✍️UN reclassifies, House passes MORE Act, NBA won't test this season
Verano to RTO @ ~$2.9B valuation. LA announces 200 social equity retail license finalists. MA approves new regulations for delivery. Ayr - $75M debt financing.
This past week was another momentum driver for Cannabis and the changing narrative around the industry — with the UN reclassifying Cannabis from the strictest control schedules, the MORE Act passing in the House, and the NBA announcing it won’t be testing players this upcoming season. News on the regulatory front kept pushing Cannabis stocks higher, nudged Verano to announce plans to go public at a $2.9B valuation (20 months after it agreed to be acquired by Harvest for $850M, 9 months after it terminated that deal, and just a month after announcing it would acquire AltMed), and a sizable debt financing ($75–100M) from Ayr.
I expect Cannabis stocks to continue performing (investors seem to have lagged the news a few days/week), M&A announcements to continue coming, and additional financings (equity & debt) as Cannabis stocks are at/near 52-week highs.
A reminder that I’ll be hosting a zoom on Cannabis SAFE w/ David Hua (CEO, Meadow) and Jason Kornfeld (Partner, Mayfield Venture Law) this Thursday at 4p PT. We’ll chat fundraising/term sheets for the first 30 minutes and then leave the next 30 minutes for networking.
MORE Act Passes House, But Senate Vote Unlikely. The House voted Friday for the first time to legalize marijuana at the federal level, but the bill has little chance of being considered in the Republican-controlled Senate. The Marijuana Opportunity Reinvestment and Expungement Act would remove marijuana from federal drug schedules under the Controlled Substances Act and expunge convictions for marijuana offenses. The bill would also put a 5% excise tax on cannabis and use the funds to help individuals who have been punished for drug offenses. It passed the House 228-164. Despite strong public support and a nod of approval from some GOP states, Senate Majority Leader Mitch McConnell has said he has no plans to bring up the legislation.
That could change if Democrats are able to secure both Senate seats in the January runoff election in Georgia. President-elect Joe Biden, along with a Democratic House and Senate, could revisit previous Democratic proposals and take steps to establish the industry’s legitimacy, including expanding cannabis businesses’ access to banks and eliminating barriers to medical research.
U.N. Reclassifies Cannabis as a Less Dangerous Drug. A United Nations commission voted on Wednesday to remove cannabis for medicinal purposes from a category of the world’s most dangerous drugs, a highly anticipated and long-delayed decision that could clear the way for an expansion of marijuana research and medical use. The vote by the Commission for Narcotic Drugs, which is based in Vienna and includes 53 member states, considered a series of recommendations from the World Health Organization on reclassifying cannabis and its derivatives. But attention centered on a key recommendation to remove cannabis from Schedule IV of the 1961 Single Convention on Narcotic Drugs — where it was listed alongside dangerous and highly addictive opioids like heroin. Experts say that the vote will have no immediate impact on loosening international controls because governments will still have jurisdiction over how to classify cannabis. But many countries look to global conventions for guidance, and United Nations recognition is a symbolic win for advocates of drug policy change who say that international law is out of date.
NBA won't conduct random marijuana tests for 2020-21 season. The NBA and the National Basketball Players Association have agreed not to conduct randomized tests for marijuana during the 2020-21 season. "Due to the unusual circumstances in conjunction with the pandemic, we have agreed with the NBPA to suspend random testing for marijuana for the 2020-21 season and focus our random testing program on performance-enhancing products and drugs of abuse," NBA spokesperson Mike Bass said in a statement. However, testing FOR CAUSE — that is, past offenders (JR Smith) or those who have given reasonable cause to suspect use, will continue. Next up could be removing it from the banned substance list, which would go a huge way towards normalizing Cannabis use.
Los Angeles announce 200 social equity cannabis retail license finalists. It’s still unclear when any of those businesses might be able to open their doors to customers. All 200 must now undergo further processing until they can receive temporary approval to begin sales. DCR spokeswoman Rayna Plummer wrote in an email to Marijuana Business Daily that when the 200 get temporary approval will depend on how fast each is able to navigate the next steps in the process, which include paying license fees, receiving building inspections from the city fire department and more. Johnny Sayegh, spokesman for the Cannabis Equity Retailers Association, said the earliest any of the 200 will be open is Q2 2021.
