📰 Florida’s Health Department has not yet approved the deal between Circle K and GTI
BGP Acquisition Corp. x Craft 1861 Global Business Combination. Uber Eats x Leafly Cannabis delivery in Ontario. Jane Technologies launches iOS app. Flower One CCAA. Leafly lays off 56, COO departs.
👥 Usually I try to send out the newsletter on Fridays, unless I’m at a conference that day, which was the case this past Friday when I was at Arcview’s Cannabis Investment Summit. The two day conference was Arcview’s first since January 2020 in Santa Monica and brought together a good mix of familiar and new faces (especially from the NJ/NY market). The biggest question during the conference, as it tends to be these days, is how and where to find capital. Arcview did its best to bring together its network of investors, spark conversations and connect people in a well-designed space in Midtown NYC. I’ll definitely be attending future events and you should consider it as well if you didn’t make it last week.
🌿 Industry
Germany plans to decriminalize the purchase and possession of small amounts of cannabis, allow licensed sales in shops, but advertising would be banned. The reform, leaked to the RND newspaper group, would also allow cannabis sales in licensed shops and potentially also pharmacies but ban advertising to promote consumption. The so-called cornerstone paper that has been circulated for discussion around the government represents an incremental step toward proposing and passing legislation that could enter into force during this parliamentary term. But, in terms of its significance, it represents a decisive step toward legalization in the EU's most populous nation and a potentially huge opportunity for the North American cannabis industry that has already profited from the U.S. reform playbook. Legislation would decriminalize the purchase and possession of up to 20 grams of cannabis by adults. It would also be legal to cultivate up to two cannabis plants at home. Cannabis should then be sold in licensed shops and potentially also pharmacies to better cover Germany's rural areas. It is also being considered to allow "specialty stores with consumption options," or coffee shops in common parlance. Also, there should be a 15 percent limit on THC, a psychoactive substance, in cannabis that is sold legally.
Nearly 1,000 cannabis entrepreneurs are competing for New York’s first 150 dispensary licenses. The initial application window closed on Sept. 26, and the recently established New York Office of Cannabis Management now has the Herculean task of whittling those applicants down to about 150. That’s the number of licenses being distributed in the first round statewide, with about 70 to be located in New York City. At the same time, state officials are scrambling to fulfill their promise to secure and build out retail space for the first group awarded dispensary licenses and develop a $200 million equity fund to provide startup capital to those who need it. The goal is to have the first batch of dispensaries up and running before the end of 2022 — less than three months away. But this state-backed real estate process also comes with a lot of unknowns. For starters, applicants can’t choose exactly where they want to set up shop. Instead, they submitted their top location choices by region – or, within New York City, by borough – and now have to wait to see where the state places them.
New details show sprawling web of corruption in Southern California cannabis licensing. As a California lawmaker called for a statewide task force to crack down on corruption in the legal cannabis market, new details are emerging in a bribery scandal that has ensnared local government officials from the Inland Empire to the San Gabriel Valley and southeast Los Angeles County. Federal prosecutors have unveiled two plea agreements that detail pay-to-play schemes involving cannabis business licensing and corroborate allegations in a Times investigation last month that examined how legalization of Cannabis unleashed a wave of corruption across California. In one of the agreements, former Baldwin Park City Councilmember Ricardo Pacheco admitted soliciting bribes from Cannabis businesses — including $150,000 from a consultant working for a local cannabis distributor. The consultant declined, but at the direction of the FBI delivered campaign contributions requested by Pacheco, the agreement said. In the other plea agreement, a former San Bernardino County planning commissioner, Gabriel Chavez, admitted acting as an intermediary to funnel bribes from Cannabis businesses to Pacheco as part of the scheme.
💵 Deals
BGP Acquisition Corp. x Craft 1861 Global — Business Combination. Craft Global is a minority-led, U.S.-based health and wellness company within the cannabinoid space. Craft Global aims to capitalize on what management believes is a once-in-a-generation opportunity to create a global household name by consolidating global demand for cannabis (including both CBD and THC products) and making it a mainstream component of health and wellness lifestyles. Craft Global expects over $201M of revenue and $72M of EBITDA in 2023 as their partnerships are launched, and over $542M of revenues and $314M in EBITDA in 2024, the first year when all partnerships will be live for 12 months.
