❌ Verano Terminates $413M Deal for Goodness Growth, asks for ~$18M in termination fee and transaction expenses, Goodness Growth to take legal actions
TerrAscend closes $45.5M Debt Financing with Pelorus. Dutchie launches Dutchie Insurance. Leafly x BLAZE integration. Ayr adds new President, Schwazze COO becomes Presdient, CFO retires.
🎙️ Given the recent excitement around the New York (especially with another MSO terminating its NY related acquistion given uncertainty around the State’s launch) and German market (Sanity Group’s recent $37.6M raise), I spoke with Brandon Kurtzman (NY/MA) and Jason Adelstone (International Policy) from Vicente Sederberg about those markets and more (check out the podcast below).
Could Pot Be Decriminalized Before Biden Leaves Office? President Biden’s surprise marijuana reform announcement last week has mostly gotten attention for pardoning thousands convicted of simple possession of marijuana, a move that many observers have called a small step towards criminal justice reform. But it’s the mostly overlooked second part of Biden’s announcement — a directive to reevaluate pot’s federal status as a Schedule I drug — that has the potential to change the future of American cannabis policy. The reevaluation is more than just an empty gesture. Experts like John Hudak, a senior fellow at the Brookings Institution, said there’s a very good chance of Biden’s directive leading to actual reform — not decades from now, but by the end of his current term in office. “This is not just a blue-ribbon commission putting together a report,” Hudak said. “This is a formal legal process that is required in order for the executive branch to consider a change in scheduling.” In other words, Biden just triggered a process that could end federal pot prohibition as we know it.
NY cannabis harvest enough to supply first dispensaries, officials say. Farmers across the state have grown a sufficient amount of cannabis to stock New York's first dispensaries with homegrown flower before they open by year's end, according to Office of Cannabis Management officials. Office of Cannabis Management and Cannabis Control Board members would not give further details about when the state's first dispensaries will open, and where or when the office will announce an updated timeline. But they reiterated the first adult-use marijuana sales will happen before 2023. Gov. Kathy Hochul this week also said the timeline remains on track, with about 20 dispensaries coming online per month after the initial launch. The state Dormitory Authority continues to visit locations and negotiate with landlords about potential retail space.
High Design: The Revolution Taking Over Cannabis Dispensaries. Grateful Dead tapestries. Lava lamps. The distinctive orange inspired by Flamin’ Hot Cheetos dust painted indiscriminately on walls. Until now, these were the markings of marijuana dispensaries, dripping with 1960s hippie nostalgia and the musings of the stereotypical stoner, and it’s high time for the cannabis aesthetic to get a refresh, cannabis entrepreneurs say. Dispensaries and design studios are playing a game of catch up, as cannabis legalization has become more widespread across the United States in recent years. Many entrepreneurs want to strip the plant of any past negative associations, opening the door to reach new types of customers. This moment creates an opportunity to tell a brand’s story from scratch, and it’s leading to a revolution in how spaces for cannabis consumption and retail are being presented. Think less weed-dealer-core, and more high-end boutique or fancy cocktail lounge.
Mississippi medical marijuana regulation “stuck in constipation mode.” Dozens of licensed cultivators have about 80,000 marijuana plants growing. Around 1,100 patients have signed up for medical marijuana, and 96 doctors or nurse practitioners are working to certify them. Small growers are complaining a large one has been allowed to skirt the rules. But the Mississippi State Department of Health has zero investigators — and only three staffers — overseeing Mississippi’s new medical marijuana program. So far only one testing facility has been licensed and is only partially ready to test products. Plus, the health department’s program director still has another job — running the department’s Office Against Interpersonal Violence. Health Department officials told the Board of Health on Wednesday that the agency is in a four-month “provisional” period with licensed marijuana businesses. As it finds problems or violations, it’s typically just issuing “corrective actions,” giving marijuana businesses a chance to straighten up without hitting them with fines or sanctions or calling in law enforcement.