MA Cannabis Control Commission approved new regulations for home delivery. However, it doesn’t come without controversy as there will be lawsuits. The source of the controversy was the decision by the CCC not to allow brick-and-mortar dispensaries to make their own deliveries for three years, until 2024. In the meantime, the new regulations create two classes of adult-use marijuana delivery licenses — so-called “marijuana couriers” and “marijuana delivery operators.” Marijuana courier license-holders will be allowed to deliver cannabis products to consumers from a retail dispensary for a fee. The more controversial marijuana delivery operators will be allowed to buy wholesale cannabis products from cultivators and make deliveries from their own warehouse without having to operate a retail storefront. A key factor in the development of these new license types was the desire to increase access to and ownership of the industry by minorities. For three years, the two license types will be available only to social equity and economic empowerment applicants.
Verano to go public with $2.9B valuation. According to a term sheet distributed to investors, Verano is planning to offer up to $75M in shares through a reverse takeover (RTO) of Majesta Minerals, a shell company listed on the CSE, that would value the company at $2.88B. Canaccord Genuity and Beacon Securities are joint book runners on the deal. It would become the 3rd largest cannabis operator in the U.S. by revenue, and the 5th largest by market cap. Founded in 2014, Verano operates in 14 states with 1,600 employees, 46 retail locations, and 8 production facilities. The company generated $121M in revenue and $42M in adjusted EBITDA in 2019. The company expects 2020 revenue of ~$380M and ~$160M in adjusted EBITDA.
Ayr Strategies — $75M Senior Secured Debt Financing. 12.5% per annum, payable semi-annually, with a maturity 48 months from closing. Includes option for an additional $25M agent’s overallotment option. Company now has an estimated ~$145M (not including $25M option) to fund expansion in AZ, PA, OH and focus on execution and integration.
GABY acquires Mankind Dispensary (SD dispensary) for $36.5M. GABY is paying $36.5M for Mankind ($7.9M stock / $5M cash / $25.5M note – 84 months, 10% coupon w/ balloon payments every 24 months of $5M & $10.5M at month 84).
2019: C$36.4M Revenue / C$4.8M Adjusted EBITDA,
2020: C$37.5M Revenue / C$7.2M Adjusted EBITDA
Pro forma GABY:
2021: Revenue: C$45–C$50M / C$9–C$10M EBITDA
Indus provides lower Q4 guidance due to CA wildfires. The company is facing continued suppressed cultivation yields, resulting from the wildfires in late summer, early fall. Previously, the Company anticipated some continued deterioration in yields, however losses have been more pronounced than anticipated. Based on preliminary financial information and subject to year-end closing adjustments, as updated guidance, Indus expects net revenue for Q4 to be ~$9.5-$11.5M, a decline from the previously expected $14M (25% decline).
Revenue: $11.9M (25% GM, compared to 46% previous Q), up 205% q/q
Net Loss: ($17.2M), driven by a one-time non-cash write-down of provision of inventory totaling $17M, finance expenses of $6.2M
Tracy McCourt — joins MedMen as Chief Revenue Officer (CRO). McCourt will lead the omni-channel marketing strategy as well as the company’s buying, merchandising and business intelligence efforts. She spent 20+ years at Skechers, Guess, Murad, Frederick’s of Hollywood (where interim CEO, Tom Lynch, was Chairman/CEO), and most recently Zappos.
🏬Store Openings / Product Launches
Dutchie Plus. Allow brands & dispensaries ability to create fully customized and on-brand e-commerce experiences to drive sales and retain more customers.
Cresco Labs — Wonder Wellness Co.™. The brand debuts in IL with Wonder Minis, a line of 3 mg hard sweets focused on effects-driven benefits. The launch of Wonder grows Cresco’s portfolio to 8 cannabis brands—Cresco, Mindy’s Chef Led Artisanal Edibles, Remedi, Cresco Reserve, High Supply, Good News, FloraCal and Wonder Wellness Co.
Zen Leaf (Verano) — Harrisburg, PA. 1st of 3 planned in PA.
Airbnb, DoorDash Boost Price Ranges Ahead of Mega Week for IPOs. The two startups, which are aiming to raise a combined $6.2B at the top-end of their price ranges, will propel the month’s IPO volume to all-time high, surpassing the $8.3B mark set in December of both 2001 and 2003, according to data compiled by Bloomberg. IPOs on U.S. exchanges have already raised a record $156B this year, the data show.