🛑 Cresco Labs and Columbia Care Terminate Merger

Mastercard bans debit card usage. WM Technology CFO resigns. Pelorus prices first-ever Securitization backed by collateral in sector. Housing Works reports $12M in first 6 months of NYC sales.

Jul 31, 2023

🌿 Industry

Mastercard moves to ban cannabis purchases on its debit cards. Mastercard has told financial institutions to stop allowing marijuana transactions on its debit cards, dealing a blow to an industry already on the fringes of the financial system. — Reuters

Sunburn Cannabis CEO Brady Cobb said in a statement that "this move is another blow to the state-legal cannabis industry and patients/consumers who want to access this budding category"
Some buyers, and dispensaries, had found a loophole in PIN transactions with debit cards. Some dispensaries have moved towards ACH transactions to avoid processing on the credit card companies’ rails

A beachside city became California’s legal cannabis capital. Not everyone is stoked. Santa Barbara is alone among counties in that it taxes farmers based on the value of cannabis sold, as opposed to the acreage of their farms. — The Guardian

While that strategy works when cannabis values are high, the industry has experienced a massive decline in profitability during the past year
With the sale price of cannabis in the state at roughly a third of its value just a year or so ago, many investors have pulled out of the market entirely, and the number of licensed growers in Santa Barbara county has declined by about 25%
As a result, the county is expecting to earn just $7.5M in cannabis tax revenue this year, a 54% decline from 2022 and only half the $15.2M that was expected to fund the county’s latest budget, according to a county report

Fund created to support cannabis equity businesses has $0 a year later. Chapter 180, passed last summer, created a Cannabis Social Equity Trust Fund, intended to take 15% of the revenue collected from the sale of cannabis and give it to social equity and economic empowerment businesses. — Boston Business Journal

The problem, according to state officials, is with the way the law is written. Revenue from adult-use cannabis sales is deposited into the Marijuana Regulation Fund. The 15% earmarked for the social equity fund can't be transferred from the Marijuana Regulation Fund until all the money is transferred to something called the Consolidated Net Surplus account
Officials from the Office for Administration and Finance said they are working to find an interim solution that would allow funds to be transferred this year, before the Consolidated Net Surplus transfer
This could make $2 million to $4 million available after a closeout supplemental budget is signed by Gov. Maura Healey, which is expected to happen in the fall

Mississippi's medical weed: Too many businesses, not enough customers. More than 330 businesses had been issued licenses as of mid-July, including more than 180 dispensaries and 100+cultivators. But enrollments in the program have been slow to take off, with fewer than 20,000 patients currently signed up — although they continue to tick up by about 100 per day. — POLITO PRO

There’s roughly one licensed dispensary for every 110 patients. Florida has one dispensary for every 1,400 patients, while Ohio has about one dispensary for every 1,900 enrollees
Even Oklahoma, with its notorious oversupply of weed, has fewer shops on a per-patient basis than Mississippi, roughly one for every 125 patients
“New entrants should be very aware of the reality of the market, which is you’ve got to displace me,” said William Chism, CEO of River Remedy, a retail, cultivation and processing outfit in Byram, about 10 miles south of the state capital of Jackson. “The only way you do that is by slashing your prices. And that's not a fun game for either of us.”

Two Black farmers have received licenses to grow, process and sell medical marijuana. This comes after a new Florida state law helped clear the way for the long-awaited licenses. — Citrus County Chronicle

The Florida Department of Health issued the licenses July 11 to Suwannee County farmer Terry Donnell Gwinn and Bascom-based Shedrick McGriff
The farmers each met a deadline to submit a required $5 million bond to begin operating. With the addition of Gwinn and McGriff, the state now has 24 licensed medical-marijuana operators
The men will have to seek authorization to begin cultivating marijuana plants within two months

