or investment.  The information provided is not warranted as to completeness or accuracy and is subject to change without notice. Linking to third-party sites in no way implies an endorsement or affiliation of any kind between Arlington Capital Advisors, LLC, or its affiliates and any third party.  The information in this blog constitutes my own opinions (and any opinions posted by guest bloggers from time to time) and it should not be regarded as a description of services provided by Arlington Capital Advisors, LLC or any affiliate.