🗜️States Clamp Down on Delta-8 THC

Open Book Extracts $11.5M Series B. Harborside acquires Salinas Production Campus for $10.8M. SPARC acquires besito. Canopy Growth / Drake JV is no more. MA launches Cannabis delivery license.

As some of you may have seen on LinkedIn, I have gone back to Investment Banking after 8 years away and a few different careers/industries in between. Coincidentally, the announcement came on the same day (June 3rd) as my daughter was born, so I probably had my first all-nighter since I was an Analyst. I look forward to catching up with most of you as I figure out my new day/sleep schedule but appreciate the messages I’ve received already on the new role. I plan to write a longer post on why Cannabis Investment Banking / Arlington Capital Advisors made a lot of sense for me, so please send any questions you have my way that I’ll try to answer.


🌿Industry

Pot producers are pushing to clamp down on Delta-8 THC; here’s why, and what it is. A little-known substance derived from hemp is flying off the shelves of U.S. gas stations and smoke shops, offering users a cheap and convenient high even in states where marijuana isn’t legal. But large cannabis producers are now pushing to clamp down on Delta-8 THC amid worries that a lack of oversight means heavy metals and unexpected intoxicants are cropping up in some of the products. The cannabis compound has proliferated in gummies, joints and vape pens, with sales more than doubling in the past year across the country. Despite being almost chemically identical to federally outlawed forms of marijuana, Delta-8 has escaped widespread scrutiny thanks to ambiguity in U.S. laws. That’s starting to change, with a coalition of cannabis producers now pushing federal and state regulators to block sales of unregulated Delta-8. More than a dozen states have already moved to restrict the products.

Delta-8 tetrahydrocannabinol is a naturally occurring compound found in low levels in marijuana plants. The molecule is almost identical to that of Delta-9 THC — commonly known as just “THC,” the main psychoactive compound in marijuana — and some users say Delta-8 offers a more-relaxing, “THC-light” kind of high. Delta-8 products are sold in gas stations and smoke shops across the country, falling in a gray area of U.S. law. Under the 2018 Farm Bill, hemp — cannabis containing less than 0.3% THC content — can be transported and sold within the country. CBD, an increasingly popular cannabinoid extracted from hemp, is allowed as well, but there was little said about the dozens of other compounds that can be extracted, such as Delta-8.

On top of the health concerns, unregulated Delta-8 risks becoming a competitive threat to their existing offerings, sold in states they can’t get into, and it’s undercutting their prices by avoiding license fees, taxes and quality testing. Boris Jordan, executive chairman of Curaleaf, compared the situation to the vape crisis from a couple years ago, when black-market products caused lung illnesses, souring regulators on even approved products.

Canopy Growth breaks up with Drake, scraps pot joint venture. Canopy said in a regulatory filing that it has ended its partnership with Drake's More Life Growth Company ULC to sell cannabis in the Canadian and global markets. Canopy didn't immediately provide a reason why the two dissolved their partnership. "We have indeed divested from More Life and the facility in Scarborough which had been intended to be part of that agreement is now Canopy Growth's R&D facility, where we will work on plant science and science development projects," a Canopy spokesperson said in an emailed statement. Canopy and Drake announced in November 2019 the launch of More Life​, a joint venture to sell recreational cannabis and accessories in Canada and abroad. As part of the deal between the two, Canopy agreed to flip a Scarborough, Ont.-based cannabis cultivation facility to More Life in exchange for 40% of the venture's equity, leaving Drake with a controlling share. Canopy said it took an additional $10.3M impairment charge on its venture with Drake in its most recent fiscal year, representing ~25% of the company's total impairments in that period. Canopy said it terminated its deal with Drake as of the end of March, and it "derecognized the remaining minimum royalty obligations owing to More Life" of ~$33.7M.

Weedmaps Taps Jimmy Kimmel’s Wheelhouse Labs to Embed Cannabis in Daily Culture. The appointment of Wheelhouse Labs has two primary goals: to embed the brand further into popular culture and combat stereotypes of cannabis fans in the media landscape. “We want consumers to think about cannabis the same way they do beer or coffee,” Juanjo Feijoo, CMO of Weedmaps, told Adweek. “We see this as part of our responsibility as a leader in the business, trying to move the entire industry forward.” And the partnership aims to chip away at tired old tropes about cannabis and its consumers that have proliferated for decades. Weedmaps has an entertainment track record with its Higher Together virtual concerts, first established in spring 2020 in the early days of the pandemic. The brand created a sequel of sorts, Even Higher Together, for the cannabis high holiday, April 20, this year, expanding it with a mini-conference dedicated to social justice issues. The brand also launched a documentary-style digital series, Uprooted, and sponsored a live pay-per-view fight nighton Triller featuring Mike Tyson’s return to the ring.

