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💰Cannabis Deals (10.30.19-11.05.19)
Columbia Care/Green Solution. Merida SPAC. TILT PP. FlowerOne + Cookies. Curaleaf/Acres. IIP/PharmaCann. IIP/Grassroots.
As expected, a tough capital market environment for Cannabis means limited financings are actually happening. The one that did (TILT Holdings) was more so to give the Company a little bit more runway to attempt a turnaround. There was big acquisition news from Columbia Care as it takes a relatively large swing (in this market) to enter Colorado ($140M acquisition) and double it's LTM Revenue with an EBITDA positive asset. I will probably stop including the sale-leaseback transactions except for maybe a REIT section with a bullet point (that's how few deals are actually happening that I'm including those).
🏬🏬🏬Columbia Care acquires The Green Solution, Colorado’s Largest Vertically Integrated Cannabis Operator for $140M
Columbia Care (NEO: CCHW) entered into a definitive agreement to acquire The Green Solution, the largest vertically integrated cannabis operator in Colorado, through a transaction initially valued at $140M, excluding certain performance based milestone payments.
Founded in 2010, TGS currently operates 21 revenue-generating dispensaries with two additional stores under development that are expected to open in 4Q 2019. TGS also operates one of the country’s largest capacity, single site, automated manufacturing facilities that currently produces over 225,000 units of highly curated, branded products every month. TGS’s cultivation footprint encompasses three indoor grows totaling more than 250,000 sq ft, including a five-level, high-tech vertical grow, as well as 16,000 sq ft of greenhouse capacity located on its 140-acre outdoor cultivation complex. Combined, these sites are expected to yield more than 48,000 pounds of the lowest cost, highest quality indoor, outdoor and greenhouse flower in 2019 and nearly 150,000 pounds by 2023. TGS completed over 1.4M retail transactions in 2018 and recognized revenue in excess of $73M on a trailing twelve-month basis ending September 30, 2019.
~1.6x 2020E revenue, acquiring TGS nearly doubles Columbia Care’s LTM revenue, store count, and production capacity, and accelerates their path to profitability while their our portfolio to include more health, wellness and adult-use brands
Consideration of $140M includes $110M of Columbia Care stock, $15M in secured debt and a $15M seller’s note with the potential for an additional milestone payment in 2021 (based on 2020 revenue and EBITDA margin)
Following closing, stock-based consideration will be subject to a staggered lockup period over 12 months
Contributes meaningful top-line revenue growth with positive EBITDA
~$49 basket size
Merida Merger I, a blank check company formed by Merida Capital Partners targeting the cannabis industry, raised $120M by offering 12.0M units at $10 for a market cap of $146M. The company offered 2.0M more units than anticipated. Each unit consists of one share of common stock and one half of one warrant to purchase common stock at a price of $11.50 per share. Merida Merger I plans to list on the Nasdaq under the symbol MCMJU. EarlyBirdCapital acted as a lead manager on the deal.
TILT Holdings (CSE: TILT) closed a private placement of up to $35M of senior secured notes from a syndicate consisting of existing shareholders and new investors. The first close was $25.6M. Any further closing of up to $9.4M would take place within 45 days, subject to approvals from both the Company and the Financing Syndicate. Mark Scatterday, the Company’s Interim CEO, and other insiders participated in the Financing.
TILT intends to use the proceeds from the Financing to continue a rapid yet disciplined focus on profitability as one of the largest US-focused cannabis companies by revenue. Continuing to concentrate on the services side of the cannabis industry, capital will be allocated to help Jupiter continue its growth as one of the largest providers of vape hardware across the US and internationally, as well as the Baker and Blackbird software and distribution platforms. The Company will also be strategically reviewing opportunities surrounding non-core assets (📣will be looking to sell off assets to fund operations). The Financing will be used specifically to retire in full the Company’s U.S. $20M bridge loan dated April 29, 2019 that bears interest at 18.75% per annum, as well as other payables.
The Financing Syndicate and the Company have agreed to reconstitute the Board of Directors of the Company with new independent Board members in line with new management’s focus on transparency, compliance and corporate governance. The Financing Syndicate has proposed two Board Members who will be appointed shortly after closing.
