💳 Tilray acquires $211M of HEXO Senior Secured Convertible Note, Creating Strategic Alliance

Jungle Boys raided. Gaize raises $1.2M. Harborside completes acquisition of Urbn Leaf. Planet 13 completes acquisition of Next Green Wave. Earnings – Curaleaf, Lowell Farms, GrowGeneration, Hydrofarm.

Mar 08, 2022

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🌿 Industry

Jungle Boys Raided by CDTA Over $66,000 Late Fees. TLC Collective by Jungle Boys discovered the raid was all caused by a fine discrepancy with the CDTFA from when their offices were closed during the pandemic and dispensaries couldn’t pay taxes in cash. Despite the $18 million they did receive from Jungle Boys last year, CDTFA decided to move forward with the raid on the $66,000 that Jungle Boys already received a hearing date for. The CDTFA cleared out $174,000 in cash from TLC. They emptied the tip jars for the budtenders at the counter. “This is our standard procedure for cannabis businesses or any business. We’re not singling out any industry or type of business. If you owe taxes in California, we do our best to collect what is due,” the CDTFA told High Times.

Oklahoma lawmakers weigh restrictions on medical marijuana businesses. Oklahoma House Republican legislators pitched a 12-point plan to tighten up one of the country’s most business-friendly medical marijuana markets with a goal of curbing illicit activity. The plan, reported by the Associated Press and other media outlets, comes only weeks after law enforcement agencies seized ~$500M worth of illicit marijuana as part of a yearlong investigation. As of Feb. 7, Oklahoma had 12,021 licensed MMJ businesses, including 8,137 growers, 2,232 dispensaries, 1,508 processors, 103 transporters and 29 laboratories, according to OMMA data. The MJBizFactbook projected sales would reach between $1 billion and $1.25 billion this year.

💵 Deals

HEXO and Tilray Brands — Create Strategic Alliance.

Under the new agreement, Tilray Brands will acquire $211M of senior secured convertible notes that were originally issued by HEXO to HT Investments. The new terms of the Notes are significantly more favorable to HEXO (maturity date extended by three years) and will enable the Company to strengthen its balance sheet and accelerate its transformation into a cash flow positive business within the next four quarters. The new partnership also brings together Canada’s top two cannabis market share leaders and is expected to create efficiencies of up to C$50M within two years which will be shared equally between HEXO and Tilray Brands. In addition to the restructured debt, HEXO has also signed an agreement with KAOS Capital (activist shareholder) and its partners to provide a C$180M equity backstop to HEXO. Last year, HEXO disclosed its ongoing concern with its senior secured convertible notes issued on May 27th and noted it may not have enough cash coming in to help pay off the debt.

Verano — Draws $100M to Fund Strategic Growth Initiatives, and Adds an Option for up to an additional $175M. The Company has drawn an additional $100M under its existing credit agreement pursuant to a fourth amendment to such credit agreement, to fund expansion and strategic growth initiatives, per its previous announcement on February 1, 2022, at a non-dilutive interest rate of 8.50%. As part of such amendment to its credit agreement, funding for up to an additional $175M at a future date was added, which lending commitment is subject to final agreement and conditions with the Company’s lenders.

AFC Gamma — Expands Existing Senior Secured Credit Facilities With Three Existing Borrowers. AFC Gamma has committed an additional $26.6M under the expansion to Verano’s credit facility, and now holds $86.6M in total of the expanded credit facility, and an additional $15M of the expansion was syndicated to an affiliate. AFC Gamma has committed an additional $15.3M under the expansion to Nature’s Medicines credit facility, and now holds $77.8M in total of the expanded credit facility, and an additional $1.0M of the expansion was syndicated. AFC Gamma has committed an additional $5.0M under the expansion to Natrabis’ facility, and now holds the entire $15.5M expanded credit facility.