Massachusetts Launches Marijuana Delivery License Application. After years of stops and starts, the Cannabis Control Commission announced Friday that eligible applicants can now seek pre-certification and licensure as marijuana delivery operators, a business type that regulators and advocates said will be an important part of an equitable industry. The new "marijuana delivery operator" licenses created in the new industry rules the CCC approved late last year will be available exclusively to participants in the CCC's social equity program and economic empowerment applicants for the first three years. The new license allows its holder to buy products wholesale from growers and manufacturers and deliver them to their own customers, and requires them to follow customer verification and safety regulations. The CCC said there are 122 certified economic empowerment applicants and nearly 400 social equity program participants who are eligible for the new delivery license, which the CCC said was "created in direct response to a robust public hearing and public comment process" last year. The CCC has issued one final license and seven provisional licenses for the second prong of its delivery structure, a courier model that allows a company to charge a fee to make deliveries from CCC-licensed retailers and dispensaries.

Most MSOs Remain Timid Towards the Largest Cannabis Market. 98% of all cannabis sales in Florida by volume are coming from MSOs. In sharp contrast, they have remained mostly on the sidelines when it comes to what has rapidly developed into the largest legal cannabis market, California. A few have made early moves to have a meaningful presence, but the others have an insignificant position. Here is the positioning in the state of the top 12 MSOs by revenue:

California remains a challenging market, but, after a long period of stagnation following the simultaneous rollout of regulated medical and adult-use cannabis in 2018, the revenue growth has really taken off. According to BDSA, sales in April grew 42% from a year ago, the strongest gain to date, as they hit a record $357M.

Marijuana legalization outlook: CT, RI weigh adult use; Texas passes expansion bill.

Connecticut lawmakers are expected to consider a recreational marijuana legalization bill this week as a June 9 deadline for passing the measure looms. In Rhode Island, a House lawmaker introduced an adult-use legalization bill that would allow existing medical marijuana dispensaries to begin recreational sales as soon as this summer. Mississippi’s top election official won’t challenge a state Supreme Court ruling that voided a 2020 voter-approved medical marijuana initiative. The question now is whether the governor will call a special session for lawmakers to consider the issue. In Texas, lawmakers passed a medical marijuana expansion bill. However, the measure is a slimmed-down version of the initial legislation, with a lower THC cap and fewer new medical conditions approved for treatment.

Other highlights:

New Connecticut Marijuana Legalization Bill Released, With Votes Expected This Week

Q1 Earnings Show Strong and Improving U.S. Cannabis Industry Fundamentals

Cannabis Sales Accelerate in April (BDSA)

Oceanside, CA approves recreational marijuana businesses


💵Deals

Open Book Extracts — Raises $11.5M Series B Funding Round to Accelerate Global Growth. Open Book Extracts (OBX), a Roxboro, NC-based leading ingredient manufacturer and product development house for the industry’s most innovative and highest quality cannabinoid-enabled products, closed an $11.5M Series B equity financing round through its parent company Steady State. This round of funding, co-led by Nortecapital and KEY Investment Partners, is a resounding vote of confidence for OBX and its position as an industry-leading manufacturer of trusted cannabinoid products. The financing will be used to accelerate safety studies and efficacy research, build additional scale, and support international distribution opportunities.

Harborside — acquires Salinas Production Campus. Harborside I plans to purchase the Company’s 47-acre production campus, which includes 200,000 sq. ft. of licensed cultivation space, including 155,000 sq. ft. of flower canopy space and 45,000 sq. ft. of nursery space in Salinas, California. On June 1st, 2021, the Company completed the purchase of the Production Campus using  ~$10.8M in funds drawn from its existing credit facility. In November 2020, the Company announced it had engaged in a substantial upgrade of one of its ~45,000 square foot greenhouses at the Production Campus. The upgrades will be completed in Q2 2021, and include, among other things, the installation of blackout curtains, supplemental LED grow lights and new flooring in the greenhouse.

SPARC — Expands Consumer Brand Portfolio with Acquisition of besito. SPARC, one of San Francisco's oldest and largest vertically integrated cannabis operators, will acquire besito, an LA-based, women-founded company known for its premium products and mission to empower women, BIPOC and LGBTQ communities in the cannabis industry. Under the terms of the acquisition, besito's Founder and CEO, Maggie Connors, will join SPARC's executive team as VP of Brand and Marketing. As a result of the acquisition, besito will scale its brand through SPARC's existing sales channels while simultaneously expanding SPARC's presence in Southern California. Besito products will be enhanced with SPARC Farms flower, grown exclusively at the company's 450 acre biodynamic farm in Sonoma Valley. SPARC's state-of-the-art R&D, manufacturing and distribution facility will allow besito to achieve precise quality control and enable breakthrough product innovation.

