🦘We're in a Kangaroo Market
🦘We're in a Kangaroo Market
CA excise tax to remain stable. Tilray Lawsuit. Majority of SF Dispensaries targeted by Burglars. TILT / HEXO earnings. NBPA Executive Director Michele Roberts joins Cresco Labs Board.
Accurate description of where the stock market is since COVID-19, and also explains the Cannabis stock market over the past 18 - 24 months.
🌿Industry
California Cannabis excise tax to remain stable through 2020
The California state cannabis excise tax won’t go up in July as it did in January. The state Department of Tax and Fee Administration (CDTFA) made that announcement in a little-noticed news release in May. Per state law, the agency is required every six months to recalculate the markup rate upon which the state’s 15% excise tax is based. (link)
Lawsuit alleges Tilray execs misled investors over ABG cannabis deal
The complaint alleges Tilray CEO, former CFO and several board members – breached their fiduciary duties regarding a revenue-sharing agreement between Tilray and lifestyle brand portfolio Authentic Brands Group (ABG) and engaged in insider trading surrounding that deal. Under the deal, announced in January 2019, Tilray paid New York-based Authentic Brands Group $100 million, plus up to $250 million for achieving unspecified future milestones, in exchange for ABG developing, marketing and selling consumer cannabis products made with Tilray-supplied cannabinoids. The complaint alleges Tilray leadership made false and misleading statements about the ABG deal, overstating its benefits throughout 2019 when the agreement was actually underperforming.
Seth Goldberg, a partner at Philadelphia-based Duane Morris who practices business and litigation law in the cannabis space, said the suit against Tilray is “another example of the plaintiffs’ bar that files these kinds of cases in other industries waking up to the potential to file these claims in the cannabis industry. And it demonstrates, I think, the maturation of the cannabis industry.” (link)
More Than Half of SF Dispensaries Targeted by Burglars
An SF Weekly investigation found that 22 of San Francisco’s 37 current permitted and operating dispensaries — more than half — suffered a burglary or burglary attempt since protests began in San Francisco on Friday, May 29. (link)
Recreational Marijuana Sales Drop 12% in Colorado in April
April's total of $148.5 million in marijuana sales represents a 7.8 percent drop from March's tally of more than $161 million. While dispensaries usually don't break monthly sales records in April (for six of the last seven years, April figures have fallen short of March's), this was still an unusually large decrease. Also unusual: Medical marijuana sales, stuck below the $30 million range every month for over two years, actually increased 10.8 percent in April over March. The MMJ tally was over $36.48 million, while recreational sales dropped over 12.5 percent, to $112 million. (link)
Illinois reports another record adult-use sales in May
In its fifth month since adult-use sales, Illinois reported record revenues of $44.3M in May, representing an increase of ~19% over April (as more stores continued to open during the period) and the highest monthly total since the launch of the market back in January. The state noted that ~77% of sales were to Illinois residents. The numbers are encouraging, considering that many stores were forced to transition to online ordering/curb-side pickup as a response to COVID-19. As a result, cumulative IL adult-use sales from Jan to May were $190M+, with a current annualized run-rate of $500M+. (link)
Calexico, CA City Officials Admit to Accepting Bribes
According to their plea agreements, Romero and Soto accepted $35,000 in cash bribes from an undercover FBI agent who they believed represented investors seeking to open a cannabis dispensary in Calexico. In return, Romero and Soto guaranteed the rapid issuance of a city permit for the dispensary, and to revoke or hinder other applicants if necessary to ensure that the bribe payer’s application was successful. Both men admitted they had taken bribes from others in the past. Referring to this $35,000 payment, they told the undercover agent, “This isn’t our first rodeo.” (link)
Canopy Growth’s Tokyo Smoke Debuts Credit Card-Enabled Curbside Cannabis Pickup, Delivery with Dutchie
Dutchie has been helping Canopy Growth implement payment solutions among one of its top brands, Tokyo Smoke. Customers can browse the retailer’s menu, with inventory synced in real-time; pay online with their credit cards; and either pick up their order curbside or have it delivered within minutes. (link)
Method Man launches socially conscious cannabis brand TICAL
The Wu-Tang Clan veteran has dubbed his line of pot TICAL, an acronym for “Taking Into Consideration All Lives” that’s also the title of his 1994 debut solo album. TICAL’s first three cannabis strains — named “Cake,” “Gelato” and “Crusher” — will be sold at four black-owned dispensaries in California. Method Man has a 20% ownership stake (TICAL has raised $300,000 with New York-based company JLS Fund) and are planning for a potential $3M nationwide rollout. (link)
Cannabis Operators Should Develop Patent Strategies Now
Although the cannabis industry has not yet spent similarly large dollars on patent royalties, it is inevitable that patents will also play a crucial role in the cannabis industry. Today we are at an inflection point in the industry driven by a rapid increase in patented innovation (cannabis-related patent applications have more than tripled since 2015, according to Law360), growing revenue, and a pervasive indifference to patent rights that all but ensures widespread infringement.
