Dai Truong's Cannabis Newsletter - Issue #28


Cannabis

Green Growth Brands cuts its workforce

Green Growth Brands has cut its workforce as part of an effort to rein in costs for the young cannabis company.The company, just more than a year old, has about 900 workers throughout the country. Fewer than 50 workers were let go in Columbus, where it has its headquarters. The company pegged the total cut at less than 5%. The company is building a number of brands around cannabis products, including health and beauty items, dispensaries where people buy cannabis products and what the company calls “lifestyle” brands.

These marijuana dispensaries and delivery businesses are still competing for licenses in Chula Vista, CA

The list of applicants for retail licenses is down to 34 dispensaries and five delivery business. The marijuana market in Chula Vista, the second-largest city in the county, could become the largest in the region. In addition to dispensaries and delivery companies, the city’s regulations allow up to 10 cultivation facilities and an unlimited number of distribution, manufacturing and testing companies.

The city expects to collect about $6M in marijuana tax revenue a year, with the tax rate set at 7% of gross receipts for almost all types of marijuana businesses, which assumes an $86M market.

DionyMed Brands Provides Financing Update, Announces Reorganization and Resumption of Trading

DionyMed (CSE:DYME; OTCQB:DYMEF), a multi-state cannabis brands, Direct-to-Consumer and distribution platform, announced additional investment from its senior secured investor of $3.2M and a reorganization of the business to right size the Company. This increases the credit facility with the senior lender to US$19.2M. The credit facility bears interest at LIBOR (at a floor of 2.5%) plus 12% plus an anniversary fee of 2.5%, maturing February 6, 2021. While the credit facility is currently in default, the senior lender has agreed to make additional advances to the Company.

The Company is also announcing that Gotham Green has issued a request for repayment of its outstanding balance of US$2.2 MM representing the credit advance made on July 30, 2019 plus accrued and unpaid interest.

Eaze Fights Back As DionyMed Stock Trading Resumes

California delivery software company Eaze has finally gotten fed up with DionyMed’s (CSE: DYME) (OTC:DYMEF) accusations and filed a countersuit against the company. For DionyMed, it comes at a pretty bad time. The company just accepted the resignation of its COO Pete Hilliard and is restructuring its debt. Plus, the stock was halted in trading.

Plus Products Partners With John Legend & Casper to Launch Nation-Wide 100% Hemp CBD Edible Line

Plus partners with John Legend to support new CBD products and a new sleep/ CBD product collaboration with Casper.

The sleep-deprived will have to dish out $35 for a package of 14 CBD Sleep Gummies, each of which include chamomile extract, 25mg of CBD and 1mg of melatonin. The new line will include three distinct products, developed by Plus’ team of scientists, entrepreneurs and chefs: Balance in blueberry flavor, Uplift in grapefruit flavor, and Sleep in blackberry tea flavor.

Two cannabis businesses coming to SLO with more on the way

Coastal Delivery SLO and Megan’s Organic Market SLO will be the City of San Luis Obispo’s first cannabis businesses. The businesses went through a several month vetting process to ensure they meet standards established by the city and community, according to a news release.

The San Luis Obispo City Council approved an ordinance May 22, 2018 allowing commercial cannabis businesses to operate in the city. A maximum of three retail storefront businesses will be allowed.

National City will draft ordinance that would permit three marijuana businesses

A regulatory framework for a potential marijuana market in National City has begun to take shape. The City Council did not decide to limit the types of marijuana businesses, which leaves the door open for the entire supply chain: from dispensaries and delivery business to cultivation, manufacturing and distribution companies and testing labs.

As part of another staff recommendation, the City Council also agreed to use so-called development agreements to create revenue, instead of a cannabis tax.

Development agreements are contracts between municipalities and property owners or developers that set fees — in the case of the marijuana market, typically a percentage of gross receipts — as well as other stipulations, such as local hiring requirements.

City staff’s plan is to return to the City Council with a final draft of an ordinance by the end of the year.