BGP will issue 430,000 proportionate voting shares, convertible into 43M subordinate voting shares, to Craft Global shareholders in upfront equity consideration, complemented by an earn-out of an additional 100,000 Proportionate Voting Shares (convertible into 10M subordinate voting shares) based on certain trading price milestones. New Craft will be fully-funded for its business plan at closing, with over $167.8M in cash (assuming no redemptions of Class A Restricted Voting Shares) and a committed and undrawn credit line for $100M (assuming completion of ongoing negotiations). Craft Global shareholders are rolling 100% of their equity, resulting in a pro forma market capitalization of ~$580M.
Goodness Growth Holdings — Commences Litigation Against Verano for unlawful termination of Arrangement Agreement. Goodness Growth's notice of civil claim was filed with the British Columbia Supreme Court and was served on Verano. Goodness Growth is seeking damages for breach of contract, as well as other damages, costs and interest, based on Verano's breach of contract and of its duty of good faith and honest performance. Goodness Growth's action follows Verano's purported termination of the Arrangement Agreement on October 14, 2022, for which Goodness Growth believes Verano had no factual or legal basis.
📄 Company Updates
Leafly x Uber Eats — Partner to Bring Cannabis Delivery to Torontonians. Torontonians 19+ can place orders from local licenced cannabis retailers in the Uber Eats app, and have it delivered to their door by the retailer’s CannSell certified staff. This is the first time cannabis delivery will be available on a major third-party delivery platform in the world. This partnership will help combat the underground illegal market, which still accounts for over 50% of all nonmedical cannabis sales in Ontario.
Flower One — CCAA Filing. The Canadian Company and its Canadian subsidiaries sought and obtained an Initial Order of the Supreme Court of British Columbia pursuant to the Companies’ Creditors Arrangement Act (CCAA). PwC was appointed as the Monitor. The decision to commence CCAA proceedings was made after careful consideration of the Canadian Company’s financial position and significant consultation with certain key creditors of Flower One. The CCAA proceedings are intended to facilitate a restructuring of the Canadian Company’s balance sheet and the injection of additional capital, with a view of Flower One going private by the end of the 2022 calendar year, thereby eliminating the administrative burden and significant expense associated with being a publicly listed company. During the CCAA process, the US operations of Flower One are expected to continue in the ordinary course and without interruption.
POSaBIT — First $10.0M+ Quarter, up 58%+ Y/Y, Enters New York Market and Has Contracted Merchants in 4 More States to Go Live By Year-End. New York will be the twenty-first active state for the Company and their fifth new state entered in 2022. POSaBIT’s 2022 goal of entering eight new states will soon be achieved, as the Company has contracted merchants in four more states preparing to go live within the next two months.
Audacious — Completes First New York State Cannabis Harvest. Following the successful harvest, the Company has shipped its flower for processing and manufacturing into vapes and edibles. This process will be overseen by Anthony DeMeo who is currently co-chair of Commercial Extraction and Manufacturing at Oaksterdam University. The Company is in negotiations with dispensary license candidates to secure pre-sales of its product. The Office of Cannabis Management and Cannabis Control Board recently reiterated that the first adult-use marijuana sales will happen before 2023. Governor Kathy Hochul is also on record stating that the timeline remains on track, with about 20 dispensaries coming online per month after the initial launch.
Surna Cultivation Technologies — Offers Water Treatment Solutions. The comprehensive water treatment solutions now available from Surna include water sampling, system design, equipment supply, and system integration. With the technologies available, Surna can provide condensate collection, including the ability to treat and purify the water stream so it can be reintroduced as a pure water source, offering a financial and environmentally sustainable solution for water conservation. Surna will work with cultivators and provide the necessary technologies to purify water including Reverse Osmosis, Carbon Filtration, Multi-Media Filtration, Water Softeners, and Ultraviolet water treatment. Every cultivator is unique, and Surna will provide the right water purification system suited to their needs.
🏬 Retail
Green Thumb to Launch “RISE Express” Dispensaries in Florida. GTI plans to expand its medical retail footprint in Florida through a lease agreement with Circle K, the global convenience store retailer. Starting in 2023, Green Thumb plans to launch its test and learn phase of the rollout with approximately ten “RISE Express” branded dispensaries adjacent to Circle K stores in various Florida locations. Through the exclusive agreement, Green Thumb can lease space from Circle K in Florida, where the retailer currently operates approximately 600 locations. The “RISE Express” stores will offer patients a selection of branded cannabis products including RYTHM premium flower, Dogwalkers pre-rolls, incredibles gummies and &Shine vapes. Additional info on the partnership and ACT/Circle K/Fire & Flower can be found here.