Despite the ramp up in patent filings, most operators are still woefully unprepared to face the potential onslaught of infringement claims and lack a robust risk-mitigation strategy. This is especially true of companies selling concentrates-based products—be it edibles, topicals, shatter, butter, or vape cartridges—since all of these products directly or indirectly utilize extraction equipment, which represents some of the most advanced and heavily patented technology in the industry. Companies that produce and sell concentrate-based products are almost certainly infringing someone’s patents and are at serious risk of being subject to patent litigation. (link)
iAnthus says it likely will default on interest payments again
Multistate marijuana operator iAnthus said it expects to default on interest payments due June 30 and likely will delay its quarterly earnings past an extended June 15 deadline – a move that could result in a stock trading suspension. (link)
📄Financial Results
TILT Holdings: Q4 2019 and 2019
Revenue of $152.9M for full year 2019. Closed $35.8M Financing and added independent board members. Cash balance of $8.2M (up from $2.6M at 12/31/19). Blackbird increased its verified user base on the newly re-released BlackbirdGo.com which now totals over 250,000 users. In 2019, Blackbird transported $250M+ in wholesale cannabis in its two operational markets, California and Nevada. Blackbird is in the process of laying off ~40 employees to save $3.5M annualized. The Company had $22.6M non-cash impairment charge for goodwill, intangibles and fixed assets related to Sante Veritas Holdings Inc. and Briteside Holdings, Inc. and a $4.7M non-cash loss in loans receivable determined to be uncollectible in Q4 2019. Press Release. Transcript.
HEXO: Fiscal Q3 2020
Gross Revenue increased 30% to $30.9M from $23.8M in Q2. Net Revenue increased 30% to $22.1M from $17.0M in Q2. Adult-use grams and gram equivalents sold increased 42% to 9,338 kg compared to Q2. Gross Margins increased to 40%. Operating expenses decreased to $26.8M. Closed $46M public offering to enhance liquidity. Adjusted EBITDA improved to ($4.3M) from ($8.5) in Q2; tracking towards positive adjusted EBITDA in the first half of fiscal 2021. Announced expanded partnership with Molson Coors to explore US CBD market in Colorado. Press Release.