Massachusetts cannabis commission ‘in crisis,' chair says. The CCC is in the midst of implementing the state's new cannabis equity law, which aims to rein in some of the hiccups in the maturing industry, and has been busy working on revisions to the detailed rules for the industry in Massachusetts. — NBC Boston

The chairwoman of the Massachusetts Cannabis Control Commission took commissioners by surprise when she announced in the middle of a regulatory discussion that Executive Director Shawn Collins is planning to leave the agency he has run since its inception and described the CCC as being "in crisis"

RI marijuana regulators reviewing Slater finances after bounced check, late payments. The first red flag emerged in January, when a $500,000 check from the Thomas C. Slater Compassion Center (Slater) bounced twice after the state tried to cash it in exchange for renewing its license. — WPRI

Although the company reported $12M in retail sales through the first five months of recreational sales, which began on Dec. 1st, Slater had past-due payments to cultivators totaling nearly $500,000 through the first quarter of the year
The company hasn't paid more than a dozen cultivators within the 30-day window required under the state’s marijuana regulations barring a formal agreement otherwise
Of which, only three of the roughly 20 cultivators who were owed past-due payments had formal agreements in place at the time

💵 Deals

Cresco Labs and Columbia Care Mutually Agree to Terminate Merger. The mutual agreement, dated July 30, 2023, to amicably terminate the definitive arrangement agreement dated March 23, 2022, as amended on February 27, 2023, pursuant to which Cresco agreed to acquire all of the issued and outstanding shares of Columbia Care. There are no penalties or fees related to the mutual agreement to terminate the Transaction.

As an additional update, the definitive agreements dated November 4, 2022, to divest certain New York, Illinois and Massachusetts assets of Cresco and Columbia Care to an entity owned and controlled by Sean “Diddy” Combs have also been terminated, effective July 28, 2023.

Columbia Care separately said it had closed its Downtown Los Angeles facility and completed a previously announced corporate restructuring plan, including a 52-person headcount reduction.

Pelorus Capital Group Prices First-Ever Securitization Backed By Collateral in the Cannabis Sector. Pelorus retained a third of the $70 million offering, selling $45 million of bonds, which attracted a range of institutional investors and hedge funds who were drawn to the high yield and growth of the businesses. The one-tranche securitization is floating rate over one-month Secured Overnight Financing Rate (SOFR).

📄 Company Updates

Tilray Brands reports 2023 FY Q4. Net revenue increased 20% to $184M compared to $153M in the prior year quarter. On a constant currency basis, net revenue was $190M in Q4 2023, up 24% from the prior year quarter. Adjusted EBITDA rose 93% to $22M from $12M in the prior year quarter. Net loss of ($120M) compared to net loss of ($458M) in the prior year quarter. Net Loss for the twelve months ended May 31, 2023 was ($1,443M). Tilray has $207M in cash and $242M in marketable securities.

IIPR moves to block Parallel's Insolvency Claims in $6M Dispute. Surterra is now asking the court to enforce the dissolution after unpaid rent and penalties. Parallel’s subsidiary, Goodblend Pennsylvania LLC, is attempting to avoid a ~$6M payment relating to a failed grow facility by declaring insolvency, according to a recent complaint filed in a Pennsylvania court. The main problem now is figuring out what to do with Goodblend. Surterra Holdings, the majority owner of Goodblend and another Parallel-controlled entity, wants to dissolve the LLC. But Goodblend’s landlord, a branch of IIP, wants Goodblend to pay the $5.8M it owes in rent and penalties for not sticking to its lease on a large, 342,000-square-foot facility. While Surterra owns 75% of Goodblend, it cannot dissolve the company without the agreement of the minority owner, Medical Bloom, which has so far blocked the dissolution.

