Editor-in-Chief

Debra BorchardtDebra BorchardtDecember 2, 2020
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6min320

 The independent branded hydroponics company with a comprehensive distribution platform, Hydrofarm Holdings Group, Inc. said it was launching an initial public offering of 8,666,667 shares of its common stock. The initial public offering price is expected to be priced between $14.00 and $16.00 per share. Hydrofarm said it expects to grant the underwriters a 30-day option to purchase up to an additional 1,300,000 shares of its common stock. Hydrofarm has applied to list its shares of common stock on the Nasdaq Global Market under the symbol “HYFM.” The company is hoping to raise $118 million, but the over-allotment option could bring that to $136 million.

Hydrofarm is not a newcomer to indoor growing, but it has targeted the cannabis industry as an area for expansion. The company had net sales for nine months in 2020 of $254 million. The net income was $2.1 million for that same time period. The proceeds are to be used for repaying existing indebtedness, for acquisitions, for working capital, and other general corporate purposes. The company has $113 million in total long-term debt.

Cannabis Restrictions

Despite the company’s desire to work with cannabis it also faces restrictions due to the company’s loans. According to the company’s prospectus, it states, “The Term Loan Agreement prohibits the Subsidiary Obligors from selling our products directly to cannabis growers or cultivators, or to sellers or retailers that sell only to the cannabis industry. The Encina Credit Facility prohibits the Subsidiary Obligors from selling our products to the cannabis industry. As a result, the Subsidiary Obligors do not sell our products directly to the cannabis industry, cannabis growers or cultivators, or to sellers or retailers that sell only to the cannabis industry. We are in compliance with the terms set forth by the Term Loan Agreement and the Encina Credit Facility and maintain policies and procedures that are designed to promote and achieve continued compliance with these requirements.” The company said it sells its products through third-party retailers and resellers which do not exclusively sell to the cannabis industry.

Reputation Risk?

Hydrofarm seems like it is preparing the company for cannabis to become legal and then be able to freely work with the industry, but in the meantime, it is clearly trying to distance itself from its customer base. The filing noted, “Damage to our reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. Cannabis has often been associated with various other narcotics, violence, and criminal activities, the risk of which is that our retailers and resellers that transact with cannabis businesses might attract negative publicity. There is also a risk that the action(s) of other participants, companies, and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively impact our reputation.”

“Today, we believe that a majority of the CEA equipment and supplies we sell to our customers is ultimately purchased by participants in the cannabis industry, though we do not sell to participants in the cannabis industry directly.”

Former Hostess Brands CEO

Mr. Toler has served as our Chief Executive Officer and Chairman of our board of directors since January 1, 2019. Prior to joining Hydrofarm in 2019, Mr. Toler was the Chief Executive Officer of Hostess Brands, Inc. (Nasdaq: TWNK), a food and beverage company, from May 2014 to March 2018. Under his leadership, Hostess successfully re-established the iconic Hostess brand as a leader within the sweet baked goods category, returned the company to profitability, and transitioned Hostess from a private to a public company. Mr. Toler has over 35 years of executive leadership experience in supply chain management and consumer packaged goods, including previously having served as Chief Executive Officer of AdvancePierre Foods, from September 2008 to August 2013, and President of Pinnacle Foods. He has also held executive roles at Campbell Soup Company, Nabisco, and Procter & Gamble. Mr. Toler served on the board of directors of Collier Creek Holdings from September 2018 to September 2020, Hostess Brands from May 2014 to March 2018, AdvancePierre Foods from 2008 to 2013 and Pinnacle Foods from 2007 to 2008. In addition, Mr. Toler has also served as a senior advisor at Oaktree Capital Management, an investment management firm, from September 2013 to April 2014. Mr. Toler holds a B.A. in Business Management and Economics from North Carolina State University. Mr. Toler was selected to serve as Chairman of our board of directors because of his 35 years of executive leadership experience in supply chain management and consumer packaged goods.


Debra BorchardtDebra BorchardtNovember 25, 2020
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5min601

Vireo Health International, Inc. (OTCQX: VREOF) reported that its revenue rose 67% to $11.9 million for its third quarter ended September 30, 2020 versus $7.1 million for the same time period in 2019. Net income in the third quarter was $122,252 versus a net loss of $14.6 million in the 2019 third quarter.  Vireo said the favorable improvement in net income was primarily driven by the one-time gain of $16.4 million on the divestiture of the company’s former PAMS subsidiary.

