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🌿 Industry

DOJ Issues Formal Notice to Move Cannabis to Schedule III. A proposed rule sent to the federal register recognizes the medical uses of cannabis and acknowledges it has less potential for abuse than some of the nation’s most dangerous drugs. — AP

In announcing the move, DOJ published formal guidance laying out the reclassification, as well as a report from the agency’s Office of Legal Counsel detailing the rationale for the move.
A 60-day public comment period will commence before the action is finalized and implemented
After the DEA reviews and considers the public comments, and at the conclusion of any requested hearing, the DEA will issue a final order to reschedule marijuana. The entire process can take anywhere from a few months to up to a year

Ohio adult-use marijuana sales approved as part of 2023 ballot measure could begin by mid-June. Existing medical marijuana dispensaries will be able to convert to adult-use dispensaries. — AP

There are currently 37 cultivators and 120 licensed retailers. The statute allows for Level I cultivators to receive up to three additional adult-use dispensary licenses and Level II cultivators to receive one dispensary license. Independent retailers can also get up to one additional adult-use dispensary license
Cresco Labs CEO Charles Bachtell acknowledged the positive surprise of adult-use licenses coming out in June, but acknowledged that the ability to service the significant increase in expected volume is going to take more time
Klutch Cannabis plans to expand its cultivation from 29,000 sq ft production space to 50,000 sq ft, and is asking for a license that would allow it to double that

New York’s Cannabis program plagued by inexperienced leaders, report finds. The report detailed several problems at OCM, including constantly shifting licensing rules, poor transparency and an absence of enforcement mechanisms, all of which have stalled the legal market and allowed illicit storefronts to flourish. — AP

“There are deep-seeded issues at OCM, issues that have limited its ability to fulfill its licensing role,” said Governor Hochul
The review found that most of the agency’s senior leadership had little experience leading regulatory entities and changed licensing processes so frequently that an estimated 90% of applications required corrections because would-be retailers couldn’t keep up with the rules

Parallel settles $7.4M case with Legacy Knight. The settlement agreement will resolve the case in full. — GMR

In October 2022, Legacy Knight sued Parallel, Wrigley, and other executives claiming it was fraudulently induced to put $7.4M in a SAFE security. The SAFE securities were intended to bridge the company prior to its SPAC deal
Legacy Knight said in its case that SAFE was a “Ponzi-like scheme” that used new investor funds to pay off earlier investors and keep the company from collapsing. Investors were never told the company was on the verge of default with almost $300M in debt obligations
The case is separate from the $25M New York case involving John and Ultima Morgan, TGHI II LLC, Prime Overseas Investments and Enterprises Ltd., and Techview Investments Ltd

Smart & Safe Florida spends $5M to launch four ads in support of Amendment 3 on November ballot. The ads air statewide across broadcast, cable, streaming, radio and digital platforms featuring Florida voters who believe adult Floridians deserve the individual freedom to consume safe, regulated marijuana.

In the first week of "Operation Padlock to Protect" NY ordered closed 75 Illegal Smoke and Cannabis Shops, issued 3,300+ Counts of Violations and ~$6M in Penalties.

Michigan sales of ~$1.1B in first four months of 2024, up 21% from $880M during the same time period in 2023, though April sales of $275M is down $10M from March.

Sales increased 6.8% sequentially in March after plunging in January and rebounding modestly in February, according to BDSA.

💵 Deals

Aeropay $20M in Series B Financing. Los Angeles-based fintech venture capital firm Group 11 led the round, with participation from Chicago Ventures and Continental Investment Partners. The funding round comes at a time when Aeropay has experienced 10X revenue growth over the past year and is processing over $1B in volume annually. Aeropay, which helps businesses move money faster, affordably and securely with its proprietary Pay-By-Bank technology, reached cash-flow profitability in Q4 2023.

Tilray Brands Plans $250M At-The-Market Program. The Company intends to use the net proceeds from the ATM Program, if any, to fund strategic and accretive acquisitions or investments in businesses, including potential acquisitions of assets in the U.S. and internationally in order to capitalize on expected regulatory advancements or expansion opportunities. The Company does not currently intend to use the net proceeds from the ATM Program for general working capital purposes.

