📈U.S. Cannabis Stocks up 46% in 2020

$1B in Year 1 adult use sales in IL. Trulieve $2M grant from PA for facility expansion.

Jan 05, 2021

Publicly-traded U.S. Cannabis Companies were up 46% in 2020. In addition, on a day (1/4/21) when the broader market was red across the board (S&P –1.48%, DOW –1.25%, Nasdaq –1.47%), MSOs were up a meaningful amount:

Curaleaf $CURLF ⬆️ 7.3%
Columbia Care $CCHWF ⬆️ 6.9%
Trulieve $TCNNF ⬆️ 5.7%
Cresco Labs $CRLBF ⬆️ 5.5%
AYR $AYRWF ⬆️ 5.1%
Jushi $JUSHF ⬆️ 2.2%
GTI $GTBIF ⬆️ 1.6%
TerrAscend $TRSSF ⬆️ 0.3%

Analysts continue to suggest U.S. Cannabis stocks are significantly undervalued compared to more mature sectors (and have been pushing the same message for most of 2020), I expect Cannabis stocks to remain strong this year.

🌿Industry

Lack of standards, dubious business practices threaten to upend cannabis testing industry. A lack of standards is among the factors plaguing the cannabis testing industry, threatening to undermine consumer confidence in Cannabis products and making it harder for some testing businesses to operate. Some Cannabis businesses — such as growers, processors and manufacturers — are shopping around for labs that will give them the results they want to see in the way of THC potency and contaminants. Other cannabis businesses are said to be sending in samples of their Cannabis that have been adulterated with spray-on cannabis oil or dusted with THC crystals to give the impression of a higher THC content, among other practices. Regulators, meanwhile, are shuttering testing labs for allegedly reporting results that don’t match up with audits. For example, the Washington State Liquor and Cannabis Board (LCB) suspended the license of Praxis Laboratory for allegedly falsifying testing data on more than 1,200 samples of cannabis by providing higher THC numbers than tests actually found.

IL Cannabis sales on pace to top $1B in year one of recreational sales. Illinois generated ~$106M in combined recreational and medical marijuana sales in November, topping $913M with one month to go in its first year of adult-use cannabis sales, according to the state. On day 1 of recreational sales, there were 37 dispensaries opened across the state. That number was closer to ~80 adult-use dispensaries at year-end.

Figures below are for adult-use sales and do not include taxes collected.

IL expunges ~500,000 marijuana arrest records. The expansive legislation also paved the way for 770,000 state residents to be eligible for expunging marijuana-related offenses. Pritzker initially estimated it would take four years to start getting records expunged, but announced that ~500,000 had already been tossed going into 2021.

Governor JB Pritzker @GovPritzker

I’m proud to announce that nearly 500,000 low-level cannabis-related records have been expunged in Illinois, four years ahead of schedule. We reached this milestone one year into what will be an ongoing effort to correct historic wrongdoings fueled by the war on drugs.

Trulieve awarded tax incentive for Medical Cannabis production in McKeesport, PA. McKeesport had 45,000 residents in the 1960s, and 10,000 worked the National Tube Steel mill. Today, barely 19,000 people live in the city, but the old National Tube site is the location of Pure Penn (Trulieve), the region’s fastest-growing grower and manufacturer of medical cannabis. Pure Penn is expanding its 35,000 sq ft facility to 135,000 sq ft and will receive a $2M capital grant from the state of Pennsylvania, the first such award of state tax dollars to a medical cannabis manufacturer.

Cresco Labs publishes inaugural SEED Annual Report. The first annual report for its SEED (Social Equity and Educational Development) initiative highlights the Company’s achievements over the past year to help create a more diverse and inclusive cannabis industry through SEED’s restorative justice initiatives, community business incubators and educational and workforce development programming. The 2019-2020 SEED Annual Report is available online at crescolabs.com/seed.

Highlights of the 2019/2020:

Invested $1.5M+ and 2,200+ Cresco Labs staff hours for more than 40 multi-tiered SEED initiatives
Sponsored and financially supported 22 restorative-focused events and more than 1,200 individuals seeking expungement of their records
Conducted SEED’s inaugural Community Business Incubator that assisted 50 businesses and 250+ individuals in total over two application periods in IL
Established 8 community and workforce development initiatives and assisted in the development of cannabis industry curriculum with 5 universities and colleges

Other highlights:

Aurora hit by “cybersecurity incident” on Christmas

UFCW wins $75,000 settlement in CA Cannabis workers’ pay dispute against Have a Heart/Harvest/High Times

💵Deals

Sundial (LP) — invests C$59M into Zenabis (LP). Consideration for the Investment, totaling $58.9M, was funded from Sundial's available cash reserves which totaled $110M immediately prior to the closing of the Investment. The Senior Loan bears interest at a rate of 14% per annum and has a maturity date of March 31, 2025, with principal repayments under certain circumstances over time including $7.0M payable on December 31, 2020 (Zenabis sold $7M of Cannabis and redirected payment to Sundial). The Senior Loan is secured by the assets of Zenabis and its subsidiaries and is guaranteed by the Parent. Pursuant to the terms of the Senior Loan, Zenabis will also pay Sundial a royalty (32 quarters) based on quarterly sales revenue from its medical, recreational and wholesale cannabis lines net of value added or sales taxes (2.0%—3.5% based on revenue).

