🌵Recreational Cannabis sales begin in Arizona
Choice Consolidation Corp. $100M SPAC. CCIA partners w/ North Bay Credit Union. Verano $100M Private Placement. Harborside $21M Private Placement.
🙏Thanks to Chris Mitchem (Diem Cannabis, CEO) for sharing the newsletter with his network this past week. And Brian Geddes (Jane Technologies, VP Sales) before that, who recently launched his substack focused on Cannabis eCommerce.
Some quick thoughts based on news from this past week:
Harvest (HRVSF) didn’t move much post-election but saw a +9% increase on Friday (+57% since 12/31/21) and should have a strong run with AZ starting recreational sales and PA likely to go legal this year/next
Expect another $100M+ SPAC focused on the space to enter in the next few months (Choice announced their $100M SPAC, Silver Spike/Weedmaps has traded well even with the deadline extended, Subversive/Caliva+LCV closed)
Harborside (HBORF) also seems primed for a comeback (Single State Operators, especially in CA, seem to be garnering more interest — The Parent Co., Choice Consolidation, SPARC soliciting M&A partners)
Expect more credit unions / banks to enter the space, quickly (there’s already a $9B Market Cap bank working with large Cannabis companies in CA)
🌿Industry
Recreational Cannabis sales kick off in Arizona. Arizona approved 73 dispensaries to start selling recreational Cannabis on Friday, launching the state’s adult-use cannabis program with sales beginning less than three months after voters approved the new market. The state’s recreational market could be worth $375M-$400M in its first year, increasing to $700M-$760M by 2024, Marijuana Business Daily has projected. Harvest operates 15 dispensaries in the state, while Curaleaf operates 8. The initiative built upon the state’s existing medical cannabis industry, allowing Arizona’s 130 MMJ licensees to apply for an additional recreational license. The number of licenses is capped by the number of pharmacies operating in Arizona, with one license for every 10 registered pharmacies. However, the ballot measure does allow a limited number of additional licenses, including 26 social equity permits.
Cannabis sales records smashed or set in 2020, and insiders expect the gains to continue.
Sales should remain strong as more new markets open, existing ones mature and various state legislatures approve adult-use legalization, such as New York. The pandemic has helped reshape consumer habits, including replacing products such as alcohol and opioids and even sleep aids with marijuana.
Pyxus International to divest Cannabis Subsidiaries in Canada and focus on Tobacco and E-liquid Divisions. Pyxus International (PYYX), a global value-added agricultural company, intends to divest its cannabis business in order to focus on its more profitable tobacco and e-liquid businesses. In addition, the Company has taken action to restructure its industrial hemp and CBD operations to minimize financial investment in that business. In connection with the plan, the Company's three Canadian cannabis subsidiaries, FIGR Brands, FIGR East and FIGR Norfolk, filed for and received protection from their creditors under the Companies' Creditors Arrangement Act (CCAA).
IL awards $31.5M in Cannabis-funded grants to repair communities harmed by drug war. The state is distributing $31.5M in grants funded by marijuana tax revenue to communities that have been disproportionately impacted by the war on drugs. The funds are part of the state’s Restore, Reinvest, and Renew (R3) program, which was established under Illinois’s adult-use cannabis legalization law. It requires 25% of marijuana tax dollars to be put in that fund and used to provide disadvantaged people with services such as legal aid, youth development, community reentry and financial support. For this round, 80 organizations (398 applied) that offer such services for eligible communities were chosen by the R3 board. Grant recipients include local governments, faith-based organizations and businesses.
NETA, Garden Remedies end membership with Commonwealth Dispensary Association days after group files lawsuit over cannabis delivery regulations. Two Massachusetts dispensaries have ended membership with the Commonwealth Dispensary Association, a decision that comes days after the CDA filed a lawsuit that has been viewed by some as an “attack on equity” in the state’s cannabis industry. Both cited a commitment to supporting equity in Massachusetts, as the state prepares to start home delivery of cannabis, an opportunity that will only be available to equity applicants for three years. There’s also a courier license, allowing applicants to partner with retailers to deliver directly to consumers. Couriers can charge fees but cannot sell, process, store or repackage goods. Both license types are exclusive to members of the state’s social equity or economic empowerment programs for the first three years.