Vireo reported that it generated revenue in seven states during the third quarter: ArizonaMarylandMinnesotaNew MexicoNew YorkOhio, and Pennsylvania. Total revenue, including contributions from discontinued operations, increased 68% year-over-year to $13.4 million.  Retail revenue was approximately $9.9 million in the quarter, an increase of 61% versus $6.2 million in Q3 2019. The increase in retail revenue was principally due to greater patient enrollment and average revenue per patient in Minnesota and New Mexico, as well as contributions from retail dispensaries in Pennsylvania. Wholesale revenue of $2.0 million increased by $1.1 million as compared to $980,921 in Q3 2019, with the increase primarily driven by the growth of wholesale operations in Maryland.

“Our third-quarter results demonstrate the improving nature of our business and success of recent initiatives to improve operating and financial performance,” said Chairman and Chief Executive Officer, Kyle Kingsley, M.D. “For the past several quarters we’ve been focused on positioning our vertically-integrated portfolio of assets to produce sustained and profitable growth, and we believe today’s results are an encouraging indicator that we’re nearing a critical inflection point in cash flow generation from operations.”

EBITDA was $8.1 million during the quarter, compared to a loss of $15.9 million in 2019 for the same time period. Adjusted EBITDA was a loss of $675,808 in Q3 2020, as compared to a loss of $5.2 million in Q3 2019.

Dr. Kingsley added, “Thanks to the hard work of our teams improving costs and manufacturing efficiencies, Vireo is positioned to improve margins as we continue growing our Green Goods retail dispensary footprint and benefit from likely tailwinds of regulatory changes. Each of our current development projects remains on time and budget, and with seven new dispensaries expected to open before the end of Q1 2021 and the potential for a majority of our state-based markets to pass adult-use legislation within the next year, we believe Vireo is poised for strong improvements in revenue growth and profitability.”

Outlook

Dr. Kingsley concluded, “As we exit fiscal year 2020, we’re focused on successfully completing our capacity expansion projects in ArizonaMaryland, and New Mexico, as well as our planned dispensary openings in MarylandMinnesota, and New Mexico. However, cash inflows from the forced redemption of warrants and exercise of the PDS purchase option materialized sooner than we anticipated, and our improving liquidity position has enabled us to begin evaluating additional investment opportunities. We expect to provide the investment community with an update on development initiatives and their potential impacts to our long-term operating and financial outlook in the spring of next year.”


Debra BorchardtDebra BorchardtNovember 24, 2020
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6min2570

Special purpose acquisition company (SPAC) Subversive Capital Acquisition Corp. (OTCQX: SBVCF) or SCAC entered into definitive agreements with global icon, entrepreneur and MONOGRAM founder, Shawn “JAY-Z” Carter, entertainment powerhouse Roc Nation, California cannabis company CMG Partners Inc. (Caliva) and Left Coast Ventures, Inc. to form TPCO Holding Corp. (The Parent Company). The deal is expected to close in January 2021.

Caliva and Left Coast Ventures expect combined pro forma revenues of $185 million in 2020 and $334 million in 2021. These acquisitions together constitute SCAC’s “qualifying transaction”. SCAC currently holds approximately $575 million in cash-in-trust, which would make The Parent Company one of the most well-capitalized cannabis companies in the United States assuming no redemptions.

Brand strategy and marketing playbook led by Shawn “JAY-Z” Carter and Roc Nation, will be leveraging the cultural influence of leading artists and entertainers to build the most valuable and scalable brand IP in cannabis. The Parent Company will become Roc Nation’s “Official Cannabis Partner”, Roc Nation will provide The Parent Company with special access and
rights with respect to Roc Nation’s roster of artists and athletes and Roc Nation will promote The Parent Company’s brand portfolio and provide various services.

Carter, who will become The Parent Company’s Chief Visionary Officer following the closing of the deal, said: “Although we know we can’t fully redeem the injustices created
by the ‘war on drugs’, we can help shape a brighter and inclusive future. The brands we build will pave a new path forward for a legacy rooted in equity, access, and justice. We’re creating
something people can trust and we’re investing in our future, our people, and our communities.”

SCAC has received private placement commitments of $36.5 million at a price of $10.00 per share issuable immediately prior to, and conditional on, completion of the Transaction (the “Private Placement”). Investors in the private placement commitments received to date include Fireman Capital Partners, Tuatara Capital, and Subversive Capital, the largest investors in Caliva and Left Coast Ventures, as well as Roc Nation artists Rihanna, Yo Gotti, and Meek Mill. The proceeds of the Private Placement are intended to be used in connection with the Transaction and to fund the growth of The Parent Company following the deal’s closing.