TILT Holdings Secures $10.5M Funding to Develop Vertical Strategy in Pennsylvania. Under the terms of the Note, Standard Farms can borrow up to $10.5M to construct dispensaries up to three medical marijuana dispensaries in PA. The Note will mature on December 31, 2027, and will initially bear interest at 20%, automatically increase to 30% upon Standard Farm’s opening a Retail Location and completing a first commercial sale, and automatically increase to 40% six months after the Location Opening Date. No principal or interest payments will be due under the Note before the maturity date, and the Note may not be prepaid in cash or kind without Lender’s prior written consent.

NewLake Capital Invests $16M in Connecticut Cannabis Cultivation Facility Operated by C3 Industries. NewLake’s $16M investment consists of a purchase price of $4M and $12M in Construction Allowance to retrofit the former 58,500 sq ft cold-storage facility in East Hartford, CT. This will be NewLake’s second transaction with C3, having partnered with the company on their cultivation facility in Missouri.

Gold Flora enters into agreements with IIP to lease two additional facilities located near its Desert Hot Springs Campus. Under the terms of the Lease Agreements, Gold Flora will add 53,000 sq ft to its cultivation canopy, to generate an additional ~25,000 lbs. of flower annually and increase the Company's cultivation footprint to ~160,000 sq ft of indoor grow.

Company Updates / Earnings

Curaleaf Q1 2024 Net Revenue of $338.9M, up 2% Y/Y, Adjusted EBITDA of $76.7M (23% margin), FCF of $33.1M. Cash of $105.0M, $580.3M of debt.

Trulieve Q1 2024 Revenue of $298M, up 4% Y/Y. Adjusted EBITDA of $106M (36% margin), FCF of $124M. Cash of $327M ($50M in tax refunds), $482.4M debt.

Green Thumb Industries (GTI) Q1 2024 revenue of $276M increased 11% Y/Y, Adjusted EBITDA of $91M (33% margin), CFO of $84M, cash of $224M.

Cresco Labs Q1 2024 revenue of $184M, flat year-over-year, Adjusted EBITDA of $53M (29% margin), $33M FCF, Cash of $125M, debt of $387M.

AYR Wellness Q1 2024 Revenue of $118.0M, up 3% Q/Q, Excluding Discontinued Operations. Adjusted EBITDA of $29.1M (25% Margin), up over 10% Y/Y. Cash of $71.2M, debt of $401.3M.

TerrAscend Q1 2024 Net Revenue was $80.6M, up 16.1% Y/Y, Adjusted EBITDA was $16.2M, Net loss was ($14.9 M), FCF was $10.5M. Cash of $25.7M, debt of $192.0M.

Planet 13 Q1 2024 Revenue was $22.9M, down 8.2% Y/Y, Adjusted EBITDA loss of $0.0M, Net loss of ($5.9M). Cash of $20.8M.

Glass House Brands Q1 2024 Revenue was $30.1M, up 9% Y/Y, Adjusted EBITDA was $(1.6M), OCF of ($1.9M). Cash of $24.4M, $62.4M of debt.

TILT Holdings Q1 2024 Revenue was $37.5M vs. $42.3M in the prior year period. Adjusted EBITDA was $38K, Net loss was ($9.7M). Cash of $3.5M, debt of $59.7M.

Schwazze Q1 2024 Revenue of $41.6M, up 4%, Adjusted EBITDA of $7.3M, Net loss of ($16.1M). Cash of $13.2M, debt of $159.7M.

Gold Flora Q1 2024 revenue was $32.2M, up 13% sequentially, Adjusted EBITDA of $(1.8M), Net loss of ($13.7M). Cash of $14.2M.

4Front Ventures Q1 2024 Revenue Of $18.8M, Adjusted EBITDA Of $2.5M, cash of $2.9M, $23M senior secured debt converted to equity by largest capital partner.

Leafly Q1 2024 Revenue was $9.0M, compared to $11.2 million in Q1 2023, Adjusted EBITDA loss was ($0.9M), cash of $14.1M, $29.2M convertible notes due January 2025.