💵Deals
Bluma Wellness closes RTO
The common shares of the company resulting from the RTO, Bluma Wellness Inc (formerly Goldstream Minerals Inc.), will commence trading on the CSE under the symbol "BWEL" once the CSE’s conditions for listing are satisfied and the CSE issues its final exchange bulletin confirming the completion of the RTO. Bluma is a vertically-integrated, licensed medical cannabis company operating in the State of Florida through its subsidiary, 3 Boys Farm, LLC, doing business as “One Plant Florida.” One Plant Florida cultivates and processes flower at its 54,000 square foot Nexus greenhouse facility in Indiantown, Florida, and at its 24,000 square foot Ruskin, Florida greenhouse facility. One Plant Florida also operates three retail dispensaries in Boynton Beach, Jacksonville Beach, and St. Petersburg. The Company intends to open an additional seven retail dispensaries and delivery hubs throughout the state by November 2020. (link)
Harvest to keep four operational store in deal with High Times
High Times’ agreement to buy planned and operating California dispensaries from Harvest Health & Recreation has been cut to 10 from the 13 announced in late April. The $67.5M deal now calls for High Times to pay a maximum of $1.5M in cash (and a one-year $4.5M promissory note at 10% interest ), compared with $5M of cash in the original $80M deal. Harvest will retain four operating dispensaries located in Grover Beach, Napa, Palm Springs, and Venice and select licenses for potential retail locations in California following completion of this planned divestment. The cash consideration reduction likely signals a continued challenge for High Times to raise money from its ongoing IPO. (link)
Charlotte's Web closes Abacus Health acquisition
The total purchase price came in ~C$99M and increases CWEB's scale, product offering and national retail presence to online, in-store, and professional practitioners. The Company now has the ability to compete in virtually all CBD sub-segments and is able to provide competitively-priced, high-quality products while maintaining a sound margin structure given its national scale and cultivation footprint. Charlotte's Web is America's largest vertically integrated hemp-derived CBD company. Combined, the companies distribute to more than 21,000 unique retail locations with limited shelf overlap due to adjacent but complementary positions across the ingestible and topical CBD product categories. Recently Charlotte's Web added 1,100 new drug stores, more than 700 pet stores, and Abacus added more than 5,000 retail doors with the signing of a new retail partner. (link)
GrowGeneration - $35M Follow-On Public Offering
GrowGeneration (NASDAQ: GRWG) is the largest chain of stand-alone specialty hydroponic and organic garden centers. Oppenheimer & Co. is acting as the sole book-running manager. Ladenburg Thalmann and Lake Street Capital Markets are acting as co-managers for the offering.
MediPharm Labs closes $37.8M Private Placement
$18,911,250 of the Offering is related to the placement of a $20.5M unsecured convertible note and a warrant to purchase up to 3,601,427 common shares of the Company; and $18,911,250 of the Offering is currently being held in escrow and is related to the placement of a subscription receipt entitling the holder to receive, upon satisfaction of certain Escrow Release Conditions, a further $20.5M unsecured convertible note and a further warrant to purchase up to 3,601,427 Common Shares. (link)
KushCo - $5M ($27M total) Conversion of Senior Unsecured Note
KushCo entered into a definitive agreement with the holder of its senior unsecured note to convert 18.5%, or $5M, of the total principal amount of $27M due April 2021 under the Note at a 15% discount to the closing price of KushCo's common stock as of June 9, 2020, which is equivalent to a conversion price of ~$0.94/share without any cash consideration. Effectively, the Company is issuing ~5.3M shares of common stock (or ~4% of its approximately 120M total shares outstanding) to reduce 18.5% of its total outstanding debt. (link)
Akerna - $17M in Debt Financing (Converts @ $11.50/share)
The financing is in the form of a Senior Secured Convertible Note, which is convertible into common stock at $11.50/share. The Note matures on June 1, 2023, has a face value of $17M and is being issued with an original issue discount of ~12%. The Note does not bear interest except upon the occurrence of an event of default and is to be repaid in monthly installments beginning on October 1, 2020. (link)
High Times acquires Synergy (Redding) and 530 (Shasta Lake) Dispensaries
The mostly stock transaction is expected to close within 60 days. The stores will be re-branded as High Times properties upon closing. (link)
Schwazze announces Definitive Agreements for Star Buds (Colorado)
The acquisitions include 13 retail operations located throughout the Colorado front-range with four dispensaries in Denver, two dispensaries in Aurora, one dispensary in each of Commerce City, Westminster, Louisville, Longmont, Niwot, Pueblo and Pueblo West, and one cultivation in Denver. Tthese acquisitions collectively earned approximately $50M in 2019 revenues. (link)
Cannabis One Holdings acquires Cannabis Corp.