Caliva currently reaches over 50% of consumers in California through its existing platform for delivery. The Parent Company is expected to have the greatest consumer reach of any cannabis company in California reaching 75% of consumers in the state by the end of 2021 and almost 90% by the end of 2022 through scaling of its omnichannel platform.

Steve Allan, who will become The Parent Company’s CEO following the closing of the Transaction, said: “In addition to building the most influential portfolio of cannabis and hemp brands in the world, The Parent Company’s vertical operational platform has been designed for growth and future mergers and acquisitions, forging a path to redefine the cannabis industry in California.”

Social Equity Component

Led by Carter, The Parent Company will fund The Parent Company Social Equity Ventures with an initial target of $10 million and an annual contribution of at least 2% of its net income to invest in minority-owned and Black-owned cannabis businesses and contribute to the effort to rectify the wrongs of prohibition through initiatives that are working toward meaningful
change in the criminal justice system. These initiatives will include bail reform, industry vocational training, job placement, expungement clinics, and Social Equity application
support.

Terms of the Deal

Caliva shareholders will receive aggregate consideration of approximately $282.9 million. Caliva shareholders will receive consideration in the form of newly issued common shares in the capital of SCAC, subject to exceptions for certain U.S. persons that will receive consideration in cash. Left Coast Ventures shareholders will receive aggregate consideration of approximately $142.2 million less the Sisu Consideration. Left Coast Venture shareholders will receive consideration in the form of newly issued SCAC Common Shares, subject to exceptions for certain U.S. persons that will receive consideration in cash. In connection with the consummation of the LCV Transaction, SCAC has also agreed to repay in full certain promissory notes of LCV for an aggregate amount equal to $15.0 million which LCV Note Repayment will adjust the consideration paid to Left Coast Ventures shareholders on closing. In addition, the Left Coast Venture shareholders may receive up to approximately 3.9 million additional SCAC Common Shares in the event the VWAP of SCAC Common Shares reaches $13.00, $17.00 and $21.00 within three years of closing (with one-third of such shares delivered at each such price threshold).


Debra BorchardtDebra BorchardtNovember 24, 2020
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5min640

Jushi Holdings Inc. (CSE: JUSH) (OTCMKTS: JUSHF) delivered revenue of $24.9 million for the third quarter ending September 30, 2020, which was an increase of 67% over the second quarter. Still, the company reported a net loss of $30 million or $0.31 per diluted share, compared to a net loss of $9.3 million, or $0.10 per diluted share, in the second quarter. The earnings and revenues both missed estimates by Yahoo Finance for revenue of $27.8 million and earnings of ($0.08).

Jushi attributed the increase in revenue to the strong growth at the BEYOND/HELLO stores in Illinois and Pennsylvania, a partial contribution from the recently acquired Pennsylvania grower-processor permit holder, and improved market conditions in Nevada. On a same-store sales basis, the company said that revenue increased by approximately 45%, compared to the second quarter of 2020, excluding two temporarily closed stores in Philadelphia. The company said that the $20.7 million increase in net losses in the third quarter was driven primarily by the increase in the derivative warrant liability prompted by the rise of its share price from $1.31 on June 30, 2020, to $2.44 on September 30, 2020, partially offset by a net gain on a business combination, higher revenue and gross profit.

“Jushi delivered another outstanding quarter, generating revenues at the high-end of our previously provided guidance range and achieving Adjusted EBITDA profitability for the first time in the Company’s history,” said Jim Cacioppo, Chief Executive Officer, Chairman and Founder of Jushi. “Our strategic roll out continues and I’m pleased with the initial reception following the recent openings of our latest BEYOND/HELLO retail stores in Santa Barbara, California and Reading, Pennsylvania. As previously announced, we are also looking forward to opening our first retail dispensary in Virginia, two additional stores in Illinois, and further enhancing our newly acquired grower-processor facility in Scranton, Pennsylvania.”

The company also noted that the adjusted EBITDA of $1.9 million was a $3.1 million improvement over the second quarter of 2020. Jushi also said that it had $43.2 million of cash and marketable securities on the balance sheet as of September 30, 2020, and approximately $73 million on pro forma basis for same period including the October equity raise.

Outlook

Mr. Cacioppo added, “We continued to see strong momentum in the business as we exited the third quarter, and as a result, we expect to see further expansion in revenue and profitability through the balance of the year. We continue to optimize our operations, including allowing more transactions to be fulfilled through our online reservation system at BEYOND-HELLO.com, adding additional point-of-sale stations in our stores in Illinois and Pennsylvania, and leveraging data analytics to offer more targeted promotions. We have also upgraded our talent by adding several new hires in the third quarter with expertise in retail, cultivation, and security. The positive impact of these changes is just beginning to be realized, and we expect to be able to continue to deliver strong results in the fourth quarter and full-year 2021.”

