💰 The Hawthorne Collective, a subsidiary of The Scotts Miracle-Gro Company makes $150M strategic investment into RIV Capital

Earnings (Revenue) – Verano ($199M), AWH ($97.5M), Harvest ($102.5M), iAnthus ($54.2M). Surfside raises $4M. Turning Point Brands increases Equity Stake in ReCreation Marketing. Flower One x ALTWELL.

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🍺 The next newsletter happy hour is set for Tuesday, 8/24 from 6-8p at BLAZE (Newport Beach), RSVP here. I am attempting to do these monthly in different cities (September//SF and NYC, October//Vegas, November//Denver) so make sure to follow on LinkedIn so I can figure out where most newsletter subscribers are located for future events. Here’s how things stand with 128 followers (~8.5% of subscribers) on the LinkedIn page, I’m assuming it’s directionally correct but would love more accurate data.


🌿Industry

Here’s where New York’s next governor stands on marijuana legalization. The short answer: It’s good news. Hochul’s position on marijuana legalization has, in the near past, mirrored that of Cuomo: Pragmatic but not passionate. In an interview with Cheddar earlier this year, Hochul called legalization “long overdue” in New York. Hochul also acknowledged the importance of social equity provisions in the state’s new legalization law. Legalization of the plant was effective immediately but legal recreational sales are not expected to begin for one or two years. The burden of regulating the sales has now fallen onto Hochul, who will have to step in and fully establish the Office of Cannabis Management, an independent agency operating with the New York State Liquor Authority. The agency will be in charge of regulating the recreational cannabis market and the existing medical cannabis programs. The agency will also be overseen by a Cannabis Control Board composed of five members — three appointed by the governor and one each appointed by the state Senate and state Assembly.

Half Of New Jersey Towns Poised To Ban Cannabis Businesses. Half the cities and towns in New Jersey are likely to prohibit adult-use cannabis businesses for at least the foreseeable future, given the impending deadline of August 21 to decide whether to opt in or opt out of the industry. ~60 towns that have opted in are simply writing their own rules, hoping to be early adopters and raise enough tax revenue dramatically reduce local taxes. In Newark, the city council last week preliminarily approved cannabis operations with a slew of regulations on security, odor management, and location. Officials in many of the 240 towns that the state League of Municipalities estimates have banned cannabis businesses is simpler—they say they don’t want to approve anything before the state’s new Cannabis Regulatory Commission has even issued regulations about how these operations will work. Those regulations are also due to come out by August 21st.

An inconvenient truth (about weed). Right now, the impact of cannabis on energy consumption is a blind spot for environmental groups. While some local chapters of green groups have pushed for regulations on new grow operations in states like California, national engagement is still lacking. The Sierra Club, Environmental Defense Fund, Natural Resources Defense Council and Earthjustice have not turned their national lobbying efforts onto the sector. Many industry insiders say cannabis grows best outdoors in Northern California and Southern Oregon. But regulations also play a part in where weed is grown: more than half of the 26 counties that have awarded cultivation licenses in California have only done so for indoor or greenhouse grows, according to MJ Biz Daily. And some states have infrastructure requirements — like video security systems — which are much harder to install outdoors and therefore encourage indoor cultivation. Economics is also a factor: The capacity of indoor grows is much greater because they can grow year-round and typically have higher plant yields.

Maine’s Adult-Use Cannabis Sales Topped $9 Million in July. The state’s 44 licensed adult-use retailers reported 124,004 sales transactions totaling over $9.4 million last month, earning the state roughly $943,500 in tax revenue, according to data from the Maine Office of Marijuana Policy. July also was the first month that the adult-use market has matched the medical program in sales. In a typical month in 2019, the most recent year available, medical marijuana providers in Maine reported an average of $9.4 million in product sales. 


