📰 MSOs to hire Boies Schiller Flexner to sue Federal Government
📰 MSOs to hire Boies Schiller Flexner to sue Federal Government
IL court order lifted, paving way for 185 new dispensaries. Cannabis CEOs temper enthusiasm around legalization. Curaleaf launches Endless Coast Cannabis-Infused Seltzers in MA.
💬 I’ll be in Chicago for NECANN on Friday, June 10th. I’ll also be hosting a cannabis industry networking event on Thursday, June 9th with friends at Crowe—please fill out the google form if you’d like to attend.
👥 Follow on LinkedIn/Twitter for more real-time updates.
🌿 Industry
Cannabis Companies Team up to sue Federal Government.
There have been various attempts to upend federal prohibition through the court system, but what makes this emerging effort especially notable is that the coalition of MSOs will be represented by the firm Boies Schiller Flexner LLP. David Boies, the Chairman of the firm, has a long list of prior clients that includes the Justice Department, Al Gore and the plaintiffs in a case that led to the invalidation of California’s ban on same-sex marriage, among others. The prominent firm’s willingness to take on the case from the Cannabis industry would be a firm indicator that they see merit to the issue at hand. Abner Kurtin, CEO of Ascend Wellness Holdings, told Marijuana Moment in a phone interview on Friday that this is an “industry-wide effort,” with at least six major cannabis operators “favorably disposed” to joining the suits—one of which would focus on stopping the federal government from impeding intrastate cannabis commerce and another challenging a tax provision known as 280E that blocks the industry from taking tax deductions that are available to any other company. Among the prospective supporters are Curaleaf and TerrAscend, which are “working with me very closely,” Kurtin said.
Illinois judge lifts court order, paving way for 185 new cannabis retail licenses. An Illinois judge has lifted a court order standing in the way of 185 new business licenses being issued for recreational cannabis stores. The August 2021 court order, which kept the state from issuing new adult-use retail licenses, was lifted on Friday, the Chicago Tribune reported. The order had been put in place in response to a lawsuit that challenged the lottery process for those licenses. It also represented an obstacle to some social equity retail applicants seeking to open their businesses. The Illinois Department of Financial and Professional Regulation (IDFPR) plans to hold three “corrective lotteries” in June to “ensure fairness for all applicants and correct any errors in the lottery process,” the department noted in a Friday news release.
Cannabis CEOs “tempered the enthusiasm” around legalization, analyst says. Vivian Azer noted that she’s still seeing “some sluggish fundamentals as well. We can see in our proprietary data scrapes that the COVID comps have been quite tough. There was certainly a lot of stimulus in the United States. There was incremental consumption opportunities during the pandemic, certainly in the first year of it. So, in the first quarter of 2022, we are still lapping some stay-at-home comps from last year.” On resetting expectations around federal legalization — “At this point, it seems like SAFE Banking, which really only provides them access to commercial banking and insurance, is going to be the most likely pathway. So it doesn't provide a meaningful fundamental catalyst. It doesn't eliminate 280E. It certainly doesn't go nearly as far as full legalization. So we're starting to see that, I think, better reflected in the messaging from the companies.”
Cannabis industry takes center stage at Movement Electronic Music Festival. Cannabis-related businesses were highly visible at the international dance music celebration in a sign of growing mainstream acceptance. One, Troy-based JARS Cannabis, is the first cannabis retailer to sponsor the event. JARS has 14 dispensaries in Metro Detroit and four in Arizona. Their space at the Movement Festival included adult coloring under a canopy, temporary tattoos and an "Instagram-able" area designed by artist Kylie Hight. The festival, which had five stages for performers in the past, added a sixth — the Detroit Stage presented by JARS — for this year's event and it featured Detroit-based artists. It also sponsored the festival's official opening party on Friday and the official closing party on Sunday. Other cannabis companies that sponsored include Weedmaps, Breeze Dispensary and Ooze. Sam Fotias, the Movement Festival's director of operations since 2006, said the cannabis companies account for 25% of the event's sponsorships.