Gaize — $1.2M Seed, with participation from CEO of ClassPass. The Gaize device is a patent pending, self-contained and automated test that relies on machine learning to evaluate several measures of how cannabis impairment manifests in the body and impacts the brain. For law enforcement customers, the Gaize product also provides video evidence of impairment from automatically performed tests. This piece of data has never been available to police before, which has caused severe challenges in prosecuting impaired driving cases.

Harborside — Completes Acquisition of Urbn Leaf and Appoints Ed Schmults as CEO. The Loudpack Acquisition is expected to close on or around March 15, 2022. Harborside will officially be renamed StateHouse shortly after the closing of the Loudpack Acquisition. Also, Will Senn has been appointed Chief Corporate Development Officer of the Company.

Planet 13 — Completes Acquisition of Next Green Wave for $60M. In completing the acquisition, Planet 13 has issued 21,361,002 ($2.79/share on March 1st) Planet 13 Shares to former NGW shareholders. The acquisition adds cultivation and production and will serve as the backbone of Planet 13's operations in the California market.

Clever Leaves — Partners With FoliuMed to Import Colombian Cannabis EU-GMP Bulk Extracts Into Germany. Clever Leaves has signed a one-year international sales agreement with German-Colombian operator FoliuMed and its German manufacturing partner, Fidelio. With access to three of Clever Leaves’ pharmaceutical grade bulk cannabis extracts, Fidelio will be ramping up production using Clever Leaves’ full spectrum THC crude extract, standardized 20% CBD extract, and CBD isolate. Clever Leaves raw materials are shipped to FoliuMed’s German operation near Frankfurt where they are processed into soft gels at Fidelio’s EU-GMP contract manufacturing site and delivered to a leading Australian customer.

📄 Company Updates / Earnings

Curaleaf — Q4 Fiscal Year End 2021 Results

Revenue was $320M, up 1% from $317M in Q3 2021 and 39% from $230M in Q4 2020. Growth primarily reflects continued organic growth driven by new retail store openings, the addition of new wholesale partner accounts, product launches, and the expansion of cultivation and production facilities
Retail revenue was $226M (71% of revenue), compared with $225M in Q3, and up 37% from $165M in Q4 2020. Added 21 new stores added in 2021.
Wholesale revenue was $94M (29% of revenue), up 2% Q3 and 46% Y/Y. Wholesale partner accounts increased 90%+ from 2020 to ~2,300 total accounts
Net loss was ($28M), compared with a net loss of ($55M) in Q3 and ($37M) in Q4 2020
Adjusted EBITDA was $80M for Q4, up 12% from $71M in Q3 and 48% from $54M in Q4 2020. Adjusted EBITDA margin was 24.9%, an increase of 240 basis points from 22.5% in the prior quarter and 140 basis points from 23.5% Y/Y
As of December 31, 2021, the Company had $299M of cash and $436M of debt

GrowGeneration — Q4 and Full Year 2021 Financial Results

2021 Revenue of $422.5M (119% growth) / Adjusted EBITDA of $34.5M (82% growth)
Q4 Revenues increased 46% to $90.6M
2021 Net income was $12.8M, up from $5.3M last year
Q4 Net loss was ($4.1M), compared to net income of $1.5M in the prior year
Q4 Adjusted EBITDA was a loss of ($1.9M)
Guidance — 2022 revenue of $415–$445M with adjusted EBITDA of $30–$35M, plans to open 15 to 20 new GrowGeneration garden centers in 2022

Hydrofarm — Q4 and Full Year 2021 Results (vs. Prior Year Period)

Q4 Net sales increased 26.3% to $110.4M compared to $87.4M
Q4 Adjusted EBITDA decreased 0.7% to $4.9M compared to $5.0M
2021 Net sales increased 40.1% to $479.4M compared to $342.2M
Adjusted EBITDA increased 123.4% to $47.1M compared to $21.1M
2022 Outlook: $575–615.0M (20–28% growth), Adjusted EBITDA of $63–$74M (11–12% margin)

