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🏦 JPMorgan Restrict Trading of Some U.S. Cannabis Stocks
Glass House Brands files suit against Element 7. Support for Legalization holds at 68%. Goodness Growth divests Phoenix dispensary to Copperstate Farms for $15M Cash. Canopy Growth Q2FY'22 Results.
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JPMorgan to restrict trading of some U.S. cannabis stocks. JPMorgan has told prime brokerage clients it will no longer let them buy certain U.S. cannabis-related securities beginning Nov. 8, according to a letter seen by Reuters. The move follows similar actions by other banks, including Credit Suisse, after the high-profile collapse of private fund Archegos Capital this year left several banks nursing losses. The saga drew regulatory scrutiny and prompted banks across Wall Street to review how much risk they are prepared to take on in their prime brokerage businesses. While many states have legalized the medical or recreational use of cannabis, the substance remains illegal under U.S. federal law, making it risky for banks to deal with cannabis-related businesses.
Support for Legal Marijuana Holds at Record High of 68%. Substantive differences are seen, however, by political party and religion. While most Democrats (83%) and political independents (71%) support legalization, Republicans are nearly evenly split on the question (50% in favor; 49% opposed). Weekly and semiregular attendees of religious services are split on the issue as well, while those who attend infrequently or never are broadly supportive of legalizing marijuana.
Investors sour on cannabis after Democrats fail to help industry. Just a note this story was likely written before Friday’s rally, but points should still hold. Stock prices have plummeted roughly 45% since mid-February, according to the AdvisorShares Pure U.S. Cannabis ETF, a popular gauge of the sector. Over the same time period, the broader S&P 500 is up about 20%. One big reason for the financial doldrums is that Congress and the Biden administration have done nothing to ease marijuana restrictions, despite Democrats being in complete control of the federal government. It all adds up to a remarkable reversal from the start of the year, when optimism soared in the cannabis industry after Democrats won control of the Senate. Investors flooded into the industry. Cannabis behemoths raised billions in capital to bankroll expansion plans. Stock prices soared. But Democrats haven’t passed any legislation in the ensuing 10 months — and the prospects for that changing anytime soon look remote. The biggest immediate ask from industry is to pass legislation that would make it easier for cannabis companies to access banking services and raise capital.
Minority Cannabis Owners say SAFE Should Pass Even Without Social Justice Provisions. Senator Cory Booker’s SAFE Banking with a restorative justice provisions has unintended consequences that may also harm minority Cannabis business owners. But the absence of SAFE Banking is hindering another restorative justice provision — ensuring that people of color get a chance to own their own cannabis businesses. “It also has posed a great barrier to entry for minority and entrepreneurs, who are faced with the inability to access basic financial services and the opportunity to grow their businesses that would come through basic bank loans,” said Steve Hawkins, chief executive of the U.S. Cannabis Council. “We’re finding that smaller operators, operators of color, who would be dependent more on banking services as small business operators, are being denied and falling behind,” Hawkins said.
Theory Wellness Wins Two of Three Kittery, ME Licenses Through Increased Odds in Lottery. Out of the 736 ping pong balls in the lottery, close to half were bought and paid for by Theory Wellness. Brandon Pollock and Nick Friedman, who purchased hundreds of lottery entries at a cost of about a quarter million dollars, are listed as co-founders of Theory Wellness, which operates many marijuana businesses in Massachusetts and Maine. All three winners get first dibs for Kittery’s three coveted retail marijuana licenses, though their proposals must gain approval from the town. The remaining entries are placed on a waiting list by the order in which they were drawn in the lottery. Pollock and Friedman admitted publicly to spending over $250,000 on applications, basically creating hundreds of S corporations in Maine, submitting over 350 of the 736 applications, and making sure the lottery, depending on the commercial zone, was skewed in their favor.
California legalized Cannabis five years ago. Why is the illicit market still thriving? In the places that do allow dispensaries and grows, business owners say high taxes, the limited availability of licenses, and expensive regulatory costs have put the legal market out of reach. And many of the Black and brown entrepreneurs who were supposed to benefit from legalization have actually ended up losing money. Meanwhile, consumers remain confused about what’s legal and what’s not. For now, the only way legal, state-licensed businesses say they are able to stay profitable is to keep one foot in the illegal, unlicensed market – often called the “legacy” or “traditional” market. “You have to go into the traditional market to stay afloat,” explains the cannabis consultant Ophelia Chong. “Considering California is the home of cannabis, we messed it up in so many ways.”
