🏪 SNDL acquires The Valens Company
Dutchie POS. Meadow expands to MI. Aurora Cannabis acquires Controlling Interest in Bevo Farms. MedMen completes sale of Florida Assets to Green Sentry. TerrAscend closes acquisition of Pinnacle (MI).
👥 Given the buzz around AWH’s decision to no longer pursue MedMen NY’s License, I asked Abner Kurtin (CEO) for additional color:
"AWH is focused on going deep in the states in which we operate. In the northeast, we are focused on New Jersey, Ohio, Pennsylvania and Maryland. We see significant continued upside in New Jersey. Our Fort Lee store opened for medical sales on August 12th and we expect to commence adult-use sales at this location sometime in the fall. We launched adult-use sales at our Montclair store last Friday and are working to significantly expand our NJ canopy by year end.”
“Current New York conditions—including uncertainty of when adult-use sales may begin, an unclear licensing process, and the lack of policing of the illicit market – make this market a lower priority for AWH. However, AWH will continue to monitor the market closely and consider opportunities to enter the state via acquisitions that are significantly accretive."
U.S. cannabis sales through July were a mixed bag across the country, as consumers adjusted to historic inflation and shrinking disposable income, according to an analysis of state sales data by MJBizDaily. Newer recreational and medical markets posted the kind of double-digit growth expected from emerging cannabis markets. Markets experiencing growth through the first seven months of this year include: Missouri (medical): 174%. Maine (recreational): 159%. Utah (medical): 87%. Arizona (recreational sales through May): 64%. Iowa (medical): 63%. Michigan (recreational): 57%. Illinois (recreational): 20%. By contrast, more mature adult-use markets in California, Colorado and Oregon contracted, some declining 20% or more compared to the first six months of 2021.
The casualties of California legalizing pot: Growers who went legal. The Wild Cat Road skips along a ridge line, a narrow half-paved, half washed-out track that once carried much of the world’s finest marijuana to market. Even in mists that obscured its treacherous course as it bows toward the Pacific, the road hummed in tune with the family weed farms around it. Now there is little cannabis to carry, nor “trimmigrants” who traveled here to the Mattole River Valley to pick the flower that made Humboldt County shorthand for the best marijuana around. “I’m not making it,” said Drew Barber, 48, who has grown cannabis here for more than 15 years, watching the price for his product shrink from $1,200 a pound to about a third of that today. “I can’t lose money from one year to the next, and it’s getting to be that time when I have to decide if I can go on.” The irony, bitter and true, is shared on the front porches of hillside homesteads across this valley where the King Range mountains and the San Andreas Fault meet the sea. The once-mystical heart of the nation’s marijuana industry is dying, fast, strangled not by law enforcement but by the high taxes and baffling regulation that have crushed small farmers since state voters approved legalization almost six years ago.
More than a century ago, Beak & Skiff opened as an orchard in central New York, and over the years, the farm has reinvented its products, adding hard cider to the menu and now cannabis. The family-run farm has been growing hemp to make CBD products, including balms, vapes, tinctures and beverages, for the past few years. As of last week, they’re now allowed to grow, harvest, dry, process, and manufacture cannabis products after being awarded one of the first cannabis processing licenses from the state. The cannabis wing runs as a separate entity called Gen V Labs. They hope to add products with THC by the end of the year. They’ll also add a THC beverage bottling facility to the operation.
Cannabis and hallucinogen use among young adults reached all-time high in 2021. Cannabis and hallucinogen use in the past year reported by young adults 19 to 30 years old increased significantly in 2021 compared to five and 10 years ago, reaching historic highs in this age group since 1988, according to the Monitoring the Future (MTF) panel study. Past-year, past-month, and daily marijuana use (use on 20 or more occasions in the past 30 days) reached the highest levels ever recorded since these trends were first monitored in 1988. The proportion of young adults who reported past-year Cannabis use reached 43% in 2021, a significant increase from 34% five years ago (2016) and 29% 10 years ago (2011). Marijuana use in the past month was reported by 29% of young adults in 2021, compared to 21% in 2016 and 17% in 2011. Daily marijuana use also significantly increased during these time periods, reported by 11% of young adults in 2021, compared to 8% in 2016 and 6% in 2011.
Vermont credit union puts pause on cannabis banking. The Vermont State Employees Credit Union, or VSECU, has been in the cannabis market for years, banking on the medical side of the industry. It’s also one of the major players in the new retail space. But this week the credit union announced it’s no longer taking on new cannabis businesses due to what they call a “sudden spike in cannabis accounts.” James Pepper, chair of the state’s Cannabis Control Board says the VSECU news was not surprising. “I think their exact quote from last July was, ‘if we are talking about 50 to 75, that is doable. If we are talking about 200 to 300, that might be tough for one financial institution to take on that risk.’” The state has currently issued about 160 grow licenses. State officials are working to determine how many of those are already banking through VSECU and how many other credit union applications will potentially be turned down.