TPCO — Invests In First Black Women-Owned Cannabis Speakeasy In The U.S. Los Angeles, CA, will soon be home to the nation’s first black women-owned cannabis speakeasy. Josephine & Billie’s plans to open its doors in 2021, offering a cannabis dispensary that echoes a Prohibition-era jazz lounge. The space will be a private club exclusively for BIPOC women of color and allies. Josephine and Billie’s is the first investment by The Parent Company (TPCO)’s cannabis social equity program. The speakeasy’s founders, CEO Whitney Beatty and Ebony Andersen, COO, are both mothers and entrepreneurs. They decided to name the dispensary after legendary jazz singer Billie Holiday and Josephine Baker, an actress, dancer, entertainer, civil rights activist, and French Resistance revolutionary. The store’s cannabis products will be organized by ailment: anxiety, insomnia, relaxation, as opposed to organized by method. Health is at the forefront of the space. The speakeasy intends to be accessible to novice smokers, as well.

Other highlights:

Mercer Park Brand Acquisition Corp. — Shareholder Approval of Transaction with Glass House Group

Verano Filing of Final Base Shelf Prospectus for up to C$1.25B

Cronos Group and Ginkgo BioworksAmend Agreement to Accelerate Commercialization of Cultured Cannabinoids and Cronos Group Begins Commercial Production of CBG

Charlotte's Web and University of Colorado-Boulder — Collaborating on Sleep and Anxiety Studies

1933 Industries — Receives Adult-Use Distribution License in Nevada and Launches Exclusive Level X Brand

The Valens Company — Launched new products in partnership with Verse Cannabis


📄Earnings

RIV Capital — Fourth Quarter and Fiscal Year 2021 Financial Results

  • Comprehensive income of $67.3M for fiscal year

  • Strong balance sheet ($118.4M cash, 3.65 shares in Canopy Growth..$335.9M consideration) following successful monetization of three portfolio assets

  • Closing of milestone transaction with Canopy Growth positions Company to execute strategic pivot to U.S. cannabis market

  • Company fully settles obligations pursuant to PharmHouse Credit Facility


🧔People

Dai Truong joins Arlington to lead Cannabis practice. Arlington Capital Advisors, a leading consumer-focused investment bank, announces it has hired Dai Truong as a Managing Director. Dai will be focused on growing Arlington’s presence in the Cannabis industry, building upon its recent sale of SweetWater to Aphria.


🏬Retail

Verano (Zen Leaf) — Lawrence, NJ (3rd dispensary in NJ, 78th overall)

Verano (MÜV) — Orlando, FL (34th in FL) 

Jushi (BEYOND / HELLO) Hazleton, PA (12th in PA, 19th overall)


🌱Product

Five Non-Gummie Edible Brands to Watch in 2021 (BDSA). As the US edibles market has grown in sales and maturity, we all have acknowledged gummies rising to the top as the clear leader. In the first quarter of 2021, gummies accounted for 82% of candy dollar sales and over 43% of total edible dollar sales in states covered by BDSA’s granular product level Retail Sales Tracking. Further, gummie brands made up 5 of the top 5 edible brands in Q1 2021 (we see you and promise you will always have our attention: Wyld, Wana, Kiva, GTI’s Incredibles, and Sunderstorm). While gummie-focused brands are expected to maintain their commanding position in the edible space, the team at BDSA wanted to take this opportunity to highlight five exciting non-gummie brands to keep an eye on in 2021. A bit about the scientific methodology: 1) Crowdsourced (not joking) the BDSA data management, analytics, and commercial development team for recommendations on who deserves the “shout-out” for doing something big and unique, 2) Confirmed the list quantitatively with the granular BDSA brand and product level retail sales tracking by state. BDSA now has granular retail sales tracking coverage of AZ, CA, CO, FL, IL, MA, MD, MI, NV, OR, and soon PA.


🎙️Interviews

The Personal Party Podcast "Outta Town Shorty" (Wiz Khalifa)

Cannabis Investing Network — Patience Will be Rewarded for Cannabis Investors (Alan Brochstein of 420investor)

Grow Operation — Mladen Barbaric, Founder and CEO of Airgraft

NCV — Agrify Is Tackling the Tough Challenge of Cultivating Cannabis Consistently

NCV — Leaf Trade Help the Largest Cannabis Operators Grow


💻Hiring

Weedmaps — Head of Corporate Social Impact (LA)

FLOWER CO. — Director of Finance (LA)

Old Pal — Territory Manager (LA)


👋 Newsletter curated by Dai Truong.