Other highlights:A billion grams of unsold legal pot may spell further woes for Canadian Cannabis industry
KS, KY, SC, and AL could legalize Medical Cannabis through legislation this year
Have cannabis residency requirements worn out their welcome?
Strong demand drives up Oregon’s wholesale cannabis prices in 2020
💵Deals
Former Cresco Labs, GTI execs file $100M SPAC IPO, Choice Consolidation Corp. The Corporation intends to focus its search for target businesses on cannabis cultivation, production distribution, brands, manufacturing and/or retailing businesses or related businesses; however, it is not limited to a particular industry or geographic region for purposes of completing its qualifying transaction. The Corporation intends to target existing strong single-state operators in markets with high barriers to entry, distressed assets that require minimal to moderate incremental capital to “turn on” and paper licenses in targeted states that can be obtained on accretive terms. The Corporation's management team and board of directors combines retail and cannabis industry expertise and includes:
Joe Caltabiano, CEO and Director; Former President, Cresco Labs
Lois A. Mannon, CFO; CEO, Mannon Consulting
Peter Kadens, Director; Former CEO, GTI
Ken Amann, Director; Advisor and former CFO, Cresco Labs
Lisa Gavales, Director; Independent Director
California Cannabis Industry Association (CCIA) — Exclusive Partnership with North Bay Credit Union. CCIA's 400+ cannabis industry members will qualify for membership in the credit union and access to banking services such as checking accounts, online bill payment, wire transfers, and ACH processing. Employees of CCIA members are also welcome to join as individual members of the credit union. CCIA was formed to promote the growth of a responsible and legitimate cannabis industry and work for a favorable social, economic, and legal environment for their industry in California. CCIA represents 400+ businesses and ~15,000 employees. North Bay CU has ~$100M in assets and is federally insured by the NCUA. The bank does not currently lend to Cannabis companies but will refer customers to partners such as Bespoke Financial and Leaflink Financial.
Aurora — $125M Bought Deal Financing. 12,000,000 units at $10.45 per Unit for ~$125M. Each Unit comprised of one common share of the Company and one half of one common share purchase warrant, exercisable for 36 months at an exercise price of $12.60 per Warrant Share.
Verano — closes $100M Private Placement ahead of RTO. 10,000,000 Subscription Receipts at $10.00 per Subscription Receipt for gross proceeds of $100M. The Offering was comprised of a brokered offering of 6,720,000 Subscription Receipts for gross proceeds of $67.2M, led by Canaccord and Beacon and a non-brokered offering of 3,280,000 Subscription Receipts for $32.8M.
Harborside — C$27M ($21M) Private Placement, upsized from C$20M. Selling Units of the Company at C$2.55 per Unit (one share & one share purchase warrant, exercisable for 36 months at an exercise price of C$3.69, 45% premium) for gross proceeds of ~C$27M, representing an increase of C$7M, due to excess demand. Entourage Effect Capital, one of the largest shareholders of Harborside, is participating in the Offering with ~C$9.0M in commitment.
Jushi — completes Acceleration of Warants Expiry Date. Resulted in ~3.7M additional subordinate voting shares and cash proceeds of ~$11M. The Company has ~$133M in cash and short-term investments and ~$89M in total debt, excluding leases and property, plant and equipment financing obligations.
Alcanna and YSS — Combination of Cannabis Retail Businesses to form Nova Cannabis and concurrent $40M Equity Financing (upsized from $25M). On closing, the resulting company, will have 53 retail locations in Alberta, Saskatchewan and Ontario, with another 9 locations under construction, ~80% of New Nova locations are expected to be re-branded as "Value Buds" and will target the value-conscious consumer, an under-served segment of the market that is estimated to account for ~70% of total recreational cannabis market in Canada (both legal and illicit). The Agreement and the Concurrent Financing imply a deemed value for New Nova of $130M and a deemed value per common share of YSS ~$0.1635. Closing of the Transaction is expected to occur on or about March 1, 2021.