SNDL — Acquires The Valens Company for $138M.
Under the terms of the Agreement, Valens' shareholders will receive, for each Valens Share, 0.3334 of a common share of SNDL (Offer Exchange Ratio). Based on the August 19, 2022 close of the SNDL shares on the Nasdaq, the consideration represents an implied value of $1.26 per Valens Share, for total consideration of approximately $138M. The Implied Offer Price represents a premium of 10% based on a trailing 30-day volume-weighted average price (VWAP) of the Valens Shares, on the TSX, up to August 19, 2022. With 555,500 square feet of cultivation and manufacturing space and 185 cannabis stores under the Spiritleaf and Value Buds banners, the combined company will offer a complete portfolio of branded products to consumers in Canada through its own supply and distribution channels. With approximately $314 million in net cash and no debt, SNDL will continue to have one of the strongest balance sheets in the North American regulated cannabis industry. SNDL will also have the highest pro forma Canadian cannabis revenue on a last fiscal quarter annualized basis. The combined company will operate as SNDL Inc., and Valens shareholders will own approximately 9.5% of the pro forma entity.
Aurora Cannabis — Acquires Controlling Interest in Bevo Farms. Aurora acquires a controlling interest in Bevo; one of the largest suppliers of propagated vegetables and ornamental plants in North America. Bevo will continue to be run by existing management team; robust growth plan includes use of Aurora Sky for ornamental plant cultivation and for vegetable propagation. Transaction is expected to be immediately accretive adding ~$9M of LTM Adjusted EBITDA. Concurrent with closing of the Bevo Transaction, Bevo entered into an agreement to acquire the Company's Aurora Sky facility in Edmonton, Alberta through the acquisition of one of Aurora's wholly-owned subsidiaries.
Rainbow Realty Group — Completes $20.5M loan to Sacramento-based Cannabis Real Estate Portfolio. Rainbow and its affiliates announced closing a loan cross-collateralized by 9 properties in Sacramento, CA. At the properties there are 13 tenants, of which 12 are licensed cannabis operators. License-types include: 3 operating dispensaries, 2 dispensaries in development, 2 cultivators, 2 manufacturers, 2 delivery businesses, and a microbusiness. Funds from this transaction will be used for improvements at the properties as the tenants continue to invest in their operations. Per the city of Sacramento there was $820.4M of legal cannabis sales in 2021, an increase of 78.6% over 2020. The 5 dispensaries within the collateral represent 12.5% of the total 40 licenses awarded in Sacramento.
MedMen — Completes Sale of Florida Assets. MedMen has closed a $67M deal with Green Sentry for the Company’s Florida-based operations, including its license, dispensaries, inventory, and cultivation operations. The deal is comprised of $63M in cash and approximately $4M in liabilities to be assumed by Green Sentry. The deal also includes the license of MedMen’s trademarks in the state.
TerrAscend — Closes Acquisition of Pinnacle. TerrAscend has completed the previously announced acquisition of KISA Enterprises MI, LLC (Pinnacle), a dispensary chain operator in Michigan, and related real estate assets from KISA Holdings, LLC, for total consideration of $28.5M. The acquisition is immediately accretive to TerrAscend on both a Sales and EBITDA basis. The acquisition includes six dispensary licenses, five of which are currently operational and located in the cities of Addison, Buchanan, Camden, Edmore, and Morenci. The addition of Pinnacle expands TerrAscend's retail footprint to 17 in Michigan and 32 nationwide.
Lowell Farms — Closing of $4.2M Convertible Debenture Financing and Sale of Additional $2.2M of Convertible Debentures. The 2022 Convertible Debentures are part of the same series of convertible debentures issued in connection with the Company’s and Subco’s April 2020 financing. The 2022 Convertible Debentures bear a fixed interest rate of 5.5% per annum and will mature on October 31, 2023. The amounts due under both the 2022 Convertible Indentures and the 2020 Convertible Debentures are secured on a pari passu basis by substantially all assets of the Company (other than the Company’s Salinas County processing facility). The 2022 Convertible Debentures, including accrued and unpaid interest thereon, are convertible into Class C common shares of US Subco (Class C Shares) at the option of the holder at a conversion price of $0.2313 (Conversion Price).