SLO County Cannabis Owner Helios Dayspring Sentenced to Prison for Bribery. The founder of a San Luis Obispo cannabis business was sentenced to nearly two years in federal prison Friday after pleading guilty to paying a SLO County supervisor around $32,000 in bribes, according to a news release from the U.S. Department of Justice. Helios Raphael “Bobby” Dayspring, founder and former majority owner of Natural Healing Center, pleaded guilty to bribery and filing a false income tax return in October 2021. According to the plea agreement, Dayspring, 36, admitted to paying late San Luis Obispo County Supervisor Adam Hill $29,000 in unreported cash payments in person with “no one else present.” He also gave Hill cannabis products on multiple occasions free of charge and paid for multiple meals. The DOJ said in the news release that cash payments, money orders and free items totaling nearly $32,000 were given to Hill in exchange for his votes and influence on decisions affecting Dayspring’s cannabis business interests, including voting multiple times in favor of legislation that permitted Dayspring’s farms to operate before it had obtained final permitting approvals.
Santa Barbara County cannabis tax revenue continues declining trend in third quarter. Cannabis tax revenue for Santa Barbara County took a big drop in the third quarter of the 2021-22 fiscal year, even as other tax revenues showed unexpected increases, according to a report from the County Executive Office. Third quarter cannabis tax revenues were $858,000, the lowest amount collected for any quarter so far in the last three years, leading to a projected year-end variance of $7.6M less than the budgeted amount, according to the report delivered May 24 to the Board of Supervisors. Previously, the lowest total cannabis tax revenue was $1.9M collected in the third quarter of the 2019-20 fiscal year, while the highest amount collected was $5.5M in Q4 of the same fiscal year.
Arizona recreational cannabis sales hit record $72M in March. Recreational sales have rebounded after a small lull in January 2022, going up at least $2M/month in February and March, which totaled $72.3M alone. Total sales for both medical and adult-use in March were $121.8M. Recreational sales have been rising consistently since March 2021, when sales hovered around $60M.
Detroit finally awards first recreational license to grower. Detroit finally issued its first recreational marijuana business license – more than two years after the process started. Doghouse Farms, a grow operation on Detroit’s east side, received the license and soon will be selling marijuana on the recreational market, Crain’s Detroit Business reported. The business invested ~$4M in a 25,000-square-foot cultivation facility that it hoped would be able to grow for the adult-use market long before this. Michigan launched recreational marijuana sales in December 2019, but the Detroit City Council didn’t approve its final recreational marijuana ordinance until last month. The process was delayed after a federal court ruled that the municipality’s initial law was “likely unconstitutional” because it favored local residents.
💵 Deals / Partnership
Ayr Wellness — Closes Acquisition of Herbal Remedies Dispensaries, LLC. Herbal Remedies operates two licensed retail dispensaries in Quincy, Illinois. According to the July 20, 2021 press release, the transaction include consideration of $30M ($10M stock, $12M seller notes and $8M cash). Based on projections at the time, Ayr Wellness estimates it is paying ~5x Herbal Remedies’ 2021 EBITDA.
Schwazze — Closed transaction to acquire Urban Health & Wellness. The transaction includes the adult use Urban Dispensary, located at West 38th Avenue and Clay Street, in Denver's vibrant Highlands neighborhood as well as a 7,200 square foot indoor cultivation facility (2,700 square feet of canopy) located in Denver, Colorado. This purchase continues Schwazze's aggressive expansion in Colorado and brings the Company's total number of Colorado dispensaries to 23 and grow facilities to four. The consideration for the acquisition was $3.2M ($1.3M cash, $1.9M stock).