Springbig Q1 2024 Revenue was $6.5M, Adjusted EBITDA was $0.2M. Cash of $1.7M, debt of $7.2M.

AFC Gamma Q1 2024 net loss of $(0.1M), Distributable Earnings of $10.0M or $0.49 per basic weighted average common share.

🏬 Retail

Leafology Cannabis Company, the first dispensary in Westchester, NY reopens. The former "White Plains Cannabis Growers Showcase" re-opens as Leafology Cannabis Company in White Plains.

STIIIZY opens Fresno, CA dispensary. The new location is the company’s 34th dispensary.

Herbal Remedies dispensaries in Quincy, IL will be rebranded to AYR Cannabis Dispensaries. Ayr closed the acquisition of Herbal Remedies, an operator of two licensed retail dispensaries in Quincy, IL two years ago (May 2022) for $30M.

Bay Street Greenery opens Jersey City’s Newest Cannabis Dispensary. The 5,000-sq ft dispensary is looking to also be an event space.

Trulieve opens Medical Cannabis Dispensary in Stuart, FL.

Verano Opens MÜV Haines City, Company’s 75th Florida Dispensary. The company now has 140 cannabis retail locations nationwide.

🌱 Product

Timeless x John Malta x Shred for the Cure

Timeless Vapes partners with DJ Stewart to Continue the Fight Against Brain Cancer. The second annual Shred for the Cure (benefiting the Head for the Cure Foundation) campaign aims to raise $50,000 across Timeless’ six markets.

Airo Brands Partners with The Flowery to enter Florida. This will include selections from Airo's Artisan Series, Strain Series, and four Live Resin products. Featured strains will include Black Mamba, Motorbreath, and Northern Lights. The Flowery will also sell the AiroPro and AiroSport batteries, and an assortment of Airo branded merchandise.

Sunderstorm Secures Partnerships to Launch KANHA in Japan. KANHA will enter the Japanese market with two product lines: KRx by KANHA features medical-grade Nano CBD tinctures and softgels designed to target specific health goals and KANHA Wellness which will target a wider consumer market with Nano tinctures, gummies and beverages.

Bud & Mary’s enters MO with its best-selling vape brand, Batch. Currently available across CO, MI, and IA. Bud & Mary’s brands include TheMyx, a tasteless, fast-acting THC powder, Aliviar tinctures & tablets and Curated, its premium flower brand.

Michigan’s Cannabis Regulatory Agency (CRA) is recalling 1,098 units of infused pre-rolled joints from Hazel Park,MI-based manufacturer Flavor Galaxy after discovering that the company did not submit them for testing in their final form.

🧔 People

Cansortium CFO, Jeffrey Batliner, resigns. Patricia Fonseca has been re-appointed as the CFO of the Company effective immediately. Fonseca has previously served as the CFO from March 9, 2021 to November 21, 2022.

New York OCM Executive Director Chris Alexander to step down. His term ends in September and he exits as part of an “overhaul” of the agency.

Springbig adds Mark Silver to Board. Silver is President of Optus Capital Corporation, one of the lead investors in the Company’s $8M debt financing previously announced on January 24, 2024. He was a founding partner and CEO of Universal Energy which was sold in 2009 to Just Energy Group and co-founded Direct Energy Marketing growing the company to over $1.3 billion in revenues before selling to Centrica PLC (also known as British Gas) in 2000.

Aurora Cannabis adds Rajesh Uttamchandani to Board. Uttamchandani previously served as COO and Chief People Officer at MaRs Discovery District, North America's largest urban innovation hub and Chief Human Resources Officer at Zafin, a Global FinTech supporting modernization of the world's Tier-1 banks.

Nabis Warehouse workers in California join Teamsters Local 630. The 84 new Teamsters work as drivers and warehouse associates.

🎙️ Interviews

Seth Rogen on Taking Over the Hollywood Bowl For Netflix Is a Joke With Snoop Dogg and More Stars | The Hollywood Reporter

Cresco Labs CEO Charlie Bachtell | Higher Exchanges

Verano deep-dive post-earnings | High Rise

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👋 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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