📦Amazon backs Federal Bill to Legalize Marijuana
HEXO acquires Redecan ($925M). Harborside acquires Sublime ($44M). Heritage acquires Bloom Brands ($32M). Hervé Series A ($3M).
Normally I send these weekly newsletters out in the morning on the first business day of the week (hopefully you were curious where it was). So this one is a bit delayed but I was waiting on an announcement (or two) that will instead be shared tomorrow — so be on the lookout for that update!
🌿Industry
Amazon backs federal bill to legalize marijuana and adjusts its drug testing policy for some workers. Amazon is throwing its weight behind federal legislation to legalize marijuana and pledging to no longer screen some of its workers for the drug. In a blog post Tuesday, Amazon’s consumer boss, Dave Clark, said the company supports the Marijuana Opportunity Reinvestment and Expungement Act, reintroduced in the House late last month. The MORE Act would decriminalize cannabis at the federal level, expunge criminal records and invest in impacted communities. “We hope that other employers will join us, and that policymakers will act swiftly to pass this law,” Clark wrote. Amazon said it would adjust its corporate drug testing policy for some of its workers. The company will no longer include marijuana in its drug screening program for any positions not regulated by the Department of Transportation, Clark said. “In the past, like many employers, we’ve disqualified people from working at Amazon if they tested positive for marijuana use,” Clark said. “However, given where state laws are moving across the U.S., we’ve changed course.”
Marijuana MSOs report stellar financials; megamergers could heat up.
U.S. marijuana multistate operators reported banner revenue growth in the first three months of this year, boosted by good execution and strong consumer demand in established and newer markets. Many reported double-digit revenue growth in the first quarter of 2021 versus the fourth quarter of 2020 and, in several cases, staggering year-over-year growth.
A New York Prison Locked Men Up For Drugs. Now the Site Will Grow Marijuana. Until closing a decade ago, a sprawling state prison in this town northwest of New York City locked up men convicted of drug offenses and other crimes. Now Warwick aims to turn what was a medium-security complex in Orange County into a bustling regional hub for growing and processing cannabis. Its entrepreneurs hope to cash in on the state’s move this spring to legalize recreational marijuana for adults. Local officials have recruited seven cannabis-related businesses to the Hudson Valley site, still marked by reddish brick buildings that at one point incarcerated nearly 1,000 men. UrbanXtracts makes cannabidiol (CBD) oil, tinctures and other products. Phyto-Farma Labs LLC tests cannabis. Citiva Medical LLC has a license to grow medical marijuana. And three small manufacturers use CBD or hemp: Honey Buz and Farmbody for skin-care products, and Scripted Fragrance for candles.
In March the town provided tax incentives for Chicago-based Green Thumb Industries to buy 38 acres for a large cultivation and manufacturing facility. Boosters say the new ventures will bring tax revenues and hundreds of good jobs. But some parents say making the town a marijuana production center could send children a message condoning drug use. Small growers statewide worry large companies, such as Green Thumb, will squeeze them out of the market. And even some fans of the project see risks ahead.
Cannabis Sales Will Be ‘Unprecedented’ Thanks To Hot Vax Summer. The combination of the pandemic and the addition of new state-legal cannabis markets created a shift in America—more Americans use marijuana more frequently. Already, more people across the U.S. are consuming marijuana this year than in 2020. About 43% of Americans in states where adult-use is legal are now using marijuana, up from 36% last year, BDSA data shows. In states like California, 45% of residents use cannabis, up from 33% in 2020. Similar trends can be seen in Massachusetts, Florida, and other states with legal programs. When it comes to frequency, 67% of consumers who smoke or vape cannabis now consume daily. For people who prefer edibles, a form factor that helped many Americans weather the stresses of lockdown, 50% of those consumers pop gummies daily, BDSA has found.
Arizona Banks Are Warming Up to Marijuana Businesses. In Arizona, two banks, one accounting firm, and one digital banking platform now offer financial services to MRBs (Marijuana-related businesses). But it's been a long road. “From the beginning, because it’s marijuana, it was a suspect industry," says Ross Dietrich, managing partner at Price Kong & Co., a Phoenix-based firm that’s provided accounting services for MRBs since 2011. “It being a cash business for the most part adds audit risk for us as internal controllers for the client. Even our bankers didn’t like the fact that we were getting money from MRBs.” Republic Bank of Arizona began working with marijuana-related businesses in 2020 and is one of the two banks in the state that serves MRB clients. (The other is First Fidelity, which began banking with cannabis companies in 2016 and also operates in Oklahoma.) “We did not go into this lightly,” says Brian Ruisinger, president and CEO of Republic Bank of Arizona. “We met with our attorneys, our insurance agents, our auditors, and ultimately, our regulators. And they said… ‘If you build a program that has policies, procedures and risk mitigation that’s satisfactory, we will look at it as a high-risk business within your entire business profile.’”