All Notes have a maturity date of 36 months from the closing date and will bear interest from their date of issue at 8.0% per annum, payable quarterly. In connection with the issuance of the Notes, the Company will issue 1,800 common share (closed the day at C$0.44) purchase warrants to the subscribers for each US$1,000 principal amount of Notes subscribed, for a total aggregate of approximately 46M Warrants (representing 45% warrant coverage on the aggregate gross proceeds of the Notes). Each Warrant is exercisable for one common share of the Company at a price of C$.33 per common share for a period of 36 months from the closing date. In addition, the previous sellers of Jupiter have agreed to restructure unsecured debt of $35M (owed to them in connection with their sale of Jupiter) with a new maturity date of January 2023 and an 8% per annum interest rate that accrues and is payable at Maturity, along with a junior secured position to the Financing. Upon repayment of the Notes, should any Jupiter Debt be outstanding, the Jupiter Sellers will assume the same rights and security as the original Financing Syndicate until repaid. No warrants shall be issued as part of the Jupiter Debt Restructuring.
The stock has been in freefall over the past year.
TILT’s interim CEO founded Jupiter, so he’s likely conflicted in some of these decisions to try and get shareholders of Jupiter (himself included) paid but also not set up TILT to fail. The Company's not in a good position as it was likely getting crushed on the predatory 18.75% interest rate from the April bridge loan (desperate situation) and really only has a few million dollars (at best) in new cash from this deal after accounting for 6 months of interest (I don't think anyone outside of shareholders will be participating). The company reported $4.5M of cash and $17.2M of A/R as of 6/30/19 with A/P of ~$70M. Will be interesting to see Q3 2019 financials after market close on 11/20. The Company also shows the standard signs of struggling in this Cannabis market - 1) EBITDA positive language; 2) saying it will pay more attention to transparency, compliance and corporate governance (scary that it wasn't a focus earlier..); 3) putting independent board members in place; 4) restructuring debt that it can't service
Flower One announced its latest brand partnership agreement with California-based Cookies, a brand widely recognized throughout the cannabis market for producing some of the highest quality and most diverse cannabis cultivars in the world.
Cookies-branded products to be produced by Flower One are expected to be available in dispensaries throughout the state of Nevada in early 2020, including all of Cookies' best-in-class brands: Cookies, Lemonnade, Powerzzzup, Grandiflora, Runtz and Minntz. The partnership between Flower One and Cookies validates both the demand for the Cookies brand as well as Flower One's capabilities as a premium cultivator and producer of high-quality cannabis.
Curaleaf (CSE: CURA) closed the previously announced acquisition of the cultivation and processing assets of Acres Cannabis in Amargosa Valley, NV. This includes 269,000 sq. ft. of operating cultivation facilities and 3,200 sq. ft. processing lab. The transaction was announced earlier on March 18, 2019.
Innovative Industrial Properties (IIP) (NYSE: IIPR) closed on a sale-leaseback transaction with PharmaCann for a property located in Dwight, Illinois, which is currently improved with ~48,000 square feet of industrial space.
The purchase price for the property was $18.0M (excluding transaction costs). Concurrent with the closing of the acquisition, IIP entered into a long-term, triple-net lease agreement for the property with PharmaCann, which intends to continue to operate the property as a licensed cannabis cultivation and processing facility. PharmaCann is also expected to complete additional tenant improvements for the property, including an ~18,000 square foot expansion and other improvements that are expected to more than double production capacity, and for which IIP has agreed to provide reimbursement of up to $7.0M. Assuming full reimbursement for the tenant improvements, IIP’s total investment in the property will be $25.0M.
Innovative Industrial Properties (IIP) closed on a sale-leaseback transaction with a subsidiary of Grassroots for a property located in Litchfield, Illinois, which comprises approximately 70,000 square feet of industrial space.
The purchase price for the property was $10.5M (excluding transaction costs). Concurrent with the closing of the acquisition, IIP entered into a long-term, triple-net lease agreement for the property with Grassroots, which intends to continue to operate the property as a licensed cannabis cultivation and processing facility. Grassroots is also expected to complete additional tenant improvements for the property, including a 50,000-square-foot planned expansion, for which IIP has agreed to provide reimbursement of up to ~$17.7M, which funding is subject to reduction at Grassroots’ option within the first nine months of the lease term. Assuming full reimbursement for the tenant improvements, IIP’s total investment in the property will be approximately $28.2M.
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