Fire & Flower USA — Closes $5M Convertible Debenture Financing. The Debentures bear interest at 8% per annum and mature on August 2, 2024. The Debentures may be converted, in whole or in part at the option of the Company, into common shares in the capital of the Company at a minimum conversion price of $1.00 per share at any time prior to the maturity date. If Fire & Flower Holdings Corp. (TSX: FAF) acquires the Company under its purchase option previously announced on January 31, 2022, then the Debentures will automatically convert into Common Shares in accordance with their terms immediately prior to the closing of the acquisition. With operations already in California, operating as Fire and Flower and utilizing the Hifyre platform, Fire & Flower plans to expand to additional states including Colorado, bringing and anticipate two additional states in Q4 of 2022.
IM Cannabis — $5M Private Placement Led by Management. The Offering, which is expected to close in one or more tranches, will be led by the Company's management team, including Oren Shuster, CEO, and Marc Lustig, Chairman of the Company. Pursuant to the Offering, the Company may issue up to 10,000,000 common shares of the Company at a price of $0.50 per Common Share.
📄 Company Updates / Earnings
Verano — Completes Filing of June 30, 2022 Quarterly Report and Restated Financial Statements. The Company also has completed the filing of the restatments of its financial statements and associated management discussion and analysis as previously announced on July 27, 2022. These financial statements were amended and restated to correct stock compensation expense, tax expense, consolidated entity distributions, and acquisition earnouts. There were no material impacts on total assets or liabilities in any of the periods, but the amendments did result in a reduction in the Company’s tax obligation.
RIV Capital — Signs Lease for Flagship Cannabis Cultivation and Manufacturing Facility in Buffalo, New York. Under the lease agreement, Zephyr will develop and lease to RIV Capital two buildings totaling approximately 75,000 square feet. Total development costs for the project are expected to be approximately $30M, of which RIV Capital will be responsible for $4.5M. RIV Capital will pay base rent to the Landlord over the term of the lease based on what the company believes is a favorable cap rate applied to the developer's portion of the project costs. The initial term of the lease is for 15 years.
POSaBIT — Q2 2022 Results
Revenue of $8.2M; up 66% Y/Y and 29% Sequentially. Raises Low End of FY2022 Gross Profit Guidance; expects $9.5-$10.0M. Reiterates FY2022 Revenue Guidance of $37-$40M
~$20M Guaranteed Minimum Revenue Software License Agreement with a large Cannabis Technology Provider to commercialize the Corporation’s point-of-sale technology. Under the terms of the License Agreement, the Licensee has paid to the Corporation a one-time fee of $500,000. In consideration for the license, the Licensee will be required to pay to the Corporation $20M guaranteed over four years
Cash and Cash equivalents were $5.2M at June 30, 2022, or $9.1M including the $3.9M received in August 2022 as part of the $20M agreement
StateHouse Holdings — Q2 2022 Results
Total net revenues were $34.6M; Gross profit before adjustments for biological assets, was $14.7M (42.6% GM). Gross margin reduction primarily due to the Y/Y selling price declines on bulk cannabis in the California market and the addition of manufacturing revenues which typically operate on lower margins, partially offset by greater sell through of in-house manufactured products at Company owned retail stores
On May 31, 2022, the Company announced initial integration measures that are expected to generate ~$10.3M of annualized cost savings
The Greenrose Holding Company — Q2 2022 Results
Revenue of $9.2M, Gross Profit of $2.9M
Adjusted EBITDA for the second quarter ended June 30, 2022 was $3.1M
Net income (loss) was $(10.3M), primarily attributable to revenue impacts of the production interruptions at True Harvest and ongoing demand headwinds in the Connecticut market, as well as increased interest expense of $6.9M, purchase accounting fair value inventory step-up of $2.2M, and intangible amortization expense of $4.0M
Cash and cash equivalents combined with restricted cash was $2.7M
Unrivaled Brands — Q2 2022 Results
Revenue of $17.6M (retail revenue of $11.0M and cultivation/distribution revenue of $6.6M)
Operating loss of $67.1M attributed primarily to a $55.7M charge for impairment of intangible assets and goodwill related to the UMBRLA and People's acquisitions
$7.3M Cash as of 6/30/21
SLANG Worldwide — Q2 2022 Results
Revenue from continuing operations of $9.9M; Gross profit of $4.5M (46% GM)
EBITDA of $7.7M; Operating expenses from continuing operations was reduced by $0.4M
$15.7M in cash and restricted cash on June 30, 2022
AWH — Launches Adult-Use Sales at Montclair, New Jersey Dispensary. This announcement comes just months after a successful adult-use launch at Ascend Rochelle Park, the first of Ascend's New Jersey retail locations to commence recreational sales on April 21st.
Jushi — Opens Fairfax, VA Dispensary, its 35th Retail Location Nationwide and Fourth Beyond Hello™ Dispensary in Virginia. The 10,500 sq ft building features 16 traditional and 10 express patient checkouts, along with 45 parking spots.