💵Deals

RIV Capital — $150 million strategic investment by The Hawthorne Collective, a subsidiary of The Scotts Miracle-Gro Company. The Investment establishes RIV Capital as The Hawthorne Collective’s preferred vehicle for investments not currently under the purview of The Hawthorne Gardening Company. RIV Capital’s strategy remains the same as its previously disclosed plans to acquire, invest in, launch, and/or develop U.S. assets to build a multistate cannabis operating and brand platform. With ~C$400M in available capital, RIV Capital plans to acquire, invest in, launch, and/or develop U.S. operators and brands across financially and strategically attractive states (taking into account certain restrictions relating to the investment): On closing of the investment, RIV Capital will add three Scotts Miracle-Gro nominees. Prior to closing, the Company will delist its common shares from the Toronto Stock Exchange and list on the Canadian Securities Exchange. 

Surfside — Raises $4M led by Casa Verde Capital. Surfside looks to provide valuable analytics about potential and existing customers in the cannabis space, offering businesses data around their customers using a combination of existing data, publicly available data, loyalty program data, etc. to help these brands better understand their customers. The startup creates profiles of customers, looking to understand their location, their other interests, and other important details that can help brands and businesses market and advertise to both existing and new customers. But Surfside actually goes a step further and develops campaigns for these businesses, allowing them to work one-on-one with a marketing expert to develop and activate these campaigns.

Airo Brands — Partnership With Curador Labs to Launch Airo Products in Missouri's Medical Cannabis Market. Missouri will add to Airo's national footprint of 15 states plus Puerto Rico, making it one of the few national cannabis retail brands in the U.S. Airo is a leading cannabis inhalation brand, available in more than 1,250 dispensaries across the U.S. and Puerto Rico. Offering the premium AiroPro, AiroSport & AiroX technology, as well their popular strain series, Airo is one of the top-selling brands in several markets, including Illinois, Nevada, Colorado, Washington, and Maryland.

Turning Point Brands — Increases Equity Stake in ReCreation Marketing, a Leading Canadian Distribution Company. ReCreation has significantly expanded the reach of Zig-Zag papers, which now has presence in 75% of the volume-weighted distribution within the private dispensary channel. As a result of the ReCreation partnership, TPB expects to continue to expand its presence in Canada, creating an avenue for its broader portfolio of products to enter the Canadian market.


📄Company Updates / Earnings

Verano — Q2 2021

  • Revenues increased 39% from Q1, and 164% Y/Y to $199 million

  • Gross profit, on an unadjusted basis and excluding the impact of biological assets, was $100 million, or 50% of revenue, compared to $88 million, or 61% of revenue, in Q1

  • SG&A expense was $53 million, or 27% of revenue, compared to $29 million, or 20% of revenue, in Q1

  • Net income, including the impact of biological assets, was $7 million. Excluding the impact of biological assets, net income was $32 million, compared to $8 million in Q1

  • Second quarter Adjusted EBITDA was $81 million, or 41% of revenues. EBITDA on an unadjusted basis was $52 million, or 26% of revenues.

  • Cash flow from operations was $29 million, and Free Cash Flow was $4 million.

AWH — Q2 2021

  • Gross Revenue: $97.5 million, increased 28.5% Q/Q and 236.2% Y/Y

  • Net Revenue: Net revenue, which excludes intercompany sale of wholesale products, increased 26.1% Q/Q to $83.4 million. Net revenue for the first six months of 2021 was $149.5 million, a 4.0% increase over the Company’s full year 2020 net revenue of $143.7 million

  • Net Loss: Net loss of $44.9 million, was primarily driven by a $32.0 million non-cash interest expense related to the Company’s initial public offering (IPO) completed in May 2021. This non-cash interest expense was largely driven by a $27.4 million charge related to the beneficial conversion feature of the historical Real Estate Preferred Units that converted in the IPO

  • Adjusted EBITDA: Adjusted EBITDA of $20.3 million represented a 28.3% increase Q/Q. Adjusted EBITDA Margin of 24.4% represented a 43 basis point increase compared to the prior quarter

  • Balance Sheet: As of June 30, 2021, cash and cash equivalents were $104.2 million, and net debt, which equals total debt less cash and cash equivalents was $27.4 million

Harvest Health & Recreation — Q2 2021

  • Second quarter revenue was $102.5 million, up 84% from Q2 2020 and 15% sequentially

  • Second quarter net loss before non-controlling interest was $19.2 million, compared to $23.0 million in Q1

  • Adjusted EBITDA was $28.0 million in the second quarter, compared to $26.9 million in Q1