Auxly — $17.5M Upsized Bought-Deal Public Offering. 47,300,000 Units at $0.37 per Unit for $17,501,000. Each Unit comprised of one common share and one-half of one Common Share purchase warrant at an exercise price of $0.46 for up to 36 months.
Other highlights:Zenabis — $60M Committed Revolving Credit Facility to Refinance Senior Debt held by Sundial Growers
Namaste Technologies — $23M Bought Deal Public Offering
Hollister Biosciences — $5M Private Placement
The Valens Company Provides Strategic and Financial Update Entering 2021
🎙️Podcasts / Interviews
Q&A w/ Bruce Macdonald (C21 Investments Chairman)
The Cannabis Investing Podcast w/ Jonathan Sandelman (Ayr CEO)
Alcanna Spin-Out Sets Out to Dominate Retail in Canada’s Cannabis Value Segment
🧔People
Cresco Labs hires Ty Gent as COO. Most recently, he was the Chief Supply Chain Officer at US Foods. Previously, he worked at PepsiCo for 30 years. Among his accomplishments, he led end-to-end supply chain operations for PepsiCo foods in South and Central America as SVP Operations. As SVP Logistics, he steered the PepsiCo transportation network for North America and the warehouse delivery network for Quaker, Gatorade and Tropicana brands divisions within PepsiCo’s North America Beverage Sector.
Lighthouse Strategies names former Harvest Health and Recreation COO and PepsiCo Executive Ron Goodson as President and CEO. Former President and COO of Verano Holdings and most recently COO for Harvest Health and Recreation (HRVSF). Prior to that was at PepsiCo, where he led the Southwest Market, integrating several independent bottlers through acquisitions, expanded case volume, revenue, operating profit, spearheading new product development and market execution. Goodson was already a board member of Lighthouse for over a year.
JD Wechsler joins Óskare Capital as Venture Partner covering the Americas. Launched in June 2020, ÓSKARE Fund I, is dedicated to the development of the medical cannabis industry with a focus on Europe. The team is now fundraising for Óskare Fund l (€150M) with a first close planned in Q1 2021 of €30M.
Arcview Management Consulting. Led by David Abernathy, Jake Kuczeruk and Jason Malcolm, the newly formed entity will focus on traditional cannabis-related business challenges but also embrace Environmental, Social, and Corporate Governance (ESG) issues pertaining to the global industrial hemp market.
Wurk CEO Keegan Peterson passes away at 33. The company announced the news on January 19 but did not specify a cause of death. Peterson founded the company in 2015, raising $23.3M total from Arcadian, Poseidon, Salveo, Altitude, Arcview, Phyto and CanopyBoulder. A GoFundMe has been created, with the Board matching up to $20,000, a memorial board has also been created.
Other highlights:Roman Kocur & Lorne Sugarman resign from MJardin Board
🏬New Store Openings / New Product Launches
Liberty — Low Pac Heights, SF, CA
Trulieve — Summerfield, FL (72nd in FL)
Ayr (Liberty Health Sciences) — Fort Meyers, FL (29th in FL)
Urbn Leaf — Vista (Medical-only, 7th in CA)
10 dispensaries get initial approval from the city of Muskegon Heights, MI
💻Hiring
Cresco Labs — Vice President of Diversity, Equity, and Inclusion (Chicago, IL)
Tilray — Head of Manitoba Harvest (Saint Paul, MN)
Trimco — Head of Revenue (Costa Mesa, CA)
🤷♂️Somewhat Relevant
GameStop and the Dangerous Game of Gamma Squeezes. Relentless, high-volume buying in low-priced far out-of-the-money call options to drive a stock price higher by forcing the market maker to purchase the stock as protection against their selling the calls, assuming they can't find another party to take the risk. For market makers unable to pass the risk, they could soon find themselves out of business. We could also see market makers begin to abandon stocks.