Verano — Opens Zen Leaf Clarksburg, the Company’s Fourth West Virginia Dispensary and 111th Location Nationwide. Zen Leaf Clarksburg is located at 254 Emily Drive, a busy thoroughfare with an average daily traffic count of 17,520 vehicles. The dispensary is based in Harrison County, with a population of 65,000+.
Dutchie — Launches new POS Platform, Dutchie POS. This comes just weeks after the company announced a new payment platform, Dutchie Pay. With Dutchie POS and Dutchie Pay, the cannabis tech company is now offering cannabis operators one of the most comprehensive platforms to manage dispensaries. The new point of sale system serves the budtender and customer alike. The budtender’s view is customizable and features front-of-house functions to improve customer interactions while still handling inventory management and reporting regulatory compliance information. Zach Lipson spoke to TechCrunch ahead of the Dutchie POS launch, saying this solution is built to accommodate dispensaries of all sizes. “It’s intuitive and simple enough for SMBs and mid-market retailers, but can also flex up to the enterprise-level dispensaries and MSOs.”
Meadow — Expands to Michigan. Since its founding in 2014, the company has focused its efforts on its home state of CA, but recently partnered with Michigan-based Wellflower. The company retooled its cannabis platform for the Michigan market and now offers the service state-wide. Meadow sees Michigan as a stepping stone to the East Coast, mainly New York, New Jersey and Massachusetts.
Glass House Brands x Seed Junky — Genetics and Nursery Partnership. Under the terms of the partnership, Seed Junky will partner with Glass House to breed and select strains that will be exclusively made available in Glass House brands including Glass House Farms, Forbidden Flowers, Field extracts and others. In addition, starting this fall, California growers will for the first time be able to purchase Seed Junky clones directly from Glass House, allowing them access to unique genetics that may otherwise be difficult to acquire particularly at scale.
Jetty Extracts — Launches 5-Pack Solventless Prerolls. Starting with top-shelf bud, selected for its flavor and potency, Jetty infuses the flower with cold water hash made in-house using just ice and water. The result is unique pairings that bring out intense flavors and effects from complementary flower and hash terpene profiles. It’s a full-spectrum, full-body high that delivers. The packs contain five, 0.5 g pre-rolls for a total of 2.5g per pack, available in the following strains/combos: Sour Strawberry x Ice Cream Cake and Ice Cream Cake x Fatso.
Grön — Handcrafted Cannabis-Infused Edibles Debuts In Missouri. Grön enters the Missouri medical cannabis market with their signature line of expertly crafted gummy candies, Sugar-Coated Pearls and Mega Pearls. Bursting with real fruit flavor, Grön’s Sugar-Coated Pearls are gluten-free, soy-free, and infused with full-spectrum cannabis extract. Grön’s beautifully delicious Sugar-Coated Pearls are available in six flavors and ratios, with 10 Pearls per pack.
Old Pal x CULTA — Maryland. As part of the Old Pal x CULTA partnership, CULTA will release a 14g Ready to Roll bag. Each kit will include 14g of high-quality, pre-ground cannabis, hemp rolling papers, and a crutch.
Goodness Growth Holdings — Launches Boundary Waters Pre-Rolls in Minnesota. Boundary Waters pre-rolls come in sustainable packaging, made from 57% plant-based materials. The packages are recyclable and made to decompose at an accelerated rate in landfills, if not recycled. The pre-rolls themselves are made with biodegradable paper inserts.
Akanda — Bolsters Leadership Team to Scale Medical Cannabis Platform Across Europe. The Compna has appointed Tom Flow to the role of COOof Akanda and Managing Director of Holigen, and Steven George to the role of Commercial Director. Flow has over 15 years of direct cannabis industry experience with an emphasis on facility design and operations, including multiple large scale EU GMP certified cultivation facilities. He is the co-founder of a number of cannabis companies during this time, namely MedReleaf, Flowr, and Holigen Limited. George has served as both Iberian Country Manager and European Alliance Manager at Tilray.
Unrivaled Brands — Appoints Robert Baca as Interim Chief Legal Officer. The appointment of Baca follows the naming of Sabas Carrillo as interim CEO and is the first appointment by Sabas. Baca serves as Manager of Legal Affairs and Innovation at Adnant, an accounting and consulting firm advising cannabis companies on technical and operational accounting, strategic transactions, and the public offering process.
US Cannabis Council — Names Khadijah Tribble as CEO. Tribble succeeds Steven Hawkins, who led USCC since its founding in February 2021. Tribble serves as SVP Corporate Social Responsibility at Curaleaf, a role she will continue in during her interim term as CEO. She previously founded Marijuana Matters, a cannabis education and advocacy incubator, and served as CEO of the Marijuana Policy Trust, which helps develop and run DEI programs in the cannabis industry.
🎙️ Interviews / Informational Articles
👋 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.