Canopy Rivers — sells 49% interest in Italy-based Canapar for $9M. RAMM Pharma will acquire the 49% common equity interest in Canapar for consideration of up to $9.0. RAMM delivered a cash payment of $7.0M to Canopy Rivers to purchase the Company’s ~30M common shares in Canapar. The Transaction also includes contingent consideration of $2.0M, to be paid upon achievement of certain operational milestones. Canopy Rivers initially invested in Sicily-based Canapar in the summer of 2018, and subsequently led a $25M financing in early 2019. Since that time, regulatory and market challenges have caused significant delays in Canapar’s timeline for commercialization relative to the company’s original expectations.

IM Cannabis acquires Trichome. The Combined Company will be a fully-integrated global leader in adult-use recreational and medical cannabis markets and the only MCO operating directly in Israel, the EU, and Canada, with forecast adjusted EBITDA profitability in 2021. IMC will leverage Trichome's premium indoor cultivation to meet growing demand for premium cannabis from IMC's established international distribution platform. The acquisition of Trichome lays the foundation for IMC's North American growth strategy, with the Trichome team bringing extensive experience in acquisitions, restructurings and operations to capitalize on consolidating a targeted list of attractively valued and highly synergistic assets. The Company remains on track to finalize its listing on the NASDAQ in Q1 2021.

MPX International — $7.4M Private Placement. MPX International is focused on developing and operating assets across the international cannabis industry with an emphasis on cultivating, manufacturing and marketing products which include cannabinoids as their primary active ingredient. With current operations spanning four continents in Canada, Switzerland, South Africa, Malta and Australia as well as evolving partnership and distribution opportunities in other jurisdictions. The Company intends to use the proceeds from the Offering to fund product and facility development as well as for working capital and other general corporate purposes.

Decibel — $30M Debt Financing. Connect First Credit Union provided the $30M of debt capital which helps to repay Decibel's existing debt of $26.8M. The credit facilities mature 5 years from the funding date and amortize over a 10 year term (prior debt was on average a 5 year amortization term).

🧔People

Australis Capital — Jon Paul joins as CFO. Prior to joining AUSA, Paul was CFO at PLUS Products. Paul has been issued 2M options with an exercise price of $0.20/share and a term of three years. Such options vest as to 12.5% on January 1, 2021, 12.5% on July 1, 2021, 25% on December 31, 2021, and the remaining 50% in 24 equal monthly installments on the first of every month commencing in January 1, 2022.

Flower One — adds Nitin Kaushal to Board. Kaushal replaces Molly Hemmeter, who has resigned from the Board. Kaushal spent the past eight years as a Managing Director for PwC’s Corporate Finance practice in Toronto. He also serves on the Board of VieMed, The Valens Company, Delta 9, High Tide, Starton Therapeutics and 3|Sixty Secure. He previously worked at Desjardins Securities, Orion Securities, Vengate Capital Partners, HSBC Securities, Gordon Capital and MDS Capital Corp. The Company missed a $1.9M interest payment due on 12/31/20 and currently has $38.3M outstanding on its unsecured convertible debt.

Harborside — eliminates Chairman Emeritus held by Steve DeAngelo. Moving forward, he will continue to focus on environmental, social and corporate governance (ESG) issues and opportunities in the legal cannabis industry.

WeedMD — Executive Chairman named interim CEO. This appointment follows Angelo Tsebelis’s decision to step down from his CEO and Director roles, following the year-long integration of WeedMD and Starseed, where he served as President. George Scorsis (interim CEO) is the former CEO and Director of Liberty Health Sciences (Ayr Strategies acquisition, pending). He also served as the President of one of Canada’s first public cannabis companies, Mettrum, which sold to Canopy Growth for $430M (January 2017). Prior to joining the Cannabis industry, Scorsis was GM of Red Bull Canada.

🏬New Store Openings

Columbia Care — Portsmouth, VA (1st in VA). In April 2020, Columbia Care received the Virginia Board of Pharmacy’s approval to commence operations, and has since completed a 65,000 sq ft cultivation and manufacturing center with the dispensary located on-site. Serves Hampton Roads/Norfolk Region, one of the most densely populated regions in VA.

Trulieve — Seffner, FL (70th in FL)