💰MSOs raise large cash amounts given extremely strong demand / favorable tailwinds

Curaleaf C$317M (upsized from C$275M) equity/$50M debt. TerrAscend C$224M private placement. Ayr $C137M. Columbia Care C$130M. Jushi C$40M. Planet 13 $50M bought deal.

Jan 12, 2021

📈If the capital markets weren’t open to Cannabis operators before, they’re wide open now and investors are rushing through. Over the past week:

— Curaleaf C$317M (impressively doing so in <24 hours, getting it upsized from C$275M to C$317M, also added $50M Debt at 10.25% interest rate yesterday)

— TerrAscend C$224M Non-Brokered Private Placement

— Ayr Strategies C$137M Offering

— Columbia Care C$130M Bought Deal

— Planet 13 C$50M Bought Deal (only operator that had to give warrants given Tier 2 status)

— Jushi C$40M

Most importantly, none of those MSO deals (not counting Planet 13 in here) had to add 1/2 warrant share as an additional kicker and started to trade above the offering price within a day or two, showing strong investor demand. I expect additional equity/debt deals to be done with the MSO peer group that has yet to announce one (GTI, Trulieve, Cresco Labs). GTI seems to already be thinking about it, with CEO Ben Kovler saying the company is thinking about refinancing its current $100M in debt (12% interest rate). “We could create an extra $100M out of thin air by refinancing at 6%,” he said to Bloomberg.

I’m expecting M&A announcements to keep coming (likely something from Curaleaf first) given Executive Chairman Boris Jordan’s recent comments in an interview with Yahoo! Finance on the capital raises.

“The minute we saw an unexpected turn of events in Georgia, we decided it’s likely that regulations will move much quicker, it really was there in order to prepare the company for what we think will be an acceleration of growth.”

🌿Industry

Canopy Growth (CEO) confident it will enter U.S. within a year. Canopy Growth CEO David Klein said he expects the Company to be operating in the U.S. in about a year amid hopes that a Democrat-controlled Congress will pass legislation that would effectively legalize cannabis federally.

"What we really need is some combination of SAFE Banking, a revised Cole memorandum, and a reclassification by the executive branch, all of which probably happens in the next 6-8 months anyway. We're pretty confident we'll be operating in the U.S. a year from now. So, we feel pretty good about that."

Klein added Canopy is also working "closer than ever" with its main financial backer Constellation Brands (owns 38% of Canopy). Constellation owns warrants in Canopy valued at $50.40 per share that would give it majority control of the firm if exercised before they expire in 2023. Constellation would like to be in a position to exercise those warrants, Klein said, adding that the cash that the warrants would bring in would help Canopy compete in the U.S. market. “Now, we're not quite at the strike price of those warrants yet. So, clearly, they wouldn't do it [presently]."

Edibles outperform cannabis industry growth in 2020 on COVID-spurred sales surge. End-of-year data from Headset shows that for 2020, sales of adult-use and medical edibles grew by 60% across seven states (CA, CO, MA, MI, NV, OR & WA) – to $1.2B in 2020 from $767M in 2019. Edibles increased their market share from 10.65% in 2019 to 11.07% in 2020. Cannabis edibles makers cited a number of factors behind the greater market shares, including:

Both new and mature consumers are trying edibles for the first time
Consumers are shying away from inhalable products and looking for more discrete options amid the coronavirus pandemic
Early onset and microdosing

Cuomo to push for legalizing Cannabis. New York Gov. Andrew Cuomo (D) will back legislation to legalize and regulate marijuana for recreational use, his latest effort to join neighboring states with legal markets. Cuomo cast the effort as a move to reform the criminal justice system, and an acknowledgement of trends set by other states. He said a legal and regulatory structure for pot sales would eventually raise $300M in tax revenue. Cuomo has tried twice before to legalize marijuana. An effort last year, after Democrats reclaimed control of the state legislature for the first time on Cuomo’s watch, failed when legislators could not agree on how to allocate tax revenue.

Andrew Cuomo @NYGovCuomo

We will legalize adult-use recreational cannabis, joining 15 states that have already done so. This will raise revenue and end the failed prohibition of this product that has left so many communities of color over-policed and over-incarcerated. #SOTS2021

“As everyone knows Massachusetts has legalized marijuana, New Jersey is going to legalize marijuana, So what are we really talking about at this point?” said Cuomo

Legal market share for 2020 (New Frontier Data). Colorado at 87%, Oregon 86%, Washington at 74%, California at 41% (seems to include adult and medical use). In 2018, the Oregon Liquor Control Commission (OLCC) estimated that 55% of cannabis demand in Oregon was served by recreational retailers with medical, homegrown and illicit cannabis comprising the remaining 45% of the market. Cannabis industry advocates in California have complained that high taxes and a challenging licensing system have stymied growth since the legal market opened in 2018. By contrast, Oregon’s market began with low barriers to entry and its taxes remain among the least confiscatory in the nation.

