📰 Germany Scales Back Legalization Plans

Tilray Brands buys HEXO for $56M all-stock. Charlotte's Web forms JV with BAT investing $10M. Ispire Technology $18.9M IPO. Cookies Series A. engin raises $2.5M Seed. $126M in Missouri sales in March.

Apr 12, 2023

🌿 Industry

Germany Scales Back Plans To Legalize Cannabis. Germany is set to scale back initial plans to legalize cannabis amid legal hurdles at the European level. — Forbes

The revised policy would allow restricted cannabis sales under a regional pilot program for four years, similar to programs recently implemented in Switzerland and the Netherlands
German residents 18 and older join nonprofit “cannabis clubs” with a maximum 500 members each, which would be allowed to grow cannabis for members’ personal consumption
Individuals would be allowed to buy up to 25g/day, or up to 50g/month

$126M in recreational and medical sales for Missouri in March, eclipsing $103M February. $93.5M in adult-use / $32.7M in medical sales. — stlpr

In 2022, growers oversupplied the medical market by 92,000 lbs, cultivators are only producing ~40% of the licensed cultivation capacity
Mitch Meyers (BeLeaf Medical Group) expects supply challenges will begin to ease in the next few months and be completely alleviated in Q4

3 companies sue Alabama cannabis commission for licensing process. Three companies seeking licenses from the Alabama Medical Cannabis Commission filed separate lawsuits against the agency, alleging problems with its online portal led to their documents being rejected. — Alabama Daily News

A Montgomery County circuit judge last week agreed with Med Shop Dispensary and TheraTrue Alabama, ordering the commission to consider their applications. A similar complaint from RedBud Remedies was denied
94 companies applied for medical marijuana business licenses
The commission may award up to 12 cultivator licenses, 4 processor licenses, 4 dispensary licenses and 5 integrated facility licenses

Fine Fettle cannabis dispensary had 5 equity joint venture approvals pulled in CT. CT awarded Fine Fettle six provisional approvals last September. — Stamford Advocate

In February, the company opened the state's first equity joint venture in Manchester. But it was the other five, which were not yet in use, where officials said they found fault
While there were preliminary plans to space the five new dispensaries across their existing locations, specific sites had not yet been finalized
A spokesperson for the Social Equity Council, said Fine Fettle failed to comply with an amendment to the state's cannabis law that prohibits equity partners from owning more than one equity JV
Fine Fettle had submitted its six applications for equity joint ventures before the law was changed in May 2022. The original law—which took effect in July 2021—did not place limits on individuals owning multiple equity JVs

Cannabis Sales Slow in Most Eastern Markets in February. Sales decreased -2.1% sequentially in the short February after decreasing -7.0% in January, according to cannabis data analytics firm BDSA. — NCV

CA: $356.4M, down by 6.2% & down -15.1% Y/Y
MI: $216.4M, up 4.4% sequentially and up 40.2% Y/Y
FL: $202.9M, up 1.4% sequentially & 26.2% Y/Y
IL: $147.2M, down -11.6% sequentially & up 5.4% Y/Y
MA: $139.1M, down -0.6% sequentially and -0.4% Y/Y
CO: $128.7M, down -0.6% sequentially & down -11.4% Y/Y
AZ: $105.6M, flat sequentially & up 3.5% Y/Y
PA: $90.5M, sales down -0.6% sequentially & down -3.3% Y/Y
OR: $72.8M, down -3.6% sequentially & - 9.3% Y/Y
NV: $70.5M, down -6.9% sequentially & down -1.6% Y/Y
MD: $35.3M, down -7.2% sequentially and down -14.0% Y/Y

💵 Deals

Tilray Brands to buy HEXO for $56M. The combined company is expected to ~12.9% market share in Canada. HEXO shareholders will receive $1.25/share (0.4352 of Tilray stock for each HEXO share). Tilray held a $93.7M Convertible Note on HEXO that the companies entered into in July 2022. The HEXO Convertible Notes receivable had an impairment of $63.6M due to changes in the HEXO operations, which culminated in HEXO's assessment of a going concern issue primarily surrounding their ability to meet their minimum liquidity covenant. This essentially seemed to be a loan to own strategy (something similar to the MedMen Convertible Notes).