Aurora Cannabis — $172.5M Bought Deal Financing, Upsized from $150M and $125M. Underwriters have agreed to buy on bought deal basis 70.4M units of the Company at $2.45/Unit for gross proceeds of ~$125.2M. Each Unit will be comprised of one common share of the Company and one common share purchase warrant of the Company, exercisable to acquire one common share of the Company for a period of 36 months following the closing date of the Offering at an exercise price of $3.20 per Warrant Share. As a result of the capital raised from this Offering, the Company now anticipates no further use of the previously announced at-the-market (ATM) facility in the near term, of which $186M remains outstanding.
Verano x The Weldon Project’s Mission Green — Advance the Organization’s Cannabis Clemency and Advocacy Initiatives. Partnership represents Verano’s largest national fundraising campaign to date supporting cannabis criminal justice reform. In addition to its initial $50,000 contribution to Mission Green, beginning June 3, 2022, Verano will match up to $13,000 in customer and patient-generated donations on the first Friday of each month. Fundraising campaign spans Company’s nearly 100 dispensaries across 13 states in honor of the 13 years that Weldon Angelos, founder of The Weldon Project and Mission Green, served in prison for cannabis-related charges.
📄 Company Updates / Earnings
Majority of MSOs Reported Negative Sequential Growth but Strong Y/Y Growth Remains.
Ayr Wellness — Q1 2022 Results
Revenue of $111.2M, up 90% YoY
Adjusted EBITDA of $19.5M, up 6% YoY
Operating Loss of ($21.1M) and ($8.4M) for Q1 2022 and Q1 2021, Respectively
Cash of $78.7M
Guidance—continues to anticipate annualized run-rate of $250M of Adjusted EBITDA, $100M of operating income and $800M of revenue for Q4 2022
Harborside — Q1 2022 Results
Y/Y Net Revenues increased 38.8% to $17.2M, including one month contribution from Urbn Leaf and no contribution from Loudpack
Management anticipates that cost savings measures from the acquisitions of Sublime, Urbn Leaf, Loudpack will generate ~$10.3M of annualized cost savings
SLANG Worldwide — Q1 2022 Results
Revenue of $8.4M, compared to Q1 2021 revenue of $9.1M
Gross profit of $3.7M (44% GM), compared with $3.9M (43% GM) in Q1 2021
EBITDA of ($2.4M), compared with ($4.0M) in Q1 2021
$16.6M in cash and restricted cash on March 31, 2022
Canopy Growth — Q4 and FY2022 Results
Net revenue of $112M in Q4 FY2022 declined 25% vs, Q4 FY2021. Total global cannabis net revenue of $66M in Q4 FY2022, represented a decline of 35% over Q4 FY2021. Other consumer products revenue of $46M in Q4 FY2022, represented a decline of 3% over Q4 FY2021. Excluding the impact from acquired businesses and divestiture of C3, net revenue declined 26% and global cannabis net revenue declined 38% versus Q4 FY2021
Net revenue of $520M in FY2022 declined 5% versus FY2021. Total global cannabis net revenue of $337M in FY2022, represented a decline of 11% over FY2021. Other consumer products revenue of $183M in FY2022, represented an increase of 9% over FY2021. Excluding the impact from acquired businesses and divestiture of C3, net revenue declined 9% and global cannabis net revenue declined 19% vs. FY2021
Adjusted EBITDA loss in Q4 FY2022 was ($122M), a $28M increase in Adjusted EBITDA loss vs. Q4 FY2021 primarily driven by lower sales and a decline in gross margins, partially offset by the reduction in SG&A expenses
Adjusted EBITDA loss in FY2022 was ($415M), a $75M increase in Adjusted EBITDA loss versus FY2021, driven primarily driven by lower sales and a decline in gross margins, partially offset by the reduction in SG&A expenses
Cash and Short-term investments amounted to $1.4B at March 31, 2022, representing a decrease of $900M from $2.3B at March 31, 2021
🏬 Retail / Cultivation
Verano — Zen Leaf North Phoenix (flagship AZ location) Opened on Memorial Day Weekend. Zen Leaf North Phoenix relocated to its new, much larger home on a busy commercial stretch situated between numerous area shopping malls and businesses. While guests can expect the same customer-centric hospitality when visiting the new Zen Leaf North Phoenix location, they will be greeted by enhanced amenities including a larger store space, additional registers and more customer parking.