Cannabis Corp is a Colorado-based operator that holds licenses and cannabis inventory assets of the Fox Street and Kingston cultivation facilities, as well as The Joint dispensary in Denver, Colorado. The Company generates $10.5M annualized revenue and $3.6M annualized EBITDA. Transaction price is $1.8M all-stock. (link)
HEXO - Initial Closing of Early Conversion Option for Debentures
$29.0M aggregate principal amount of its outstanding $70M aggregate principal amount of 8% unsecured convertible debentures maturing December 5, 2022. Under the initial closing, $23.6M aggregate principal amount of Debentures was converted into 29,493,750 units of the Company at a price of $0.80 per Conversion Unit. (link)
Vibe closes Acquisition of Northern California Licensed Operating Cultivation Site and Planned Expansion of Cultivation Operations
The 13,500 square foot operating cannabis cultivation facility is located in Crescent City, CA with a phased plan to increase cultivation canopy by 40%. The acquisition was completed with the issuance of 600,000 common shares of the Company and the assumption of approximately $463,000 in term debt. (link)
🧔People
National Basketball Players Association Executive Director and Trial Lawyer Michele Roberts to join Cresco Labs Board
“I am grateful for the opportunity to serve on Cresco Labs’ Board and work alongside the senior leadership and management teams in their efforts to elevate the company to the next level of excellence,” said Ms. Roberts. “I look forward to advancing Cresco Labs’ distinctive brands of high quality products and services, particularly those focused on the promise held by medicinal cannabis to treat conditions and illnesses where more traditional protocols have not met the patients’ needs, and I am also committed to supporting Cresco’s Labs’ social responsibility efforts which are focused on the industry’s first national Social Equity and Education Development initiative to better both individual lives and underrepresented communities.” (link)
TILT Holdings CFO out; Jupiter Controller to Interim CFO
TILT’s CFO, David Caloia, will depart the Company effective June 12, 2020. Brad Hoch, Controller at the Company’s Jupiter business unit, will assume responsibilities as the interim TILT CFO and Corporate Controller while the Company completes its search for a permanent CFO. (link)
Plus Products CFO retires, VP Finance to take over role
Current CFO, Jon Paul, will be retiring at the end of this month, and current VP of Finance, Nate Pearson, has been identified as his successor, effective July 1, 2020. Previously worked with Ernst & Young, Tesla Motors as a Senior Financial Analyst and at Lagunitas as the Director of Financial Planning and Analysis. (link)
Vireo Health Terminates Employment Agreement with Executive Chairman Bruce Linton
Bruce Linton is out as executive chairman of Vireo Health International. The Company said that it has terminated its employment agreement with Linton on a "without cause basis," effective immediately. Linton wasn't immediately available for comment. Linton joined Vireo in November, several months after his much-publicized firing as co-CEO of Canopy Growth. Vireo said it doesn't have plans to fill Linton's executive chairman role, and added his warrants now have a modified expiration date of June 2021, about three years earlier than originally indicated. (link)
The Company is down 54% from the executive chairman announcement (11/7/19).
SLANG Worldwide - Business Update and Leadership Transitions
Peter Miller to become Executive Chairman. Chris Driessen to be promoted to President & CEO of SLANG, John Moynan to be promoted to COO & General Counsel, Mikel Rutherford to be promoted to CFO. Kelly Ehler to transition to the Board of Directors from CFO, and Billy Levy to transition to Strategic Advisor. Peter Miller and Billy Levy to enter into an additional 12-month lock up of their SLANG shares. The Company is working towards the final steps required to complete the previously announced acquisitions of ACG and Lunchbox Alchemy and expects both transactions to close later this year. (link)
Green Growth Brands CFO departs
Brian Logan is stepping down as CFO, effective July 15, 2020. Logan has served as CFO of the Company since January 2019. The Company’s senior accounting employees will assume Logan’s duties following his departure and will report directly to interim CEO Randy Whitaker while the Company continues with its previously announced sale and investment solicitation process as part of ongoing insolvency proceedings under the Companies’ Creditors Arrangement Act (Canada).