Other highlights:Retail shakeout expected as Ontario heads toward 1,000 cannabis stores
Bill To Federally Legalize Marijuana Reintroduced In Congress As Senate Prepares Separate Measure
California & Nevada Lawmakers Advance Marijuana Social Consumption Lounge Bills
Ultra Health to Deploy $20M Ahead of New Mexico Adult-Use Cannabis Program
Aurora Cannabis Completes Balance Sheet Restructuring
💵Deals
HEXO — acquires Redecan for $925M to create Canadian market leader in adult-use sales. Redecan is a Canadian cannabis company with greenhouses in the Niagara region, leveraging the unique microclimate of Ontario’s Greenbelt in state-of-the-art cannabis growing facilities. The Company’s proprietary growing methods are one-of-a-kind and are continually refined through the use of advanced technologies. Under the terms of the Share Purchase Agreement, the $925M purchase price will be paid to the Redecan shareholders as follows: $400M cash and $525M stock at an implied price per share of $7.53.
Transaction Highlights
Brand leader: Redecan’s product mix and leading market share position across a number of key product categories
Robust product portfolio: HEXO will be a Canadian volume leader in dried flower across premium, mainstream and value price points. The Company will also be the industry leader for cannabis-infused beverages through Truss Beverages, while Redecan’s differentiated product portfolio includes top selling oils and capsules, and market leadership in the pre-roll category
Product innovation: The newly combined know-how further enables the development of higher potency and more consistent products in key categories.
Accelerated path towards positive EPS: Redecan has consistently delivered significant EBITDA with a low depreciable capital base and zero debt
Best-in-class production capabilities: Redecan brings leading manufacturing, automation and packaging capabilities, resulting in some of the most consistent, efficiently produced and innovative products in the industry. Its highly efficient proprietary pre-roll technology has supported some of the highest product gross margins in the industry.
Global growth opportunities: HEXO aims to leverage Redecan’s unique pre-roll product, experience in manufacturing, and well-known brands to expand market share across Canada and further seize opportunities in the U.S. and Europe.
HEXO — Closes $360M Public Offering of Senior Secured Convertible Notes. The Notes were sold at a purchase price of $327.6M, or ~91.0% of their principal amount. The Notes will mature on May 1, 2023. Subject to certain limitations, the Notes will be convertible into freely tradeable common shares of the Company at the option of the Purchaser and, subject to conditions and limitations, at the option of the Company. If not previously converted, all principal repayments of the Notes will made be at a price equal to 110% of the principal amount of the Notes being repaid. The Notes will not bear interest except upon the occurrence of an event of default. The Notes will be issued in registered form, without coupons, under a trust indenture dated May 27, 2021 between the Company and GLAS Trust Company LLC as trustee, as supplemented and modified by resolutions of the board of directors of the Company. Grizzle wasn’t bullish on this raise to fund the Redecan acquisition as it’s likely debt HEXO can’t service or more dilution in the near-term.
Harborside — Acquires Sublime for $43.8M. Founded in 2016, Sublime is best known for its expansive line of high-potency, high-quality and affordable, Fuzzies branded pre-rolls, a leading brand of pre-rolls in the state of California, as well as vapes and roll-your-own flower kits. Since 2019 Sublime has delivered a revenue CAGR of ~70%, and ended 2020 with 7.9% California pre-roll market share. Sublime is strategically positioned for continued growth as pre-rolls are the fastest growing cannabis sub-segment within the California market since the beginning of 2020. The Purchase Price comprises of ~$38.4M stock, ~207,579.66 shares based on VWAP of the subordinate voting shares of the Company for the 30-days immediately preceding the date of the Agreement and ~$5.4M cash (of which ~$3.4M will be used to repay existing indebtedness of Sublime). The Purchase Price represents a multiple of ~1.78x to the estimated $24.6M of standalone 2021 revenues for Sublime.