Cannabis Markets Keep Growing Up. Global legal cannabis sales reached ~$21.6B in 2020, an increase of 50% over 2019 sales of $14.4B, due largely to legalization. BDSA forecasts global cannabis sales will continue to grow quickly, to $62.1B in 2026, more than double the 2021 estimated global sales of $30.6B, at a compound annual growth rate (CAGR) of more than 15%. Through dispensaries alone, cannabis sales in the United States reached $18.0B in 2020, and are forecasted to reach $24.9B in 2021. BDSA expects U.S. sales to reach $47.6B in 2026, the result of a CAGR of 13.8%, with growth coming from both the opening of new markets and the expansion of existing ones
Price Matters. In both the United States and Canada, consumers consistently indicate price is a key factor in decisions about what cannabis product to buy
Consumers Will Pay More for Worthy Products. Discerning consumers will pay a premium for superior products and/or benefits
Brands Don't Yet Command Premium Pricing. In the US market, consumers do not name "reputation of a brand" as a top-10 influencer for purchasing
The Laws of Economics Are Still the Laws of Economics. The cost of goods is a key driver of wholesale pricing and differs significantly by market
Goodness Growth Holdings — Divests Phoenix, Arizona Dispensary License to Copperstate Farms for $15M Cash.
Vireo Health of Arizona, has reached a definitive agreement with Copperstate to sell its dispensary license, all remaining inventory and equipment at its Phoenix dispensary, the Phoenix dispensary property lease and all revenue producing contracts in an all-cash transaction valued at $15.0M. The transaction also includes related cultivation licenses for both medical and adult-use, only one of which is currently operational at the Company's 18-acre outdoor farm in Amado, AZ.
Casa Verde — Invests $3.5M In European Cannabis Co. Sanity Group. The round was presented as a follow-on investment to the company’s $45M Series A round announced in June. Sanity Group continues in its enviable position as the most capitalized European cannabis startup, with a total of $76.5M raised to date.
Ayr Wellness — Proposed Private Offering of Senior Secured Notes. The company announced a proposed private offering of up to $150M of its 12.5% Senior Secured Notes. The Notes will be treated as "Additional Notes" under the indenture governing the Company’s existing 4-year 12.5% Notes due on December 10, 2024 and as a single series with the existing notes under such indenture.
Power REIT — Increases Funding to Marengo Cannabis for $4.1M. Including the additional funding, Power REIT’s total capital commitment is ~$25.6M for the purchase and improvement of 556,146 square feet of greenhouse and processing space. The 20 year “triple-net” lease is structured to provide straight-line annual rent of approximately $5,100,000, which represents an unleveraged core FFO yield of approximately 20% on Power REIT’s invested capital.
Flora Growth — Signs Definitive Agreement to Acquire Vessel Brand. Upon the closing of the transaction, Flora will acquire Vessel for aggregate consideration of $30M, consisting of $8.0M cash and 4,557,318 privately issued Flora common shares.
Halo Collective — Acquires Simply Sweet Gummy. Simply Sweet, which holds assets and formulations (including $1M cash), has agreed to be acquired by Halo for 2,700,000 common shares. Simply Sweet has no long term debt obligations.
📄Company Updates / Earnings
Canopy Growth — Q2 Fiscal 2022 Financial Results
Net revenue of $131 million down 3% versus Q2 FY2021
Total net cannabis revenue of $95 million up 1% over Q2 FY2021
Excluding the impact from acquired businesses, net revenue declined 13% and cannabis revenue declined 14% versus Q2 FY2021
Adjusted EBITDA loss was $163 million, a $77 million wider loss versus Q2 FY2021 driven by lower sales, a decline in gross margins, partially offset by the reduction in total SG&A. Adjusted EBITDA loss, excluding non-cash inventory write-downs would have been a loss of $76 million
Free Cash Flow was an outflow of $101 million, a 47% decrease vs Q2 FY2021
Cash and Short-term Investments amounted to $2.0 billion at September 30, 2021, representing a decrease of $0.3 billion from $2.3 billion at March 31, 2021 reflecting EBITDA losses and capital investments
Shuts down Niagara facility, lay off 30 to cut costs
Greenlane — Reports Preliminary Q3 2021 Financial Results
Net sales of between $40M—$41M
GAAP Gross margin of ~(2)% to 0%
Adjusted Gross margin of ~19% to 21%
Total cash balance of ~$13 million
Glass House Brands — Files Suit Against Element 7 to Enforce Transfer of Contractually Committed Licenses. This is in regards to the Merger Agreement entered into between GH Group and E7 LLC dated as of February 23, 2021. In addition, GH Group has also given notice to E7 LLC that it is terminating the License Development Consulting Agreement between the parties dated as of February 23, 2021, for cause. To date, E7 LLC has fully transferred three retail licenses located in Dunsmuir, Hesperia, and Eureka, California out of a total of seventeen licenses that were contractually committed to be transferred under the terms of the Merger Agreement. The Company expects to prevail in the suit and to be able to enforce the transfer of the remaining fourteen retail licenses.
Harborside — Change of Auditor. The Company's board of directors have accepted the resignation of MNP LLP as the auditor of the Company effective October 26, 2021 and approved the appointment of Armanino LLP as successor auditor effective October 27, 2021.