🏬New Store Openings
Columbia Care opens Vineland, NJ Dispensary
This marks the first dispensary for CC in NJ and the 11th overall to open in the State. CC will be one of only three operators licensed to dispense in the southern region of New Jersey. The dispensary will be supported by the Company’s 50,000 sq. ft. cultivation and manufacturing facility, which will produce its first harvest next month, supplying both the dispensary as well as Columbia Care’s wholesale operations in the state. Voters are expected to pass the adult use ballot measure later this year, and CC has the ability to open two additional dispensaries in the State. (link)
GTI opened Rise Chambersburg, its 46th Retail Location
260,000+ patients are registered with the Pennsylvania program, including 168,000 active card holders. The industry services ~65,000 patient visits per week with ~160,000 products sold weekly. ~2.5 million patient visits have occurred since the program’s inception, yielding $423 million in retail sales and $288 million in wholesale sales. The industry employs over 4,000 people in Pennsylvania. (link)
Diem Cannabis opens in Worcester, MA
Diem Worcester is the city’s fifth dispensary and the second to allow recreational sales. Good Chemistry opened on Harrison Street for recreational sales last year after first offering medical marijuana. Diem also has locations in Portland, and Salem, Oregon. (link)
AltMed Florida to Open its 22nd MÜV Dispensary in St. Petersburg’s
AltMed Florida now has 22 MÜV dispensaries and is on pace to open 32 by year-end, and 40 by Q2, 2021. AltMed Florida has been able to expand its workforce to over 500 employees with additional teams coming onboard at each of its 11 new dispensaries this year. With higher demand for products from 22 total dispensaries, AltMed has also generated additional construction employment and staffing with the expansion of its 220,000-square-foot cultivation facility in Apollo Beach. (link)
Skymint opens 2nd Lansing, MI location
Skymint — which bills itself as Michigan’s “leading premium cannabis retailer” — opened its second Lansing store today, at 1015 E. Saginaw St., marking the brand’s ninth store. (link)
Lume opens Kalamazoo, MI location
The store is the first to offer recreational marijuana sales in the city, according to Lume. The Kalamazoo location will be the company’s eighth store to offer adult-use sales. Lume operates stores in Michigan in Adrian, Big Rapids, Evart, Honor, Kalamazoo, Negaunee, Owosso and Walled Lake. Lume plans to have 20 stores by the end of 2020, and 100 stores across the state by the end of 2024, the company said. The Evart cultivation location, currently 50,000 square feet, will be expanded to 150,000 square feet by the end of 2020, and to 450,000 square feet by the end of 2024. (link)
Jushi opens 7th BEYOND / HELLO™ PA Dispensary in Ardmore, PA
Liberty Health Sciences opens Stuart Dispensary, 25th in FL
🤷♂️Somewhat Relevant
Starbucks to close ~400 stores in North America
Starbucks says it will close 400 North American locations in the next 18 months, half of them in Canada. The coffee chain also plans to accelerate the roll out of “pickup” stores, a shift from its “third place.” for people to congregate other than work or home. The Company will still net 300 more stores than when it started the year—but that’s half of what was planned. (link)
Simon pulls out of $3.6B Taubman deal
In the end, Simon decided Taubman was suddenly too reliant on high-end retailers, tourism and indoor malls and had not cut back enough in the current environment for its taste. (link)
Who writes this newsletter? ➡️ Dai Truong