The Greenrose Holding Company, parent company of Theraplant, submitted a filing with SEC stating it completed the foreclosure of its assets. On Jan. 9, the company told the SEC it had agreed with its lenders to extend the marketing period for its potential sale. After not finding a buyer, the company told the SEC in March it had entered into a strict foreclosure agreement with its lenders, Delaware-based DXR Finance HoldCo. According to the company’s more recent filing with the SEC on July 24th, Greenrose and DXR Finance HoldCo “completed the disposition of assets and closed the foreclosure transaction” for Watertown-based Theraplant and Arizona cultivation company True Harvest on July 21st.

Eaze and its Investors accused of fraud in new lawsuit from Green Dragon cofounders. The plaintiffs claim that Eaze “fraudulently acquired and raided Green Dragon for their own personal gain” and that they “lost millions of dollars” in expected revenue. Eaze’s investors, Thomas Jermoluk and James Henry Clark, whom together own a 35% stake in Eaze, expressed their frustration.

"We will say this: Jim and TJ have been friends and partners for almost 40 years, and together have served on the boards of over 30 companies, including boards of numerous public companies. Never in that time have we run into people like the plaintiffs, who are supremely confident in their own opinions, but we believe lack appropriate business knowledge and knowledge of legal obligations as directors."

Housing Works Cannabis Co reports $12M in Sales During First Six Months of Operation in New York. As part of parent organization Housing Works, the dispensary's sales proceeds go directly to helping New Yorkers with healthcare, housing, job training, harm reduction, case management, advocacy for health equity and social justice initiatives, LGBTQ+ youth programs and sexual health services. Notably, deliveries currently account for about 5-7% of sales, and is available in select ZIP codes in Manhattan, Brooklyn and Queen.

MariMed sues The Harvest Foundation, a NV Cultivator over failed $2.4M Deal. The lawsuit alleges Harvest owners Larry Lemons and Donnie Burton severely mismanaged the company, leading to the suspension of its licenses by the Nevada Cannabis Compliance Board in 2021. Alleged violations include failure to report facility break-ins, employing underage workers, and negligence in reporting missing cannabis. MariMed had agreed to purchase Harvest for $2.4 million in stock (1M shares at $2.45/share), a deal that was slow to finalize due to a backlog at the NCCB and delays caused by the COVID-19 pandemic.

4Front Ventures entered into a consulting agreement with CEO Leo Gontmakher. Pursuant to the Consulting Agreement, the Company has agreed to: (i) an annual base fee of $400,000 payable in regular installments; (ii) 6,000,000 shares at CAD$0.17 as a signing bonus; (iii) 1,800,000 shares if certain financial metrics of the Company are achieved by year-end 2023 and such number of shares sufficient to make him a 1.00% owner calculated on a fully diluted basis to the extent not the case at the time of issuance and (iv) if he remains continuously retained through the date of the closing of a transaction that results in a Change in Control, eligible to receive a portion of the transaction bonus pool allocated for senior executives, which shall be equal to 1.00% of the fair market value of all consideration paid to the Company's stockholders in the transaction. In addition, the Company has agreed to issue 3,300,250 shares at a deemed issue price of CAD$0.17 in connection with his fiscal year-end 2022 compensation package.

Sol Global's Cannabis Holdings Get Haircuts In Valuations. In 2021, SOL Global Investments invested $20M into Common Citizen and in this latest quarter, the fair value of the company’s investment in Common Citizen was $13,681,405. During the six-month ended May 31, 2023, the Company recorded an unrealized loss of $52,050.

Clever Leaves's Colombian flower is now available to patients in Australia through a partnership with Australian Natural Therapeutics Group (ANTG). The products are available to medical patients in Australia under ANTG’s “Global Selects” brand portfolio. According to official data from the Therapeutic Goods Administration (TGA), in 2022 there were 319,000 reported patients, while in 2021 this number was 150,000.

🏬 Retail

Botanical Sciences opens first dispensary near Savannah, GA. Botanical Sciences and Trulieve Georgia are the first two to receive licenses, allowing them cultivation up to 100,000 sq ft of indoor space. Four other Class B licenses for 50,000 sq ft have yet to be awarded because of the legal conflict. Trulieve has opened dispensaries in Marietta, Macon, Newnan, and Pooler. Botanical Sciences plans to open five more dispensaries soon in Cobb, DeKalb, Henry, and Richmond counties.