Texas medical marijuana operators ‘push but not shove’ to expand state’s limited MMJ program.

Chart showing how Texas MMJ is dwarfed by its less-populous neighbors

A big legislative push (State Legislature meets only once every two years, so if reform doesn’t occur this year, the next opportunity will be in 2023) is being made to broaden the current handful of MMJ conditions and increase the 0.5% cap on THC. Such changes could significantly boost sales and put Texas more on par (only 3,811 registered patients as of December 2020) with other medical marijuana programs across the country. While support is growing on both sides, it’s very difficult to say what is doable this legislative session given the economic climate and lawmakers’ other priorities.

Other highlights:

Oregonians bought more than $1B of weed in 2020; Multnomah County led the way

Cannabis growers still counting cost of wildfires, but most say industry dodged a bullet

MO medical marijuana czar: State 'working hard' to get dispensaries, cultivators operating

First MO Cannabis Safety & Quality Certificates Issued to Curaleaf and One Plant

NuggMD expands to NJ; surpasses 650,000 Medical Marijuana Cards issued

💵Deals

Curaleaf — C$317 Offering, upsized from C$275M. 18,975,000 shares issued at a price of C$16.70 per share for total gross proceeds of C$316,882,500. Curaleaf — $50M Revolving Credit Facility. The 3-year secured revolving credit facility has a maturity date of January 10, 2024. Borrowings under the facility bear interest on any outstanding principal of 10.25%. The facility was fully drawn at closing.

TerrAscend C$224M — Non-Brokered Private Placement. 80% of commitments from four large U.S. institutional investors including Wasatch Global. The Offering consists of 18,115,623 shares issued C$12.35/share.

Ayr Strategies — C$137M Offering. Overnight marketed offering of 4,000,000 shares, at C$34.25/share for C$137,000,000.

Columbia Care — C$130M Offering. 16,150,000 common shares at a price of C$8.05 per Share for aggregate gross proceeds of C$130,007,500. Important to note that these were shares and not units (one share and 1/2 share purchase warrant), showing the increased strength in sector.

Planet 13 — $50M Bought Deal. 7,150,000 units (one common share and one-half (1/2) of one common share purchase warrant at $9.00/share for the next 24 months) at a price of $7.00 per Unit for $50,050,000 gross proceeds.

Jushi — C$40M Offering. 6,210,000 subordinate voting shares at a price of C$6.50 per share for total gross proceeds of ~C$40,365,000. The Company intends to use the net proceeds of the Offering for working capital and general corporate purposes, including the use of up to 33% of the net proceeds to partially repay certain of the Company’s outstanding senior secured notes ‎in accordance with their terms‎.

Subversive Capital Acquisition Corp. (SCAC) finalized non-redemption agreements with certain equity holders representing ~$34.5M of escrowed proceeds. Together with the recent upsized-close of its Private Placement (from $36.5M to $63M), SCAC has now secured at least $100M to execute on its growth strategy going forward.

IIPR — $24M sale-leaseback with Holistic Industries in CA. Holistic entered into a definitive agreement to acquire the retail, distribution, cultivation and manufacturing licenses for cannabis operations from the tenant (I believe this was Dionymed) at IIP’s Los Angeles, CA property, which was in receivership. Holistic closed on this transaction and concurrent with this closing executed a long-term, triple-net lease with IIP for the entire property. In connection with the planned redevelopment of the property, IIP has agreed to provide reimbursement to Holistic of up to $11.0M. Assuming full reimbursement for the redevelopment of the property, IIP’s total investment in the property will be $24.0M.

Sundial issues notice of default to Zenabis in takeover attempt. Sundial owns $51.9M of senior secured debt in Zenabis (a shark tank style deal w/ royalties included) and received a principal repayment of $7.0M on December 31, 2020 in accordance with the terms of the Senior Loan. Despite the Payment, a notice of default was delivered to Zenabis with respect to certain defaults under the terms of the Senior Loan. Zenabis is disputing said defaults and is entering talks with another buyer. Zenabis characterized Sundial’s December investment as “an attempt to coerce Zenabis into being acquired by Sundial” and said it had been negotiating an extension of the principal repayment with its senior lender just before Sundial bought the debt. “None of the alleged defaults are for failure to make payments of principal or interest.”

Partnership — Gold Flora & Stately Brands. Gold Flora is a CA-based vertically-integrated company (cultivation, manufacturing, distribution, and retail). Stately Brands is a Canadian-based company focused on the development and acquisition of cannabis brands in the United States. Stately Brands' will inject C$10M and contribute other assets that will help fast-track Gold Flora's expansion as a CA-based cannabis company. Gold Flora intends to bolster its existing brand portfolio with the launch of the Stately brand in 2021.