Verano — Terminates $413M Arrangement Agreement to Acquire Goodness Growth Holdings (GGH). Verano provided written notice to GGH that it was exercising its termination rights in accordance with the terms of the Arrangement Agreement based upon GGH’s breaches of covenants and representations in the Arrangement Agreement and the occurrence of other termination events. As a result of the termination, the Company further asserted that GGH owes the Company a termination fee in the amount of $14,875,000 plus the reimbursement of transaction expenses up to $3,000,000. Goodness believes that Verano has no legal basis to terminate the Arrangement Agreement, and that Verano has committed various material breaches of the Arrangement Agreement. Goodness intends to immediately commence legal proceedings against Verano to seek significant damages for, among other things, Verano’s material breaches of the Arrangement Agreement, Verano’s failure to discharge its obligations thereunder and Verano’s breach of the duties of good faith and honest contractual performance.
TerrAscend — Closes $45.5M Non-Brokered Debt Financing with Pelorus Equity Group. TerrAscend’s New Jersey and Maryland subsidiaries, TerrAscend NJ, LLC, HMS Hagerstown, LLC, HMS Processing, LLC, and HMS Health, LLC, have closed on a Senior Secured Term Loan for gross proceeds of ~$45.5M from funds managed by Pelorus. The Loan currently bears interest of 12.77% per annum and is based on a variable rate tied to the one month secured overnight financing rate (SOFR), with interest-only payments for the first 36 months. The maturity is 5 years from closing.
XS Financial — Receives $10M from Delayed Drawdown of Unsecured Convertible Notes. The aggregate principal amount of the unsecured convertible notes financing was $43.5M, of which $33.5M was funded at closing on November 1, 2021. The financing was led by a large institutional investor, with additional participation from strategic partners including, urban-gro, Landrace Financial, Bengal Capital, and KEY Investment Partners.
Aurora Cannabis — Repurchases $23M Principal Amount of Convertible Notes. Total cost, including accrued interest, is $21.8M in cash. The purpose of the transaction, which represents a repurchase of a portion of the Notes at a 5.45% discount to par value, was to reduce the Company's debt and annual cash interest costs. Annual cash interest savings from the repurchases of Notes made from Q3 2022 onwards now total ~$8.7M.
urban-gro — Acquires TX-based Engineering Firm, DVO. In addition to mechanical, electrical, and plumbing (MEP) engineering services, the acquisition of the 24-person, Texas-based firm will add fire protection engineering expertise and further urban-gro’s industrial architecture capabilities. The enhancement of these offerings is expected to create new opportunities, as well as build upon DVO’s existing contracts and clients in the indoor CEA and industrial sectors. Urban-gro will pay $7.25M (contingent consideration of up to $1.1M, $1.3M cash, $3.8M seller’s note, and $1.1M of stock at a pre-set price of $4.00/share). DVO generated ~$5.5M of revenue and 20%+ EBITDA in the trailing twelve-month period ended September 30, 2022.
Charlotte’s Web x Major League Baseball — Multi-Year Partnership. The partnership increases CBD visibility to their professional athletes, millions of fans and communities. Major League Baseball (MLB) now becomes the first major professional sports league to form a sponsorship agreement with a CBD company. Charlotte’s Web is now the first “Official CBD of Major League Baseball.” In June 2022, MLB officially opened the category for the league and its Clubs allowing sponsorships with CBD companies that are NSF Certified for Sport®.
📄 Company Updates / Earnings
BLAZE x Leafly —Expanded Partnership to Offer More Value to Thousands of Cannabis Retailers. The integration allows retailers using BLAZE to accept online orders from Leafly directly without additional POS order inputs, streamlining a complex multi-system process into a convenient, time-efficient and user-friendly experience. Retailers will also have a much higher degree of menu design control and flexibility when it comes to inventory management and product placement on Leafly. Additionally, Leafly users will enjoy a further simplified and seamless transaction experience at those retail locations. More than 100 million people visit the Leafly consumer marketplace each year to learn about and shop for cannabis products. In 2021, more than 5,200 cannabis retailers in North America leveraged the Leafly platform to reach new customers.
urban-gro — Signs $50M+ in Design-Build Contracts in Q3. After the acquisition of Emerald Construction Management in Q2, urban-gro launched its full turnkey design-build solution where the Company provides a single point of responsibility, and manages architecture, engineering, cultivation design, construction, as well as equipment procurement and integration. These incremental design-build contracts represent more than $50M of signed projects, and are from a diverse set of clients including cannabis CEA clients, as well as leading global CPG enterprises. Design-build contracts are typically recognized over a timeline of 6 to 24 months and are separate from any associated professional services or equipment system orders.