  • 2021 revenue target of at least $400 million maintained

iAnthus — Q2 2021

  • Revenue of $54.2 million, up 57% from the same quarter in the prior year

  • Gross Profit of $31.3 million, up 66% from the same quarter in the prior year

  • Gross Margin of 57.7%, reflecting an increase of 3.2% from 54.5% in the same quarter in the prior year

  • Net loss of $15.3 million, or a loss of $0.09 per share, compared to a loss of $24.8 million, or a loss of $0.14 per share, in the same quarter in the prior year

  • Adjusted EBITDA of $13.5 million, up from $0.7 million in the same quarter in the prior year

  • Due to liquidity constraints experienced by the Company, the Company did not make applicable interest payments due on its 13% senior secured convertible debentures and its 8% convertible unsecured debentures due during 2020. As previously disclosed, the non-payment of interest in March 2020 triggered an event of default with respect to these components of the Company’s long-term debt, which, as of June 30, 2021, consisted of principal amounts at face value of $97.5 million and $60.0 million, and accrued interest of $22.9 million and $7.2 million, on the Secured Notes and Unsecured Debentures, respectively. In addition, as a result of the default, as of June 30, 2021, the Company has accrued additional fees and interest of $14.6 million (Exit Fees) in excess of the aforementioned amounts that are further detailed in the Company’s financial statements.

The Parent Company — Filing of Form 10 Registration Statement. The Company is filing the Registration Statement to, among other things, provide liquidity to its shareholders by (a) making the Company eligible to register Common Shares issuable pursuant to the TPCO Holding Corp. Equity Incentive Plan the Securities Act of 1933, as amended (the "Securities Act"), on Form S-8 and (b) facilitating trading of the Common Shares and Warrants under Rule 144 promulgated under the Securities Act one year after the filing of the Registration Statement. 

Flower One — Exclusive Strategic Brand Partnership with ALTWELL and Appointment of Nikki Brown to the Company’s Advisory Board. Nikki Brown and her family are known for making their mark in the beverage and wellness industry by founding CytoSport in 1997, and then formulating and building the Muscle Milk brand of protein products, which was acquired by Hormel in 2014. Following the acquisition, Nikki and her family took their industry expertise to create ALTWELL, a brand focused on blending traditional ingredients with CBD and other cannabinoids to create products that focus on everyday life and bringing balance for better sleep, energy and hydration. ALTWELL + products will be available in Nevada in the fourth quarter of 2021 and will include beverages, stick packs, gummies and tinctures.


🏬Retail

Columbia Care — Commences Adult Use Sales at Downtown Boston Dispensary. Patriot Care was the first medical dispensary to open its doors in the city and has served patients since 2016. The dispensary will be rebranded to Cannabist in the coming weeks, as part of Columbia Care’s ongoing conversion of its retail network to Cannabist across the country. Columbia Care operates two additional medical and adult use co-located dispensaries in Massachusetts, in Lowell and Greenfield, as well as 38,000 square feet of cultivation and manufacturing capacity. 


🌱Product

Product Review: A Delicious Time with Wana Quick Cannabis Gummies. Beyond promising bold flavors, the Wana company makes some bold claims for their brand: fast-acting effects in 5 to 15 minutes, a melt-proof recipe and more. To find out if the products live up to their claims, threewells thoroughly tested them.

PepsiCo and Boston Beer to create alcoholic Mountain Dew drink. PepsiCo and Sam Adams brewer Boston Beer are teaming up to create an alcoholic version of Mountain Dew. Boston Beer will develop and produce the drink, called Hard Mtn Dew, while Pepsi has created a new entity to sell, deliver and market the product. The beverage is expected to hit shelves in early 2022. Hard Mtn Dew will belong to the flavored malt beverage category and contain 5% alcohol by volume.


🧔People | 💻Hiring

Central Coast Agriculture (Raw Garden) — HR Business Partner (Buellton)


🎙️Interviews

First step in legalizing marijuana is to make it safe for banking, Curaleaf CEO says

The Constantly Changing Cannabis Industry with Sanjay Tolia at Bengal Capital

Glass House Brands Looks to Drive Growth and Efficiency in California Following Its Public Debut


👋 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.