Verano — Opening of Zen Leaf Westover, the Company’s Second West Virginia Dispensary and 99th Location Nationwide. Zen Leaf Westover is located in Monongalia County, the third largest county in West Virginia, with a population of over 106,0002. The dispensary is conveniently located just over one mile from the Morgantown Mall and two miles from West Virginia University, which has a population of nearly 26,000 students.
AUDACIOUS — Commences Construction in New York. AUDACIOUS announced that the Company and its partner, First Americans LLC, have commenced with the construction of its New York cultivation, manufacturing and retail project located on the Saint Regis Mohawk territory. While the project eventually will see the construction of an ACHIEVE12 facility, to expedite having product on shelves, the companies have commenced with the construction of a low cost, customized growing system, utilizing top class auto-flower genetics, selected for their THC potency, high yields, quality and market appeal. The cultivation system employed by the partnership will benefit from technology measures to mitigate the effects of inclement weather while at the same time benefiting from full sun and utilizing the latest in crop management techniques. All materials have been ordered, the irrigation is expected to be delivered shortly and growing activities are anticipated to commence late June/early July 2022 with first harvest commencing in September.
Maui’s fifth medical cannabis retail dispensary opens. The Hawai‘i State Department of Health issued a formal notice that authorized Pono Life Maui to open its second medical cannabis retail dispensary on Maui. This will be Maui’s fifth retail dispensary and the 20th retail dispensary for the state. As of April 30, 2022, a total of 34,047 in-state patients and 2,765 caregivers were registered statewide, including 6,480 patients and 581 caregivers on Maui.
🌱 Product
Curaleaf — Introduces Endless Coast Cannabis-Infused Seltzers in Massachusetts.
Endless Coast delivers balanced cannabinoid ratios in four refreshing botanical flavors featuring naturally-derived fruit extracts and essences. Each seltzer utilizes finely-tuned nanotechnology to accelerate the onset of calming effects and match the speed of your typical social beverage. By turning cannabis oil into tiny water-soluble molecules, the THC compounds are more efficiently absorbed into the bloodstream with effects felt in as little as 15-30 minutes. Endless Coast is available in four micro-dosed options to provide consumers with a consistent and controlled experience:
Lemon Ginger: 2.5mg THC; lemon and ginger extracts
Orange Mango Jalapeño: 5mg THC; orange mango jalapeño extracts
Lime: 5mg THC; lime essence
Grapefruit & Botanicals: 2.5mg THC & 2.5mg CBD; grapefruit and botanical extracts
🧔 People
Glass House Brands — Departure of Daryl Kato, COO. His responsibilities will be assumed by Hilal Tabsh, CRO, effective immediately.
Akerna — Cuts 59 employees as part of Corporate Restructuring. The financial restructuring plan includes reducing its workforce by 59 employees, or a third, and cutting operating costs by $440,000 in Q2. The company incurred an operating loss of ($20.6M) for Q1 2022 and ended the quarter with a working capital deficit of ($15.1M).
🎙️ Interviews
Q&A with Highlands Venture Partners, Highlands Venture Partners, Entourage Effect Capital and Poseidon Investment Management (TechCrunch)
Events Recap, NJ sales crushes in its first month, RI is #19, and DE is the lamest state right now (High Rise)
Humo's Susie Plascencia on Cannabis in the Latino Community (Muse by Clio)
Legal And Illicit Weed And The Economics Of Cannabis (Cannabis Investing Podcast)
Treez Is on a Mission to Support Cannabis Retailer Profitability (NCV)
👋 Highly Objective is curated by Dai Truong, who leads Cannabis Investment Banking at Arlington Capital Advisors. 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.