👋 Curaleaf exits CA/CO/OR, Akerna exits Cannabis
👋 Curaleaf exits CA/CO/OR, Akerna exits Cannabis
POSaBIT to acquire MJ Platform, Leaf Data Systems and Ample Organics for $4M. AWH acquires Devi (MD) for $19M. Ayr Wellness terminates Dispensary 33 (IL) acquisition. MariMed $35M Credit Facility.
🌿 Industry
IIPR Says Cannabis Tenants Not Paying Rent. IIPR rent collections have dropped from 100% at this time last year to just 92% for the month ending January 31, 2023. The company said it had collected 97% of its rent at the end of December. The company named Parelle, Skymint and Vertical as those that have decided to not make rent payments. Parallel was in default on its obligations to pay rent at one of IIP’s Pennsylvania properties (~2.9% of invested/committed capital). However, IIPR did note that rent was paid in full through January 31, 2023, on all other IIPR properties leased by Parallel. In addition to Parallel, Skymint was in default on its obligations to pay rent at one of IIPR’s Michigan properties under construction (~2.7% of invested/committed capital). However, rent was paid in full through January 31, 2023, on all other IIPR properties leased by Skymint. In California, affiliates of Vertical were in default on their obligations to pay rent at IIPR’s California properties (~0.7% of invested/committed capital). IIPR also made changes to some lease agreements to include cross-default provisions and/or extend lease terms in exchange for limited base rent deferrals. One California property and one Michigan property leased by Holistic (~1.8% of invested/committed capital in the aggregate) have used security deposits in order to pay the leases. In addition to that, one Missouri property leased by Calyx Peak, Inc. (~1.2% of invested/committed capital) received a 100% base rent deferral through March 31, 2023, with pro-rata payback over the following 12 months and an extended term of the lease, with no other adjustments to lease terms.
U.S. FDA calls for new regulatory framework for use of cannabis compound CBD. The U.S. Food and Drug Administration said it does not intend to make any new guidance on the use of CBD in food and supplements, saying the United States needs to develop a new framework to ensure its safe use. The health regulator said it would work with Congress to develop a new, cross-agency regulatory framework. The FDA denied three citizen petitions that had requested the agency to provide guidance. The agency said the current safety standards for dietary supplements or food additives are not appropriate for cannabidiol, based on data and studies it has reviewed and conducted. The FDA has generally pursued limited enforcement activity regarding CBD, focusing primarily on food and beverage products that make unsubstantiated health claims.
Cannabis growers exit California market, helping stabilize prices. California cannabis cultivation capacity is down significantly from early 2022, with some growers choosing not to plant or renew their licenses because of low wholesale prices and tough economic conditions. The reduction in canopy is leading to wholesale price stabilization—and might even result in a slight increase in pricing—following months of declining prices in the nation’s largest marijuana market, according to some industry officials. LeafLink reports that the total square feet of cultivation canopy in the state has dropped ~15% from a year ago, to around 68 million sq ft versus roughly 80 million sq ft at this time last year. With only 50-100 more retail locations slated to come online in the state this year, Smith expects more growers will likely have to reduce capacity to balance the market. Graham Farrar, President, Glass House Brands, said pricing went up by about 13% from Q3 to Q4 2022.
2,000 marijuana grow licenses ID'd as potentially illegal in Oklahoma. About 2,000 medical marijuana licenses have been identified by the Oklahoma Bureau of Narcotics and Dangerous Drugs as potentially unlawful, an agency spokesman says. Mark Woodward of the OBNDD said those licenses are suspected of either having been obtained fraudulently or are being used to mask illegal operations selling most or all of their cannabis on the black market.
Nevada CCB Issues Summary Suspension of North Las Vegas Cultivation/Production Facility. Board members voted unanimously to summarily suspend Helping Hands Wellness Center, citing a present threat to public health and safety. Over a months-long investigation including a series of on-site inspections and review of surveillance camera footage, CCB Board Agents discovered Helping Hands’ employees concealed and intended to divert cannabis and cannabis products, in addition to other significant security deficiencies. Upon review of surveillance footage, Board Agents observed and heard Helping Hands’ employees including a manager attempting to hide cannabis and discussing plans to remove cannabis plants from the facility in December. During a follow-up visit in January, Board Agents uncovered untagged cannabis plants in the facility, which could not be properly traced in the State’s seed-to-sale tracking system. Diversion presents a threat to public health and safety as it results in untracked and untested cannabis and cannabis products that may enter the illicit market.
Michigan Cannabis Sales Surge in December. Michigan cannabis sales grew 9.0% in December compared to November, reflecting more than just the extra day, and increased 32.0% from a year ago to a record $221.7M. This was a little slower than the 33.2% annual growth in November.