Couche-Tard wants to be player in cannabis sales, but must go beyond Quebec

Alimentation Couche-Tard Inc. wants to be one of the “key players” in the North American cannabis market by using its position in Canada, where the use of this substance for recreational purposes is legal, to achieve this goal.

Unable to penetrate the Quebec market, the Quebec multinational has invested in Alberta retailer Fire & Flower, which could enable it to eventually acquire a majority stake in this company.

This is in addition to its existing partnership with Canadian cannabis giant Canopy Growth surrounding the operation of private stores.

Colorado’s average price of a pound of wholesale marijuana grows for fourth straight quarter

Between May 1 and July 31, the average price of a pound of dried marijuana sold or transferred from a commercial grow operation in Colorado hit $999. That’s a nearly $150 jump over the $850 average the state recorded in July. The record average price per pound of wholesale bud was set in January 2015 at $2,007, state data shows. The last time the average price per pound was over $1,000 was in April of last year.

Maryland’s 2019 medical cannabis sales on pace to double 2018 sales

Data released by the Maryland Medical Cannabis Commission show that through the end of July, MMJ sales through the state’s dispensaries were just under $130 million, with average monthly sales of $18.4 million.

Deals

iAnthus Expands Nevada Footprint with Agreement to Acquire Vertically Integrated Northern Nevada Operator --- Sierra Well

iAnthus (CSE: IAN,OTCQX: ITHUF), which owns, operates, and partners with best-in-class regulated cannabis operations across the United States, announced that its U.S. subsidiary has entered into an agreement to acquire WSCC, Inc. (“Sierra Well”), a leading Nevada-based vertically licensed cannabis company with two dispensary locations and over 20,000 square feet of cultivation/production facilities in Reno and Carson City.

The total consideration, to be paid upon closing of the transaction, is approximately ~$27.6M, comprised of ~$5.1M (~18.5%) to be paid in cash and ~$22.5M to be paid in iAnthus shares priced at the 10-day volume-weighted average price prior to closing of the transaction.

Flower One Sells Nevada Indoor Cultivation and Production Facility to Cannabis REIT for $20M

Flower One (CSE: FONE) (OTCQX: FLOOF) today announced that one of the Company’s subsidiaries has entered into a sale-leaseback agreement with Treehouse Real Estate Investment Trust, Inc. for the Company’s 25,000 square-foot indoor cultivation and production facility in North Las Vegas, including the adjacent vacant lot acquired early in 2019 (collectively, the “Neeham Property”). Flower One is finalizing plans to build a state-of-the-art commercial kitchen and manufacturing space on the Neeham Property and expects to start construction by the second quarter of 2020. Treehouse will purchase the Neeham property for $20M.

TerrAscend Completes Acquisition of Ilera Healthcare

Ilera Healthcare, one of five permitted vertically-integrated cannabis cultivator, processor, and dispensary operators in the state. With the completion of this transaction, TerrAscend’s licensed cannabis footprint expands to four U.S. states, in addition to its global reach into Canada and Europe.

— Ilera’s current revenue run-rate is $43M+, up from total sales in 2018 of less than $8M.

The Pennsylvania medical marijuana program has more than 180,000 registered patients and 20,000 registered caregivers as of August 2019, and covers 23 qualifying medical conditions including anxiety disorders, cancer, and opioid use disorder.

Harvest Health & Recreation Opens Eleventh Dispensary in Arizona, Strengthening Presence in Southwest Market

“Harvest has become the leading, trusted cannabis source for patients and customers across Arizona, and we are proud to increase access to high-quality products and services for the Chandler community,” said Harvest CEO Steve White. “With this opening, we are thrilled to continue our expansion in this growing market and broaden access of medicinal cannabis and resources for patients.”