Lowell Farms — Q4 and Fiscal Year 2021 Financial and Operational Results

Q4 Revenue was $15.1M, up 65% Y/Y and a 21% sequential increase over Q3
2021 Revenue was $53.7M, up 26% Y/Y
Out-of-state licensing exited the year with a GMV run-rate of $15M in annual sales, up 37% from the end of the prior quarter
Net loss for the fourth quarter was ($10.0M) (inclusive of the inventory impairment charge) compared sequentially to net loss of ($8.7M), and a net loss of ($4.1M) for Q4 2020. Net loss for the year was ($24.7M) compared to a net loss of ($21.9M) in 2020
Q4 Adjusted EBITDA was negative ($3.6M) compared sequentially to Adjusted EBITDA of ($5.2M) and negative adjusted EBITDA of ($1.6M) in Q4 2020. Adjusted EBITDA for the year was ($14.4M) compared to ($8.2M) in 2020

MedMen — Prevails in Claims for Legal Fees and Costs Against Former CFO Parker. MedMen previously announced in November 2021 that a jury had completely exonerated the Company in a lawsuit brought by former CFO James Parker. On March 1, 2022, the judge further ordered that Parker repay MedMen $612,000 in legal fees that the Company had previously advanced to Parker, affirming that Parker was not entitled to such reimbursement due to his material breach of his employment agreement.

🏬 Retail

MedMen — Opens San Francisco Store in Partnership With Mirage Medicinal. The 3,222 sq ft store in Cow Hollow marks the Company’s inaugural partnership with equity-licensed partner Mirage Medicinal, led by Malcolm Joshua Weitz. Weitz, a Mission District native and founder of Mirage Medicinal, will serve as CEO and part owner of the MedMen Union Street location.

Cannabis 21+ — Opens Palm Desert Location. The 14,000 sq ft location has 15 stations where visitors are offered 1 on 1 private consultation covering the 1500 or more products it will carry.

🌱 Product

AWH — Launches Simply Herb, a Value Cannabis Brand in MA, IL and MI. Based on BDSA market data, 25% of industry sales in AWH's operating markets are driven by the "value" category. Featuring simple, clean packaging, Simply Herb is an easy-going, flower-focused brand with no frills.

TILT x Timeless — Exclusive Ohio Partnership. Timeless currently has operations in AZ, OK, MO, and CA. The brand is known for its extensive portfolio of innovative cartridges that combine high quality distillate with botanical or live resin terpenes to suit a variety of customer preferences.

🧔 People | 💻 Hiring

Wana Brands — Adds Kelly Flores as COO. Prior to joining Wana Brands, Flores served as COO at dosist. Prior to dosist, she spent six years at Monster Energy, exiting as VP of Strategic Planning, and 11 years with Nestlé Waters in Planning and Finance.

TerrAscend — Appoints Kara DioGuardi to its Board. TA Grammy nominated songwriter, producer, record executive, music publisher, Broadway actress and former American Idol judge, DioGuardi co-founded Arthouse, a music publishing company that holds past and present copyrights of many of the industry's most popular Grammy-winning artists. Prior to founding Arthouse and Inspired Nation, DioGuardi held several roles in the music industry throughout her career, including music producer and label executive for Billboard Magazine.

Weedmaps — Director, Strategy & Operations - Brands (Remote)

WYLD — Regional Sales Director—West (Hybrid)

PAX — Director, Strategic Finance (Hybrid)

Amuse — Director of Product (LA)

Leaflink — Director of Strategic Partnerships, Technology (LA)

🎙️ Interviews

Max Simon, Green Flower CEO on Thinking Outside the Bud

Kristina Lopez, House of Puff CEO on Brand F*UPS

Raymond Chang, Agrify CEO on finding your startup idea

Adam Grossman, Papa & Barkley Founder on the importance of a balanced lifestyle

👋 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.