Blüm Holdings completes sale of Blüm Santa Ana for $24.8M ($9M cash, $15.8M assumption of liabilities)
PFC owns and operates a cannabis retail dispensary campus in Santa Ana, California named Blüm Santa Ana. All of the cash generated in the Disposition was used to settle debt and litigation.
Press Release
8-K Filing
Membership Interest Purchase Agreement
Blüm Holdings completes sale of Blüm Santa Ana, ~$44.5M in debt elimination through $24.8M of total consideration.
On June 10, 2024, Unrivaled Brands, a wholly owned subsidiary of Blüm Holdings, completed the sale of its controlling membership interest in People’s First Choice (PFC) to Haven Nectar for $24.8M ($9M cash, $15.8M assumption of liabilities). Haven Nectar is a recently formed entity owned and controlled by Shubham Pandey. PFC owns and operates a cannabis retail dispensary campus in Santa Ana, California named Blüm Santa Ana. All of the cash generated in the Disposition was used to settle debt and litigation. The transaction has extinguished an estimated $44.5M in liabilities, reducing Blüm Holdings' total debt by over 55%.
The Cash Consideration is in the form of $8.0M paid in cash at closing and a $1.0M secured promissory note to be paid over 12 months. The Cash Consideration was paid to People’s for settlement of the debt pursuant to the binding settlement term sheet between Unrivaled and People’s entered into on March 6, 2023.
As a result of the sale and pursuant to the terms of the Settlement Term Sheet, after the Cash Consideration, the remaining debt to People’s is settled, subject to any deficiencies as defined therein. The PFC liabilities are comprised of $5.5M in accounts payable and accrued liabilities and $8.6M in income tax payable, and pursuant to US GAAP $1M in Tax Provision and $0.7M in Lease Liabilities, for an aggregate of $15.8M in liabilities.
As a result of the sale of PFC and pursuant to the Settlement Term Sheet, the total estimated extinguishment of liabilities expected is $44.46M based on pro forma estimates from the Company’s March 31, 2024 financial statements on Form 10-Q as filed with the SEC on May 14, 2024, which liabilities are comprised of $5.64M in total accounts payable and accrued liabilities, $8.59M in income tax payable, $23.89M in promissory notes and accrued interest, $5.31M in lease liabilities, and $1.03M in tax provision.
Under the terms of the transaction, Unrivaled is retaining a 20% non-economic, non-voting interest in PFC pending approval of the transfer of local and state retail cannabis licenses to Pandey. Upon transfer of the licenses, Unrivaled’s 20% minority interest will transfer to Haven Nectar, Unrivaled will resign as Manager of PFC and Sabas Carrillo will resign as an officer of PFC.
Effective upon the closing of the transaction, Haven Nectar assumed full operational and management control of the PFC business pursuant to a Management Services Agreement (“MSA”), pending transfer of the cannabis licenses. Pursuant to the MSA, Haven Nectar is responsible for paying all costs and expenses of the business, including taxes, license fees, operational and capital expenses, vendors, and rent due to PFC’s landlord. Haven Nectar is also responsible for funding all such costs and expense to the extent the business generates insufficient revenue to pay such costs and expenses. In exchange, Haven Nectar is entitled to a management fee equal to profits generated from the business, if any.
Unrivaled is assisting in the transition of PFC’s business operations to Haven Nectar for a period of 30 days after the closing pursuant to a Transition Services Agreement (TSA) for no additional consideration. Under the terms of the TSA, Unrivaled will provide consulting services with respect to operational management continuity and management support, vendor relations, labor and employment matters, utilities and maintenance, business access, filings and licenses, and marketing and branding, among others. Separately, pursuant to a Trademark License Agreement (TLA) between the Company’s subsidiary Blum Management Holdings, Inc., and PFC, Haven Nectar shall have the right to continued use of the Blüm name and registered trademarks in connection with PFC’s business on a royalty free basis for up to 18 months, and for a license fee thereafter at PFC’s option.
The foregoing description of the MIPA, TSA, and TLA does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, a copy of which is filed as Exhibit 10.1, 10.2, and 10.3, respectively, to this Current Report on Form 8-K and which is incorporated by reference herein in its entirety.