💵 Deals
POSaBIT to acquire MJ Platform, Leaf Data Systems and Ample Organics for $4M, adding 350+ Merchants and $2B+ in GMV. The Acquired companies are expected to generate ~$11.0M in revenue and $6.8M in gross profit (61.8% GM) during the 12 months ended December 31, 2022 on a standalone basis. This nearly doubles the number of merchant locations POSaBIT serves, significantly expands payments pipeline with the addition of 350+ merchant locations generating $2.0B+ of annual GMV. In addition, the acquistion adds new revenue stream from state ‘seed-to-sale’ compliance contracts with the states of Pennsylvania and Utah. The $4.0M (0.4x 2022 Revenue) in cash to be paid at the closing will be funded with a portion of up to $11M of committed capital comprised of $3.0M of equity and up to $8M of debt (three-year term that bears interest at a rate of 10% in years one and two and 12% in year three). The equity portion of the financing is comprised of 4,533,333 units (one common and 0.95 of one common share purchase warrant). Akerna will then merge with bitcoin miner Gryphon Digital (Akerna investors to own 7.5%) in an all-stock deal.
AWH continues expansion with agreement to acquire Devi for $19M ($12M cash, $7M stock). Devi owns and operates four licensed dispensaries in Aberdeen, Crofton, Ellicott City, and Laurel under the names Nature's Medicines and True Wellness. This will expand AWH's operations into a seventh state as the company continues to build its footprint in limited license states across the Midwest and East Coast. Devi has run rate sales of $17M (1.0x revenue), and $3M of real estate included in the transaction.
MariMed closes $35M Credit Facility with Chicago Atlantic. The $35M credit facility has a three-year maturity and an ability to extend to a five-year maturity under certain conditions, it bears interest at a floating rate based on bank prime rate plus 5.75% and includes 30% warrant coverage priced at a 20% premium. The Company’s Debt/EBITDA ratio based on the midpoint of the Company’s 2022 annual EBITDA guidance is now 1.5x. Funds will be used for completing the build-out of a new cultivation and processing facility in Illinois and a new processing kitchen in Missouri, expanding existing cultivation and processing facilities in Massachusetts and Maryland, funding other capital expenditures, and repaying in full the Kind Therapeutics seller notes from the Maryland acquisition in April 2022, with the remaining balance to be used for acquisitions.
Ayr Wellness terminates proposed acquisition of Dispensary 33. Following the mutual termination, Ayr will no longer be required to pay the previously announced purchase consideration of $55M upfront ($12M cash, $3M sellers notes, $40M stock).
UC Asset entered a MOU to acquire a 10,000 sw ft cannabis cultivation property in Oklahoma, through a non-cash acquisition. Upon closing of the acquisition, UC Asset will invest $1M to build extra 5,000 sq ft of cannabis cultivation facility. After acquisition, the current operator on the property, Fire Ranch Farm, will continue to rent the property from UC Asset. UC Asset expects to receive monthly rents representing a 14.4% cash on cash annual return. The lease is locked for 3 years, and monthly rent will increase by 5% every 24 months after the first 3 years. The non-cash acquisition will be closed through the issuance of 2.5M preferred shares of UC Asset to the current property owner.
📄 Company Updates
Curaleaf closes operations in California, Colorado and Oregon. The Company will exit production and cultivation facilities in California, Colorado and Oregon. While these states have contributed to the growth of Select and other Curaleaf wholesale brands, the Company acknowledges the difficult operating environment in these investment states and will instead place a laser focus on cash generation in its core revenue-driving markets moving forward. Concurrent with these actions, the Company has reduced its payroll by 10% which, when coupled with other cost savings initiatives, it expects to realize $60M in gross run-rate expense savings in 2023, exceeding its initial savings target by 50%. These markets contributed <$50M in revenue to Curaleaf last year. Curaleaf expects these market closures will be immediately accretive to its adjusted EBITDA margins and positions it for robust positive free cash flow generation in excess of $125M this year as management executes on its strategic priorities.
Commenting on the news, Ed Schmults, CEO of StateHouse, said “Select has been a significant brand in our retail stores and was already re-focusing its attention to fewer accounts that represented the brand well. With its departure, those accounts will need to fill the void from a price point and consumer demand perspective which StateHouse is well prepared to do. MSOs naturally are focusing on markets that are comparatively better than others where they can drive cash flow and profitable business. For StateHouse, this creates a market share opportunity as CA brands are more likely to survive when MSOs pull out. All of these factors contribute to a healthy market and are positive for the brands that can take advantage of them.”
Columbia Care Implements Efficiency Initiatives to Enhance Profitability. The Company closed four unprofitable dispensaries in California (1) and Colorado (3) and consolidated cultivation operations in California, Colorado and Pennsylvania to improve their Adjusted EBITDA contribution. In addition, the Company has decreased corporate headcount by ~25%. As a result, the Company expects to show a sustained improvement in its long-term expense ratio as well as a decrease in its cash burn. Excluding the impact of today’s announced changes, Columbia Care ended 2022 with more than $48M in cash on the balance sheet, highlighting a free cash flow burn rate of <$2M in Q4, a sequential improvement of ~$30M.