Velvet Cannabis — Opens in Eagle Rock (Los Angeles). Located in Eagle Rock, just off the Highway 134 and Figueroa interchange, Velvet Cannabis quietly opened its doors in late April as the company's first cannabis dispensary in Los Angeles. Velvet plans to open additional retail locations in both Northern and Southern California and has a second Los Angeles location set to open in the Spring of 2023 in the Brentwood neighborhood.
Dutchie — Launches Dutchie Insurance for U.S. Dispensaries. Dutchie Insurance is a full-service insurance agency that caters exclusively to the cannabis industry and is focused on providing the most competitive, best-fit coverage options for dispensaries in the U.S. The insurance programs are designed to support the full spectrum of any cannabis business, from seed to sale—including cultivation, processing, wholesale distribution, and retail. Dutchie partners with industry-leading insurance carriers who have access to insurance solutions designed exclusively for the cannabis industry. The Company’s goal is to provide dispensaries with the best-fit coverage options and first rate-service. Coverage includes property liability, general liability, product liability, workers compensation, and commercial auto.
Trulieve x Khalifa Kush — Wiz Khalifa shows up for Trulieve/FL launch.
GTI — General Counsel Resigns. In addition to the three board members that resigned last week, General Counsel, Beth Burk, resigned effective October 4, 2022. Burk joined the Company as Interim Chief Legal and Compliance Officer in November 2019 and became General Counsel in January 2020. She joined after 14+ years at Aon where she last held the position of Global Chief Compliance Officer.
Ayr Wellness — Appoints David Goubert as President. Goubert joins Ayr from Neiman Marcus Group (NMG). Most recently, he served as NMG’s President and Chief Customer Officer, where he was responsible for the full P&L of the Neiman Marcus brand as well as all customer touchpoints. Prior to that role, he led NMG’s digital and in-store retail operations as Chief Retail Officer, driving many of NMG’s enhancements to the customer experience, creating personalized and memorable experiences for customers at each of the company’s 36 locations, as well as online.
Schwazze — COO becomes President, CFO retires. Nirup Krishnamurthy, COO, will become President Nirup and assume oversight and responsibility for strategic planning, growth initiatives in core markets, and operational execution. Nancy Huber, CFO, has announced that she will be retiring from Schwazze due to personal reasons.
Fire & Flower — CFO resigns. Judy Adam has resigned as CFO to pursue another position as CFO of a publicly-traded company.
Cannabis Descheduling—What’s Next with Jason Wild, TerrAscend (The Dales Report)
Reflections and origin stories around the cannabis industry for Episode 100! (High Rise)
Small Town Values And Multimillion-Dollar Exits: Big Plans For Cannabis In Tennessee, Josh and Tara Joseph, Grassroots Cannabis (Forbes)
The Largest Cannabis Greenhouse in the US, Graham Farrar, Glass House Brands (The Dime)
Planet 13 Expands Its Cannabis Operations (New Cannabis Ventures)
Q&A with Carolina Vazquez Mitchell, Chief Science Officer of Ciencia Labs (Dutchie)
👋 Highly Objective is curated by Dai Truong, who leads Cannabis Investment Banking at Arlington Capital Advisors. Third-party information presented here and links to third-party content are for informational purposes only and are not intended as a recommendation, offer or solicitation for the purchase or sale of any financial instrument, security or investment. The information provided is not warranted as to completeness or accuracy and is subject to change without notice. Linking to third-party sites in no way implies an endorsement or affiliation of any kind between Arlington Capital Advisors, LLC, or its affiliates and any third party. The information in this blog constitutes my own opinions (and any opinions posted by guest bloggers from time to time) and it should not be regarded as a description of services provided by Arlington Capital Advisors, LLC or any affiliate.