The estimates included in the unaudited pro forma condensed consolidated financial statements for the period ended March 31, 2024 estimates of the total consideration, liabilities extinguished, and gain are based on the Company's historical balance sheet information as of March 31, 2024 and statement of operations for the three months ended March 31, 2024 and year ended December 31, 2023 and are subject to change based upon, among other things, the actual balance sheet on the closing date of the Disposition and the finalization of the Company's financial closing procedures and may differ significantly from the actual total consideration, liabilities and net gain on disposal of assets that the Company will recognize. For further information, see Note 1 of unaudited pro forma condensed consolidated financial statements filed as Exhibit 99.1 to this Current Report on Form 8-K.
History regarding People’s First Choice and related entities (2021)
The acquisition of this key dispensary in Orange County, California, expanded Unrivaled’s retail presence significantly. The total consideration for the acquisition of People’s First Choice, LLC and related entities by Unrivaled was ~$72.8M. This total included the $24.0M cash payment (minus any outstanding indebtedness and acquisition-related expenses), $33.7M from a secured note (minus certain indebtedness and subsequent settlement agreements), $16.0M of value from an equity issuance of 40,000,000 shares of common stock issued at $0.40 per share, and an additional $4.0M for the prospective cash purchase of four other entities affiliated with the seller which included Riverside, Costa Mesa, and Downtown Los Angeles.
Riverside included a lease and a retail license however during 2022 the landlord of the building, a related party of the seller, sued Unrivaled. Prior to Unrivaled’s acquisition, a subsidiary of the Sellers of People’s First Choice purchased the building for $1.0M in June 2020, entered into a lease as both the lessee and landlord at an over market rate, then sold the building to their related party 18 months later in December 2021 for $2.7M, extracting $1.7M on the sale
Downtown Los Angeles was a retail dispensary that closed three months after opening and the landlord is currently suing Unrivaled for back rent
Costa Mesa is an application for a retail license and a lease for a premium location. Similarly to the Riverside location, a subsidiary of the Sellers of People’s First Choice purchased the building for $6.0M in June 2021 and sold it for $10.6M in May 2022 after entering into a lease as both the lessee and landlord extracting a gain of $4.6M on the sale in less than a year. Currently, this location is still awaiting approval of its retail license application
Blüm Holdings
Summary Income Statement
The below tables outline Unrivaled’s performance trends from December 31, 2020 to 2023 as reported in the Annual Report on Form 10-K with the SEC for the years then ended. The amounts outlined below do not include the classification of discontinued operations for all comparative prior periods under U.S. GAAP (in thousands):
Revenue and Gross Profit Margin Trends
Throughout 2023, despite significant debt restructuring, litigation matters, and the reorganization of the corporate holding company, by remaining operationally focused, Unrivaled managed to increase and maintain a healthy gross profit margin. In particular, the gross margin for 2023 improved significantly to 53% from 32% in 2022 and 25% in 2021, underscoring the effectiveness of Unrivaled’s strategic price optimizations, cost control measures, a focus on higher-margin products, inventory turn strategy, and the divestment of non-performing assets. Despite revenue decreasing $18.8M on restructuring, gross profit remained robust, actually increasing by $0.8M to $17.7M for 2023 from $16.9M in 2022.
$5M investment (2018) in Hydrofarm turned into $40.8M (2021)
On August 28, 2018, Unrivaled entered into a Subscription Agreement to purchase 2,000,000 "Units" from Hydrofarm at $2.50 per Unit, totaling a $5.0M investment. Each Unit included a share of common stock and a warrant for half a share at $5.00/share. Following a reverse stock split by Hydrofarm on November 24, 2020, Unrivaled’s investment adjusted to 593,261 shares of common stock and 296,630 warrants at revised exercise prices of $8.43 and $16.86 per share, respectively.
Hydrofarm went public on December 14, 2020, trading on the Nasdaq under "HYFM," with Unrivaled owning about 1.9% of Hydrofarm's 31,720,727 common shares outstanding at IPO. On June 16, 2021, Unrivaled sold its 593,261 Hydrofarm shares and warrants for purchasing 296,630 Hydrofarm shares at $40.8M in total proceeds through a Securities Purchase Agreement with two accredited investors.
This transaction was brokered and sold by Green Life Business Group Inc.