However, Florida’s Health Department told the Washington Examiner that Florida has not approved the deal between Circle K and GTI.
AWH — Commences Medical Operations at Scranton, PA Dispensary. The Ascend Scranton location features 3,000 square feet of dispensary floor space and abundant parking for all visitors. The dispensary has six registers and one consultation room.
Curaleaf — Opens Frederick, MD Dispensary. The new dispensary opening follows the final license transfer of a Herbology retail location previously acquired in the Grassroots acquisition.
Cresco Labs — Opens Second Pensacola, FL Dispensary. This is the Company’s 54th nationwide and 20th Florida store. Sunnyside Pensacola – Nine Mile Road is located on a major east/west thoroughfare in close proximity to major retailers including Walmart Supercenter, Publix, Walgreens, and Starbucks.
NOXX x Cookies Dispensary — Grand Rapids, MI. The new 3,000-square-foot Cookies flagship retail location opening in November in Grand Rapids, which will be the only one in the region.
🌱 Product
Jane Technologies — Launches iOS App for Cannabis Shopping. The Jane app is the first of its kind, bringing the modern retail experience to cannabis by enabling users to discover products based on local inventory, verified reviews, feelings & effects, and personalized recommendations. The Jane app offers a best-in-class curated shopping experience, helping users discover new brands and products while shopping locally. Collections, Jane's personalization feature within the app, help users discover new brands and products through recommendations based on activity, reviews, and user interests. Jane's Collections include curated lists for everything from sleeping to socializing. For cannabis retailers, Jane features customizable store pages allowing dispensaries to manage their storefront within the app, so users can shop real-time menus and schedule a delivery or pickup. For the past five years, Jane's platform has enabled retailers to digitize their live product inventory and reach new local customers online.
Jones Soda (Mary Jones) — Super-Sized Cannabis Beverages. The launch of the new super-sized 16 oz. cannabis beverages infused with 100 mg of THC follows the debut of the Mary Jones brand’s 12-ounce weed drinks earlier this year. Mary Jones sodas are cannabis-infused versions of the company’s popular beverages including Jones’ Root Beer, Berry Lemonade, Green Apple and Orange & Cream, which have been among the brand’s top sellers for 25 years.
🧔 People
Safe Harbor Financial — Appoints James Dennedy as CFO. Dennedy most recently served as President, COO, and a board member for urban-gro. Prior to that, he served as CFO of Interurban Capital Group; President, CEO, and director of hospitality software company Agilysis, and CIO of Arcadia Capital Advisors.
Turning Point Brands — Appoints Long-Time Executive Graham Purdy as CEO. This follows Yavor Efremov’s resignation as CEO and Director, who served in the role for less than a year. Additionally, David Glazek will transition from Non-Executive to Executive Board Chairman, effective January 2023. Prior to his appointment as CEO, Purdy served as COO since 2019. Since joining TPB in 2004, Purdy has held various leadership positions, including President, New Ventures Division and SVP Sales.
Leafly — Lays off 21% / 56 Employees, COO Departs. The company expects a one-time cash restructuring charge for the layoffs of approximately $500,000 in Q4 of 2022. In addition, the company has otherwise realigned its cost structure in response to changing market conditions, resulting in additional expected cost savings, for total expected annual cash savings of ~$16M beginning in 2023, primarily in headcount-related costs. These cost-cutting measures allow the company to prioritize growth opportunities, realign its expense structure, and preserve capital while strengthening its financial position. The Company also announced that Sam Martin, COO, is leaving effective December 31, 2022, after seven years with the company.
🎙️ Interviews
Eaze, CEO, Cory Azzalino | ~$200M Revenue targeting 20% Y/Y growth (NCV)
Skip Motsenbocker, CEO, Pacific Stone | “So Goes California, So Goes The World” (Forbes)
Brian Vicente, Vicente Sederberg | Reflects on 10-years of CO Legalization (Forbes)
Sarah Falvo, Arcview Consulting | Trends, MJBizCon 2022 Arcview (Alchemy)
Bruce Linton | Macro Markets, U.S. Cannabis & Canopy Growth (TDR)
Turns out M&A in cannabis is hard: Verano drops Goodness Growth deal (High Rise)
👋 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.