GRTR BRNDS launches to power IP Licensing for the Cannabis Industry. GRTR BRNDS, a venture studio focusing on cannabis, psychedelics, and consumer goods, has formally launched to further develop intellectual property across regulated industries. Founded in 2021, the studio was started to support and facilitate a wider recognition and acceptance of cannabis products. At launch, GRTR has a handful of unique brands on the roster—from cannabis native business to larger talent-led ventures and creators including Andrew Rea (Binging With Babish), Anwar Carrots, Frank White led by Christopher "CJ" Wallace, and author of the New York Times Bestseller Go The F*ck to Sleep, Adam Mansbach. GRTR is also represented by William Morris Endeavor (WME).
Clever Leaves wind down Portugal operations as part of ongoing restructuring initiatives. Beginning in the second quarter of 2023, the Company will solely cultivate its flower strains in its Colombian greenhouses, where preparations for dry flower exports have been underway for the past 18 months. Clever Leaves believes it remains on track to commence sales of dry flower from Colombia later this quarter, and it has begun the process of transitioning its flower production to Colombia for current customers. The Company’s Colombian operations span over 1.8 million square feet of fully built-out cultivation capacity, with EU-GMP certifications for the production of both cannabis extracts and dry flower.
springbig x COMBASE’s KORONA POS. KORONA POS and springbig’s bidirectional integration will allow merchants to apply and award loyalty offerings directly from KORONA POS at checkout. Merchants will also be able to enroll new members into the loyalty program from either the POS or one of Springbig's many enrollment tools. Springbig’s marketing platform seamlessly integrates with KORONA POS to provide marketing segmentation based on sales data. This allows highly targeted and strategic campaigns to drive business and reach consumers in a highly personalized way.
🏬 Retail
Curaleaf launch adult-use sales at Stamford, CT dispensary. Curaleaf Stamford, is the Company's first dispensary in the state to open its doors to adult-use customers. Curaleaf currently serves medical patients at three other dispensaries across the state located in Hartford, Milford and Groton. The company anticipates welcoming adult-use customers at additional locations in the near future, pending regulatory approvals. Curaleaf opens Clermont, FL (57th in FL).
Planet 13 opens Port Orange, FL dispensary (4th in FL). The location in Port Orange is adjacent to a prominent shopping area and is just 3 miles west of the beach and 8 miles south of Daytona International Speedway. The Daytona Beach area attracts over 8M visitors annually.
Eaze (Green Dragon) adds six additional dispensaries in Florida. The new locations are in Crescent City, Fort Pierce, Jacksonville, Wilton Manors, Panama City, and Leesburg. Green Dragon now has 20 medical marijuana dispensaries across the state,the company plans to have 50 locations by year end.
Verano opens MÜV Navarre, FL (63rd in FL). MÜV is the first medical cannabis dispensary in Navarre, a town with a population of ~40,000. MÜV Navarre is located at a busy thoroughfare with an average daily traffic count of 37,500 vehicles.
Cresco Labs opens 22nd Sunnyside Dispensary in Florida. Sunnyside Lutz joins locations in Tampa, Clearwater and St. Petersburgh around the Tampa Bay area. The new store is Cresco Labs’ 22nd dispensary in Florida and 56th dispensary nationwide.
🌱 Product
Wana Brands Partners with TerrAscend to Bring in New Jersey and to Expand its Existing Line-Up in Maryland. Pursuant to the agreement, TerrAscend will serve as the exclusive sole manufacturer, supplier, and commercial partner for Wana's products in New Jersey. The new relationship in Maryland will also bring some of Wana's best-selling SKUs such as its fast-acting "Quick" and health and wellness line "Optimals," to Maryland as Wana seeks to aggressively expand their product portfolio in the state.
Trulieve Launches Highsman in Arizona. Highsman will be exclusively available at Trulieve and Harvest branded Arizona retail locations until February 4. Highsman has partnered with Abundant Organics to bring premium organically grown cannabis to Trulieve and Harvest's Arizona locations.
🧔 People
Schwazze adds CFO Forrest Hoffmaster. Effectively immediately, Hoffmaster replaces the current CFO, Nancy Huber, who previously announced her plans to retire once the Company hired a new CFO. He has worked at Whole Foods, HEB Grocery, Advanced Micro Devices and, most recently, with New Seasons Market, a specialty gourmet food retailer.
🎙️ Interviews
Marc Hauser, Hauser Advisory | Centri
Which US states are legalizing adult-use Cannabis in 2023? | High Rise
New York’s Adult Use Cannabis Market Update ft. Jesse Campoamor | The Dime
👋 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.