Heritage — acquires Bloom Brands for up to $32M Stock. Bloom launched their recreational brands in California in 2016 upon cannabis legalization in the state. Since then, Bloom has built a scalable, asset-light business model with an award- winning portfolio of products. Bloom operates a hybrid business model where brands are owned in California and licensed to partners in New Mexico, Oklahoma, Nevada, Arizona, and Washington. This model allows for a cost effective and rapid new market launch to capture early shelf space. In addition to the distribution arrangement, Bloom also has 21.5% ownership in its partners in New Mexico and 20% ownership in Oklahoma both of which are license owners. Bloom will receive ~$15M of Heritage common shares in two tranches. The first tranche of $7.5M will be at a deemed value of CA$0.14 per Heritage share, followed by a second tranche of shares six months after closing at a deemed value of either the greater of CA$0.16 or a 15% discount to the 15-day VWAP. The Agreement also includes potential milestone payments of up to an additional $17M of Heritage common shares contingent upon Bloom achieving certain financial targets over a twelve-month period. Heritage is a leading cannabis products company operating two licensed manufacturing facilities in Canada and offering innovative products to both the medical and recreational legal cannabis markets in Canada and U.S. The company has an extensive portfolio of high quality cannabis products under the brands Purefarma, Pura Vida, RAD, Premium 5, Bloom, feelgood. and ArthroCBD.
Schwazze — Acquires Southern Colorado Growers. Schwazze will acquire the assets of Southern Colorado Growers (SCG) in Huerfano County, Colorado. The proposed transaction includes 34 acres of land with outdoor cultivation capacity, as well as indoor, greenhouse, and hoop house cultivation facilities and equipment. This planned purchase continues Schwazze's expansion in Colorado and, is the company's first major move into cultivation, which will provide high-end, premium cannabis directly to its Star Buds dispensaries and significant production of biomass for its PurpleBee's extraction and manufacturing facility. PurpleBee's is Colorado's largest supplier of wholesale distillate for the CPG market, providing quality distillate to leading vaporizer, concentrates and edibles companies. The consideration for the proposed acquisition is $6.8M for the business and $4.5M for the real estate and farm assets. Total consideration of $11.3M ($5.9M cash, $5.4M stock).
Hydrofarm — acquires House & Garden for $125M. House & Garden is a Humboldt County-based producer of quality nutrients under the House & Garden and Mad Farmer brands. The announcement follows Hydrofarm’s recent acquisition of nutrient manufacturer HEAVY 16 as the company accelerates its acquisition strategy. Hydrofarm will fund the purchase price of ~$125M using its existing cash resources. Hydrofarm expects House & Garden to generate ~$55M in net sales (2.3x Revenue) across the full CY2021. House & Garden’s profit margin profile will be accretive to Hydrofarm and as a result, the Company expects the acquisition will enhance the Company’s adjusted EBITDA margin for the 2021 fiscal year. The transaction represents an acquisition multiple of <7x House & Garden’s estimated 2021 Adjusted EBITDA, excluding synergies.
Silver Spike III Acquisition Corp (SPKC.UN.U) — closes $125M IPO. Led by a proven management team with a successful investment track record across cannabis, consumer packaged goods, and alternative health and wellness industries, the SPAC will search for target businesses with a focus on the cannabis sector and related industries; however, it is not limited to a particular industry or geographic region for purposes of completing its qualifying transaction.
Hervé — Raises Oversubscribed $3M to Expand its Innovative Cannabis-Infused Edibles into New Markets and Introduce New Products to its Portfolio. Founded in the classic art of patisserie creation, Hervé – launched by two French men - Sébastien and Frédéric – produces exquisite macarons, candies, desserts, and chocolates that combine contemporary design with spectacular flavors. The Series A round was completed with existing and new investors participating, along with a new investment by SOL Global Investment Corp. In addition to its investment, SOL Global will be providing Hervé with strategic support through its vast network to help bring the Hervé brand to more markets and more outlets. Having established itself as the leader in luxury cannabis products, Hervé is now focused on expanding their winning formula to other markets. With the additional capital, Hervé will launch in two new cannabis markets before the end of 2021 and expand into three additional markets in 2022. The funding will also be used to add both new flavors of existing products and new products altogether to Hervé's product portfolio.