Red White & Bloom — Enters Phase 2 Florida Expansion: Installation of 30 Grow Pods. The plan is ahead of schedule with this week’s delivery of 30 modular grow pods to Red White & Bloom Florida LLC, a Red White & Bloom Brands subsidiary, at its Apopka, Florida cultivation location. Phase 2 started with the commissioning and OMMU approval of five pods that subsequently have been loaded and are growing plants. RWBFL is fast tracking the remaining 25 pods and expects to have them operational no later than December 1st. The pods provide an additional 19,200 sq. ft. of indoor cultivation space that will produce high quality flower.
🏬Retail / Delivery / Distribution
Verano — Zen Leaf™ St. Charles, IL Dispensary. The first dispensary in Illinois to receive approval and relocate, Zen Leaf St. Charles moved from its former location in a nearby business park to a prime retail space that offers improved visibility with an expanded footprint and additional parking capacity. The combined medical and adult-use dispensary is now located on the high-traffic retail corridor of Main Street in St. Charles, which saw average daily traffic of nearly 33,0001 cars in pre-pandemic 2019. Zen Leaf St. Charles, operational since 2015, is one of Illinois’ original 55 dispensaries and among the state’s highest volume storefronts relative to patient count.
Unrivaled Brands — Launch of SilverStreak Bay Area Distribution Hub / Exclusive Distribution Agreement with Life Cannabis Co. Unrivaled has rebranded its existing San Leandro dispensary, formerly known as Blüm, to SilverStreak and combined the existing infrastructure with technology enhancements and the SilverStreak delivery platform. Life flower is sustainably grown in a full spectrum indoor facility using earth conscious methods to produce high quality product using only organic soils. To reduce water and energy consumption, Life uses water recirculation systems and high efficiency equipment at its state-of-the-art facility.
Catalyst — Opens its 8th store in El Monte, CA. Four of his stores are in the greater Long Beach area. Others are in Santa Ana, Los Angeles and Bellflower.
LA Weekly — The Best Cannabis Strains and Products of 2021.
STIIIZY — Sour Gummy Nano-Enhanced Triangles.
The new line include fast-acting Nanomolecular-Enhanced Live Resin. Each contain 90 mg of THC — three 30mg triangles, each segmented into three 10mg doses.
How Jeeter Became America’s Best-Selling Preroll Brand. 2 million Jeeters are smoked in a month in California. The brand Jeeter is beloved in the largest legal cannabis market in the country. So beloved, in fact, that it’s the only cannabis preroll brand that has become its own name. People don’t call these prerolls—they call them Jeeters.
A Golden State — Utilizing Their Platform to Uplift Communities in Need.
Canopy Growth — Deep Space Brand Offers 10mg THC-infused Beverage and 10mg THC-infused Deep Space XPRESS Gummies. Limon Splashdown, a lemon-lime flavour that extends the existing 10mg THC-infused beverage offering, and Deep Space XPRESS, the company's first single 10mg THC gummy offering in Canada.
Truss Beverages — Bedfellows Liquid Arts Collaboration with Two Roots. The cannabis profiles of the new beverages are: Haus Mates (35.5cl) – 7.5mg THC, 2.5mg CBD and Indie Pals (35.5cl) – 10mg THC, 2mg CBD.
🧔People | 💻Hiring
Verano — Welcomes Destiny Thompson as Chief People Officer. She was previously Chief Human Resources Officer at Stout, a private investment bank and advisory firm. Throughout her career, Thompson has held a wide variety of senior Human Resources and Human Capital roles in large companies, including Huron Consulting, Navigant Consulting and Tellabs.
Glass House Brands — Appoints John Brebeck as VP Investor Relations. Previously he was Senior Advisor at Quantum International Corporation. He was also previously the Head of Research at Yuanta Securities, the No. 1 Broker in Taiwan. He also was the Head of Research for the Dalton Greater China Fund and continues to serve as an External Director to the Fund. During the early years of Taiwan's rise to become an IT manufacturing powerhouse, Brebeck was Head of Research & Senior Technology Analyst at JP Morgan Securities in Taiwan, and a key member of JP Morgan's top-ranked Asia Ex-Japan Technology Research Team.
Texas Original Compassionate Cultivation (TXOG) — Hires Aaron Trahan as Head of Customer Operations. Trahan brings nearly 20 years of retail marketing, merchandising and demand generation experience to the TXOG team. After 14 years at Conn’s HomePlus serving in multiple retail leadership roles, Trahan joins TXOG from Headset, where he served as the VP of Strategic Development.
Fyllo — Hires Three New Additions To Senior Team. Robert Hucik as EVP Engineering, Dawn Hartman as VP Sales and Regulatory Databases and Rachel De La Montanya as Regional VP (West) of Media.
Curaleaf — Senior Strategy Analyst (LA)
Jane Technologies — Social Media Manager (remote)
Cannabis Stocks Rally into the Close.
JP Morgan Announcement Sent U.S. Cannabis Shares Down
Brett Heyman on Merging Fashion and Cannabis for Edie Parker (Muse by Clio)
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