Charlotte's Web forms Joint Venture with BAT and AJNA BioSciences to Seek FDA-Approval for Proprietary Full Spectrum Hemp Extract Botanical Drug. BAT is contributing $10M as the JV's initial investor. AJNA is partially owned and was co-founded by its president, Joel Stanley, former CEO and Chairman of the board of Charlotte's Web, together with certain other founding members of CW. The JV was established to pursue FDA-approval for a novel botanical drug to target a neurological condition identified by the JV leadership team, which will be comprised of CW, AJNA and BAT representatives. This novel botanical drug will be developed from certain proprietary hemp genetics of CW. The JV plans to engage with the FDA to file an Investigational New Drug (IND) application and commence Phase I clinical development in 2023. BAT holds a 20% equity interest in the form of preferred units following its US$10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position. Charlotte's Web and AJNA each hold 40% of the JV's voting common units.

Cookies Series A led by Entourage Effect Capital with 12/12 Ventures participating. In 2022, Cookies opened 15 retail stores in 8 new markets including Arkansas, Florida, Missouri, Cookies’ first dispensary in Canada, and Cookies’ first market in Asia: Thailand. This year, Cookies will open an additional 15 retail locations while entering several new markets including AZ, IL, Washington D.C. and Australia.

POSaBIT receives Termination Notice from Akerna in connection with the Company’s previously announced definitive agreement to acquire MJ Platform, Leaf Data Systems and Ample Organics. The Notice states that Akerna has determined that a third party proposal for the Acquired Companies is reasonably likely to result in a superior offer under the definitive agreement. After considering all relevant circumstances, the POSaBIT board and management unanimously agreed not to increase its offer to match the Alternative Offer. The termination fee due to POSaBIT under the terms of the agreement will be borne by the undisclosed party.

Ispire Technology (ISPR) $18.9M IPO. The Company sold 2,700,000 shares at $7.00 per share. Proceeds from the Offering will be used to develop manufacturing operations in Vietnam and the United States; research and development, marketing and promotion of the Company’s branded products; and general administration and working capital. In addition, 1,750,000 shares of common stock may be offered by two selling stockholders pursuant to the prospectus.

engin raises $2.5M Seed led by Gotham Green Partners. engin streamlines job advertising and recruitment for companies, delivering high intent applicants, accelerated hiring, and significant cost savings. While the company is currently focused on the cannabis industry, it plans to expand into other sectors with similar challenges recruiting and retaining entry level and frontline workers, including other areas of sustainable agriculture, clean-tech, hospitality, omnichannel retail, psychedelic medicine, and artificial intelligence.

Perfect Blends raises $1M for Patented Infusion Platform. The funding will be used to commercialize its proprietary infusion technology for cannabis flower, providing a platform solution for the industry that addresses the challenges associated with cultivating consistent flower products at scale. According to the company, the all-natural infusion process developed by Perfect Blends seamlessly infuses and stabilizes cannabis flower with various terpenes, cannabinoids, and other active compounds, ensuring a consistent experience.

Jushi closes $20M Non-Dilutive Debt Financing. Jushi secured a commercial loan with FVCbank for gross proceeds of $20M. The Loan will bear interest based on the 30-day average secured overnight financing rate plus 3.55%, with a floor interest rate of not less than 8.25%.

Ayr Wellness Closes Acquisition of Tahoe Hydroponics. Tahoe Hydro is one of Nevada’s top producers of high-quality cannabis flower. At close the Company paid $1.5M in cash consideration and issued 232,795 shares.

Cookies partners with 22nd Century Group (XXII) for non-Delta 9 THC, hemp derived cannabinoid CPG. The exclusive license includes sourcing of all ingredients and APIs; white-label manufacturing of vapes and other CBD products; and category management through retail distribution. GVB Biopharma, a 22nd Century company, has manufactured various Cookies products for the past three years, and under this new Agreement, will manufacture more than half of Cookies’ non-Delta-9 cannabinoid sales. The CPG sales team will target a market of ~60,000 retail stores consisting of independent retail, tobacco outlets and vape shops in non-recreational states.