HempFusion — Acquires Leading CBD Brand Sagely Naturals for up to $30M. HempFusion, a leading health and wellness Company offering premium probiotic supplements and products containing CBD, will acquire 100% interest in Sagely Naturals, a leader in premium CBD products with mass distribution in more than 14,000 retailers nationwide. Total Consideration of $30M ($2M cash, $23M stock, $5M earn-out). 2020 Revenue of $4.2M (7.1x 2020 Revenue); and when combined with the closing of the APCNA Holdings LLC (Apothecanna) transaction, will more than triple HempFusion’s 2020 revenue with significant expansion planned for 2021 and beyond.
Other highlights:GTI — Closes Acquisition of MA Cannabis Operator Liberty Compassion
Power REIT — Acquires 522,530 SQ FT MI Greenhouse Cultivation and Processing Facility for $18.5M
The Valens Company — C$40M Bought Deal Offering
Auxly — Sells KGK Science to Myconic Capital for up to $16.5M
GrowGeneration — acquires The Harvest Company to increase presence in NorCal
HEXO and Zenabis Global — Closing of Arrangement
High Tide — Nasdaq Approves Application to List
📄Earnings
Cresco Labs — First Quarter (Q1 2021) 2021 Financial Results Under U.S. GAAP
Revenue: $178.4M, up 9.9% Q/Q and 168.8% Y/Y
Gross profit: $87.0M (48.8% GM), up 16.8% Q/Q and 268.9% Y/Y
Adjusted EBITDA: $35.0M, up 16.5% Q/Q and 507.2% Y/Y
Record Net wholesale revenue of $95.6 million, up 5.7% Q/Q and 150.8% Y/Y
Record retail revenue of $82.8M from 24 stores, up 15.2% Q/Q and 193.2% Y/Y
Annualized revenue run-rate of more than $1B by the end of 2021
Gross profit margins in excess of 50% in the remaining three quarters of 2021
Adjusted EBITDA margin run-rate of at least 30% by the end of 2021
Ayr Wellness — Q1 2021 Results
Revenue: $58.4M, up 74% Y/Y
Adjusted EBITDA: $20.0M (IFRS); $18.4M (GAAP basis)
US GAAP Operating Loss: $8.4M, non-cash and one-time expenses of $26.5M
2Q21 Guidance: ~$90M in Revenue / 30%+ Adjusted EBITDA Margins
Jushi — Q1 2021 Financial Results & Delay in Filing Annual & Q1 2021 Filings
Revenue: $41.7M, an increase of 29.0% sequentially
Gross profit: $20.1M , an increase of 14.1% sequentially
Net loss: ($26.1M), driven primarily by the increase in the derivative warrant liability, interest expense, income tax expense, and losses on debt extinguishment
Adjusted EBITDA: $3.0M
Cash: $167.9M of cash and cash equivalents as of March 31, 2021
The Company’s auditor, MNP, expects to be ready to sign off on the audit by Friday, June 4, 2021 (originally expected to be completed May 28, 2021)
Planet 13 — Q1 2021 Financial Results (comparisons to Q1 2020)
Revenue: $23.8M as compared to $16.8M, an increase of 41.8%
Gross profit: $12.8M (53.8% GM) as compared to $9.0M (53.9% GM)
Net income: $0.4M as compared to a net loss of ($1.4M)
Adjusted EBITDA: $5.2M as compared to $2.4M
Cash: $141.1M
Cansortium — Q1 2021 Financial Results
Revenue: $15.1M (64.2% GM), up 49% Y/Y, Florida revenue increased 41% to $13.1M compared to $9.3M (64.0% GM)
Net loss:$(5.1M) or $(0.03) per share, compared to a net loss of $(13.9M) or $(0.07) per share
Adjusted EBITDA: $4.4M compared to $0.7M Y/Y
The Company is reiterating its previously issued annual guidance of revenue between ~$90-$100M and adjusted EBITDA of ~$30-$35M
TILT — Q1 2021 Financial Results
Revenue: $46.8M up 15%, driven by growth in both cannabis and inhalation and accessory revenue. Cannabis revenue increased 45% to $11.7M and inhalation and accessory revenue increased 8% to $35.1M
Gross profit: $13.5M (29% GM), compared to $12.6M (31% GM). Gross margins were impacted by timing of capacity expansions in Massachusetts.