Seven Point Cannabis Dispensary of Illinois opens second Danville, IL dispensary. The new business will be located close to Danville’s first cannabis dispensary, Sunnyside (Cresco Labs). It will be located just south of the Golden Nugget Danville casino. Seven Point CEO Brad Zerman said that only 20 of the 185 social-equity dispensing organizations awarded adult-use licenses are open in Illinois. He said those dispensaries face many challenges to open despite state support.

Shore House Canna is bringing a "surf shop-meets-weed shop" vibe to Cape May County, NJ. Shore House Canna LLC hopes to start legally selling cannabis by Labor Day—a move that would make it not only the county’s first legal dispensary, but among the first in any beach town in New Jersey, save for Atlantic City. The nearest operating dispensaries are in Vineland, Egg Harbor, and Atlantic City, about 45 minutes to an hour from West Cape May. Two other dispensaries, Sea & Leaf LLC and Potent Petal LLC, are reportedly working to open in the county as well.

Downtown Flwr becomes second dispensary to open in Jersey City, NJ. The dispensary will start off selling medical cannabis while the team waits for approvals to sell recreational products. Just a few weeks ago, the first dispensary opened in Jersey City, RIPT Dispensary, which also only sells medicinal products at the moment.

🌱 Product

Timeless Vapes Establishes Distribution Partnership with Kiva Sales and Services (KSS). KSS will bring Timeless Vapes and Timeless Noir products to more than 1,000 stores across California.

EVOL by Future/Carma HoldCo and Northern Emeralds Partner to launch Cannabis product line. The initial offering includes ultra-premium indoor flower and hash-holes, meticulously crafted to cater to the refined tastes of the world's most discerning cannabis connoisseurs. The distinct collection reflects the shared passion of EVOL and Northern Emeralds for excellence, authenticity, and pushing the boundaries of innovation.

TeaPot launches Good Evening Iced Tea in Blueberry Chamomile. This new style widens TeaPot's lineup following the launch of Mango Green Tea and Lemon Black Tea. Blueberry Chamomile Tea is infused with Black Sugar Rose, an Indica-dominant strain grown by Entourage Health Corp. under their Color Cannabis brand. This non-caffeinated iced tea is designed to create a relaxing and calming sensation, perfect for unwinding after a long day. Like all TeaPot offerings, this Blueberry Chamomile is non-carbonated, crafted to remove any cannabis taste or aroma, and contains 5mg of THC per 355mL can.

🧔 People

WM Technology (Weedmaps) CFO Arden Lee resigns. On June 30, 2023, Arden Lee, CFO of WM Technology (Weedmaps), tendered his resignation, effective July 14, 2023. Lee is leaving the Company to pursue another business opportunity. Lee’s resignation was not the result of any disagreement between Lee and the Company, its management, board of directors or any committee thereof, or with respect to any matter relating to the Company’s operations, policies or practices. The Board of Directors of the Company has commenced a search for an interim CFO.

Fyllo promotes Jeff Ragovin to President. Before his promotion, he served as Fyllo’s Chief Commercial Officer, joining the company in January 2020. He previously founded Social Native and was a co-founder of Buddy Media, which was acquired by salesforce for $800M in June 2012.

Auxly CFO Brian Schmitt resigns. Schmitt is leaving for an opportunity outside of the cannabis industry at a non-reporting issuer. Travis Wong, Auxly's SVP Finance, has been appointed interim CFO of Auxly effective immediately. Imperial Brands PLC and Auxly have agreed to extend the maturity date of the $123M Convertible Debenture by 24 months from September 25, 2024 to September 25, 2026. The parties anticipate the Amendment to come into effect on August 16, 2023.