📄 Company Updates / Earnings

Tilray Brands Q3 FY2023.

Net revenue of $145.6M compared to $144.1M in the prior quarter. Distribution revenue increased 5% to $65.4M, from the prior year quarter. Gross Profit (Loss) was ($11.7M), while adjusted gross profit was $44.3M. Gross margin was -8%, while adjusted gross margin rose to 30% from 26% in the prior year. Adjusted EBITDA of $14.0M. As of 2/28/23, $408.3M in cash and marketable securities. Recorded non-cash $1.1B net asset reduction resulting from higher interest rates and a decline in market capitalization.

Greenlight Issues First Dividend to Shareholders. Greenlight said it has issued a dividend to its shareholders, calling the move a first by a large MSO. "We sent out 4% of our total invested capital in the company in the form of a dividend, which was a special dividend at this time," John Mueller, Greenlight's CEO, told Reuters. The company did not provide specifics but said the total dividend amount was in "seven figures", a majority of which was sent out last week while the remainder would be paid out in the next few days.

PharmaCann Virginia Loses Appeal Over Disputed Cannabis License. Virginia’s medical cannabis market remains limited to four licenses owned by three vertically integrated operators, but a fifth license could soon be back in play. Pending further litigation, the Board of Pharmacy can now move forward with permitting a pharmaceutical processor (vertically) in Health Service Area (HSA) I. The HSA I licensee provides sole rights to operate in a 24-county region of more than 1.5 million people.

🏬 Retail

Embarc opens second dispensary in Chico, CA. This is Embarc’s 8th dispensary in CA with additional openings planned for Ventura, Meyers, Tracy, and Contra Costa.

AYR Wellness opens two new dispensaries in Winter Haven, FL and Palatka, FL. The new Winter Haven and Palatka stores are in prime, easily accessible locations. The Winter Haven location features 4,500 sq. ft of retail space and a drive-thru for easy customer pick-up. The Palatka store is a freestanding location with more than 2,300 sq. ft. of retail space and is AYR’s first medical dispensary in Putnam County.

🌱 Product

TSUMo Snacks partners with Chef Roy Choi for Spicy Cheesy Ramen and Spaghetti & Meatballs. The unexpected but beloved flavors come in shareable snack bags infused with 100mg of THC.

GTI launches Show Dogs, a new line of infused cannabis pre-rolls. Show Dogs will launch in the Illinois market on Thursday, April 20th, and will be sold exclusively at RISE Dispensaries for the first two weeks. The product line will expand to additional markets later this year, including Massachusetts, Maryland and Nevada.

Cann Launches in New York. Cann’s cannabis-derived THC products are available in the majority of New York licensed recreational dispensaries including Union Square Travel Agency, William Jane Dispensary, Smacked and Just Breathe. Its hemp-derived THC products are available at drinkcann.com, in 50 bodegas across the city and specialty shops including The Alchemist Kitchen and Neighborhood Goods.

Bloom Brand Cannabis Launches In Illinois with The 1937 Group. The 1937 Group will produce Bloom Brand’s signature Classic strains and Live concentrates.

HighTide partners with Petalfast in MA. HighTide is a cannabis-infused, ready-to-drink mocktail brand with three 12 fl oz, 5mg THC Margarita (Classic, Spicy Diablo, Watermelon).

MYND DRINKS becomes official CBD partner for Chicago Cubs. MYND DRINKS, a wellness and recovery beverage brand is the first CBD partner of a MLB club. The Chicago-based company raised €2M in August 2021.

🧔 People

Charlotte's Web appoints Andrew Shafer as CMO. In his most recent role as Executive Director and Head of Brand Marketing at Verizon, he spearheaded the development of positioning strategies that expanded brand leadership across consumer and business segments.

🎙️ Interviews

Adam DeVine | HIGH TIMES

High Tide, CEO, Raj Grover | Cannabis Business Executive

Unpacking New York And California Cannabis Markets | Cannabis Investing

👋 Highly Objective is a weekly Cannabis newsletter and podcast 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.

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