Partnership — OpenGov & Fyllo. Will combine OpenGov's cloud ERP and Citizen Services software for cities, counties, and state agencies with Fyllo's compliance solutions for highly regulated industries. Together, the two companies will create the first comprehensive cannabis licensing, regulatory and compliance tracking solution for local municipalities writing new regulations and approving new cannabis operations. Since March of this year, Fyllo has reported a 55% increase in the number of local government meetings about Cannabis regulation across the U.S. Further, Fyllo detected about 120 announcements by 45 jurisdictions across the U.S. with cannabis licenses pending.

Other highlights:

Mercer Park CB, L.P. Incentive Award Grant by Ayr Strategies to CEO Jonathan Sandelman

Indus Holdings— Update to Cultivation Expansion Plans

C21 Divests Non-Core Assets in Oregon

Partnership — Next Green Wave & Cookies

TILT Holdings upgraded to OTCQX Best Market from OTCQB Venture Market

📄Earnings

GrowGeneration (+13.8%) — preannounces 2020 Revenues and increases preliminary 2021 guidance

2020 Revenue: $192M, up 140% Y/Y
Q4 2020 Revenue: $61.5M, up 142% Y?Y
Same-Store Sales, up 63% Y/Y
2021 Revenue Guidance: $335-$350M
2021 Adjusted EBITDA Guidance: $38-$40M
Number of Operating Garden Centers in 2021: 55

Kush Co — Q1 2021

Revenue: $26.8M (21% GM)
Second Consecutive Quarter of Positive Adjusted EBITDA
Record December Sales of $14.7M Due to Strong MSO and LP Purchasing Activity and November COVID-19 Shipping-Related Delays
Increases FY 2021 Net Revenue Guidance to $130-$160M
Cash: ~$5.7M as of 11/30/20, compared to ~$10.5M as of 8/31/20 and $14.7M as of 11/30/19. The sequential decrease in cash was driven by an increase in inventory purchases leading up to the Chinese New Year and to minimize COVID-19 and holiday shipping-related delays

🧔People

Acreage Holdings — Katie J. Bayne joins Board. Bayne brings more than 30 years of consumer marketing and operations experience from The Coca-Cola Company (President of North America Brands and CMO for North America). Also sits on the Board of Directors of The Honest Company.

Indus Holdings— Kevin Lawrence promoted to CRO. Lawrence most recently served as VP Sales, Field Marketing, and Distribution for Flora California. Lawrence oversaw the naming, branding, packaging, and marketing of the Sessions Supply Co. brand. As an entrepreneur, he co-founded CA-based cannabis brand Crown Public in 2011, growing the Company to $14M in revenue prior to leaving in 2018.

🏬New Store / Facility Openings

TerrAscend — completes Second Phase of NJ Cultivation and Manufacturing Facility. +80,000 square feet of indoor cultivation, to the existing on-site greenhouse and post-harvest manufacturing facilities (total current footprint is ~140,000 square feet) with ability to increase up to 240,000 square feet. Recently received approval from the New Jersey Department of Health (NJ DOH) to commence cultivation activities within the new indoor facility and expects to complete its first indoor harvests in Q1 2021.

Captor Capital (One Plant) — Antioch (6th dispensary in CA). The 6,500 sq ft dispensary joins One Plant locations in Salinas, Atwater, and Contra Costa, along with the two Chai Powered by One Plant dispensaries in Santa Cruz and Castroville.

Tokyo Smoke — opens 9 dispensaries across Ontario. Tokyo Smoke's retail expansion into Ontario will bring the number of Tokyo Smoke retail cannabis stores in the province to 22 and to a total of 35 across Canada by the end of January. Tokyo Smoke's growing retail footprint also includes 6 locations in Alberta and 7 in Manitoba.

💻Hiring

Front Range Biosciences — COO (Boulder)

Weedmaps — Vice President of Engineering, Data (Irvine)

GTI — VP, Real Estate (Chicago)

🎙️Podcasts

Pot to Popular — Nimbleness As a Growth Strategy. Despite cannabis’ essential status in 2020, many retailers struggled with fluctuating shut down regulations and were slow to pivot in their respective markets. In this episode, Bruce Macdonald, Chairman of the Board of C21 Investments, discusses how the operator was able to prevent pandemic-related losses through staying nimble in Nevada. Bruce also shares key insights into running a cash flow positive cannabis business, what it means to grow sustainably and how C21 is navigating potential political hurdles in 2021.

🤷‍♂️Somewhat Relevant

Peels Citrus CBD — raises $4M from KarpReilly. Peels is a Citrus-Derived CBD product line that is created with uniquely pure, nature-identical CBD. Scientifically proven to be molecularly identical to CBD produced by the cannabis plant, Peels CBD offers the same holistic effects, but is produced at a superior quality, safety, and scale. Made from terpenes found in citrus peels, not cannabis or hemp, guarantees zero THC content. It's also guaranteed to be free from toxic impurities.

AppHarvest Hires Impossible Foods’ David Lee as President

Highly Objective

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