Adjusted EBITDA: $6.2M (13.2% margin), up 28% Y/Y
Cash: $9.0M, as of 3/31/21
Gage Growth — First Quarter 2021 Results and Provides Business Update
Revenue: $17.6M (26% GM), an increase of 219.4% YoY and 67.9% quarter over quarter
Cash: $43.6M
Strong average basket size of $158 in Q1'; Expects to operate in-house processing asset in the third quarter of 2021 leading to further margin expansion; Entered into strategic outdoor off-take agreement for up to 10,000 pounds of premium Gage and Cookies flower strains
C21 Investments — Year End Results (February 1, 2020 to January 31, 2021)
Revenue: $36.1M (47% Gross Margin)
Income from Operations: $7.5M
Operating Cash Flow: $12.0M (33% margin)
Adjusted EBITDA: $9.8M
Working Capital improvement of $27M
Canopy Growth — Q4 and Fiscal Year 2021 Financial Results
Revenues: $148M in Q4 2021, up 38% Y/Y
Net Loss: Net loss of ($617M), a $710M narrower loss, driven primarily by Other Expense totaling $367M during Q4 2021 attributable to non-cash fair value changes of $292M and impairment and restructuring charges of $75M
Adjusted EBITDA: loss of ($94M), a $8M narrower loss versus Q4 2020
Cash: $2.3B as of March 31, 2021
🧔People
Metrc — New CFO, New Product Catalog, and Renewed Contracts in Three States. Metrc has hired Michael Johnson as the company’s first full-time CFO. Before joining Metrc, Johnson worked as CFO for InformedDNA, the nation’s largest independent provider of genetics services. Prior to that, he was CFO of CM Group, a family of global marketing technology brands. Johnson has also served in senior roles at Greenway Health and PricewaterhouseCoopers.
GTI — Chief Strategy Officer Resigns. Jennifer Dooley announced her resignation from her position as Chief Strategy Officer of GTI, effective August 31, 2021.
🏬Retail
Verano — opens 33rd müv™ Dispensary in Springhill, FL. The newest state-of-the-art MÜV Dispensary will offer an extensive selection of award-winning products including MÜV Wana Soft Chew edibles, chocolates & lozenges, flower, pre-rolls, a wide range of vaporizer pens, metered-dose inhalers, topicals and oral sprays; along with patented encapsulation formulations in its EnCaps™ capsules, tinctures, 72-hour transdermal patches and transdermal gels. MÜV also has one of the widest selections of concentrates for patients needing macro-dosing options.
Trulieve — Northampton, MA. The dispensary will be served by Trulieve's cultivation and processing facility in Holyoke, MA, a 140,000 square feet facility with over 60,000 square feet of canopy and 18,000 square feet of production. Once fully operational, the Holyoke facility and the Northampton dispensary will employ 250-300 workers.
Grupo Flor — Expands California Retail Footprint With Grand Opening of White Fire Prunedale. Located on Highway 152 just between Santa Cruz and North Monterey County, Prunedale has been consistently underserved by the cannabis market, with consumers having to drive an additional 10 miles to Salinas.
🌱Product
Cannabis Leader Toast™ Scores a Touchdown with Oklahoma Launch. Toast™ is proud to partner with Independence Farms founder John Bosa, who first made a name for himself as a First Round Pick for the NFL’s Miami Dolphins, before founding Freedom Road, a Colorado-based indoor grow facility and operator of two dispensaries. After leaving Colorado in 2017, Bosa founded Independence Farms based in Ardmore, Oklahoma and will be a key cultivator for Toast’s Oklahoma products. Additionally, Toast™ is excited to partner with fellow sports buffs and Oklahoma natives, Wesley Holloway and Rob Wood of OK Cannabis Direct and Pack-U Cannabis Company, who will be handling the manufacturing and distribution of the products.
New Cannabis Products: PB & Pretzel Bites, CBD Topicals, Kush Queen's Tincture, Mini Pre-Rolls. WYLLOW, a Los Angeles-based woman-owned cannabis brand, offers a line of mini pre-rolls and a luxe marble stash box filled with 48 pre-rolls (12g).
🎙️Interviews
CannaInsider x Patrick Rea (Poseidon Garden Fund)
💻Hiring
NABIS — Head of People Operations (Remote)
AWH — Senior Analyst, Corporate Development (Remote)
Eaze — VP Finance (SF)