Curaleaf Announces Opening of New Arizona Dispensary

The opening of Curaleaf Pavilions follows the recently completed acquisition of Glendale Greenhouse and represents the Company’s third acquisition in the state of Arizona over the past four months, giving Curaleaf the second largest retail footprint in the state. Curaleaf’s successful expansion in Arizona is emblematic of its aggressive expansion plans across the United States, including the completed acquisition of Eureka in California and the pending acquisitions of Acres in Nevada, Select and Grassroots.

Funding

As it readies a test for vaping additives, cannabis testing company Cannalysis raises $22.6M

Cannalysis, a testing company for cannabis, has raised $22.6 million in a new round of financing as it prepares to bring a new test for vaping additives to the market.

The test, which the company is preparing to unveil later this week, will test for the presence and amount of Vitamin E acetate, a chemical compound that may be linked to the vaping-related illness that has swept through the U.S. in the past month.

The round was led by CanLab, the nation’s largest testing service, committing $22M to the company as a strategic investor.

Future State Brands brings funding total to $25M

Future State Brands (FSB), announces today the launch of a consumer goods and marketing holding company led by PRØHBTD CEO and Founder Drake Sutton-Shearer. Future State Brands oversees a growing portfolio of THC, Hemp and CBD brands reinforcing the company’s mission to take cannabis from the black market to the supermarket.

Dallas-based Cresco Capital led this latest funding round, bringing the total investment in Future State Brands to $25M (which I’m hearing is ~$8M).

As part of the company’s overall strategy, FSB recently acquired a majority interest in premium hash brand Hot Nife, and are now working directly with founder Circe Wallace to reintroduce the brand to the market.

Choom™ Announces Closing of Non-Brokered Private Placement

Choom™ (CSE: CHOO; OTCQB: CHOOF), an emerging adult use cannabis company that has secured one of the largest national retail networks in Canada, announced that it has completed a non-brokered private placement for gross proceeds of C$1.0M through the issuance of 2,500,000 units. Each Unit consists of one common share and one-half of one transferrable warrant. Each whole Warrant entitles the holder to purchase an additional common share at an exercise price of $0.60 for a period of 18 months from closing.

People

Pax Labs’ Bharat Vasan is out as CEO

Bharat Vasan is no longer the Chief Executive Officer at Pax Labs, the consumer tech company that makes cannabis vaporizers. Certainly, it’s a surprising move, given that Vasan was appointed the CEO of Pax not so long ago — in February of 2018. Before that, he served as President and COO of August Home, which was acquired by Swedish lock maker Assa Abloy in 2017. Previous to that, Vasan was the cofounder of Basis, a fitness-based wearable company that was acquired by Intel in 2014 for $100 million.

Vasan also led the company in its most recent round this past April, in which it secured $420M from Tiger Global Management, Tao Capital, and Prescott General Partners, among others. The post-money valuation for the company at the time was $1.7B.

Cura Cannabis hires President with his own baggage

Nick Sarnicola, Select’s new president, has also long been a top executive and CEO of a Michigan company called ViSalus, which sells protein powder and vitamins for weight-loss shakes. ViSalus has been plagued for years by accusations that it operated a “pyramid scheme” and has reached legal settlements over allegations the company enriched Sarnicola and other executives at the expense of an army of distributors who paid to distribute its products.

ViSalus’ former director of security pleaded guilty in 2015 to hacking into competitors’ computers and ViSalus settled a related civil suit that accused Sarnicola of directing the attacks.

Earlier this year a federal jury in Oregon hit ViSalus with a whopping $925 million judgement for making nearly 2 million illegal robocalls peddling its products. ViSalus is contesting the judgement.

Harvest Announces Resignation of Board Member and President

Harvest, a vertically-integrated cannabis company with one of the largest and deepest footprints in the U.S., announced that, Frank Bedu-Addo has resigned from the Board of Directors in order to focus on other business endeavors. Steve Gutterman, President, will be departing the company for personal reasons.

4Front Appoints Two New Board Members

4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF) announced the appointment of Kathi Lentzsch, CEO and president of Bartell Drugs, and Betty Aldworth, executive director of Students for Sensible Drug Policy, to its Board of Directors.