Mr. Cacioppo added, “As a result of our expectation for continued strong operating results for the remainder of the year, we are increasing our fourth quarter 2020 revenues guidance from $25 to $30 million to $28 to $30 million and expect fourth-quarter 2020 Adjusted EBITDA to be between $2.5 and $3.0 million. For the first quarter of 2021, we expect revenues to be between $37 and $40 million and Adjusted EBITDA to be between $4.0 to $5.0 million. We are also maintaining our 2021 revenue guidance of $205 to $255 million and our 2021 Adjusted EBITDA guidance of approximately $40 to $50 million.”

The stock was lately trading at $3.31, not far from its 52-week high of $3.59.

 


Debra BorchardtDebra BorchardtNovember 23, 2020
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9min2730

Jushi Holdings Inc.  (OTCMKTS: JUSHF) said it is planning a $50 million expansion project in Scranton, Pennsylvania which is expected to create more than 100 more new jobs in the Scranton area. The company said it plans to nearly double the square footage of its subsidiary’s grower-processor facility from approximately 90,000 sq. ft. to more than 160,000 sq. ft. in a phased expansion.

In 2019, the company opened the medical marijuana dispensary BEYOND / HELLO Scranton. Jushi already employs 70 people in the Scranton area and once this expansion is completed, it will have added 17 new jobs to the region. For the expansion, the company also plans to hire all local construction, electricians, and vendors for its expansion efforts.

“The medical cannabis market in Pennsylvania is rapidly growing and with our products in high-demand, this investment will significantly expand our cultivation capacity and market share,” said Jim Cacioppo, Chief Executive Officer, Chairman, and Founder of Jushi. “This is a robust operating environment and with the market intelligence gained through our eight currently operating BEYOND / HELLO retail dispensaries, we believe that patient demand for high-quality, medical-grade cannabis products is still far from being satisfied. We are very excited by the opportunity ahead of us in Pennsylvania, and as one of the fastest-growing jobs sectors in the U.S., Jushi and its subsidiaries look forward to bringing additional new local jobs and tax dollars to the region and further investing in Scranton’s economy and community.”

Pennsylvania

Pennsylvania’s Republican legislature continues to block the adult-use legalization measure despite the state’s widening budget gap.  PA Governor Tom Wolf has been pushing for the legalization of cannabis for adults and looking for ways to close the budget gaps. If adult-use legalization were to pass in PA, the cannabis industry would likely double to triple in size, which would only create more taxes for state and local coffers and jobs in PA. The state is also facing pressure from its border with New Jersey which is planning on fast-tracking the legalization of adult-use cannabis. This could negatively impact the medical market in the state.

Expansion Plans

Jushi said that the majority of the approximate 70,000 sq. ft. expansion project will be focused on increasing the facility’s canopy space, which upon completion will nearly triple to approximately 98,000 sq. ft. In a statement, the company said that the first phase of the expansion is expected to come online in mid-2021 and the final phase will be completed by the second quarter of 2022. In total, Jushi expects to invest approximately $50 million in the expansion project, which is expected to create more than 100 new jobs in the Scranton area. Jushi (through its subsidiary Pennsylvania Medical Solutions, LLC), will work with Innovative Industrial Properties Inc. (NYSE: IIPR)  (through its subsidiary IIP-PA 1 LLC) to partially finance the expansion project via an upsize to the existing lease agreement between the parties. The expansion project is subject to the company’s successful completion of certain milestones, including receipt of all local and state approvals and permits, and the finalization of a mutually agreed lease amendment with Innovative Industrial Properties Inc. related to the Facility.

The company reminded investors that it recently completed an expansion project in the third quarter of 2020, which included increasing the facility’s indoor cultivation from approximately 20,000 sq. ft. to approximately 45,000 sq. ft. (~33,000 sq. ft. of canopy) and supplementing the current CO2 extraction with new Class I, Division 1 ethanol extraction technology. The facility produces high-quality, indoor-grown flower and extracts and is strategically located within minutes of Interstate 81, Interstate 84 and the Pennsylvania Turnpike, enabling efficient wholesale distribution to the 98 dispensaries currently operating across the commonwealth, including the Company’s eight operational BEYOND / HELLO dispensaries. The facility is expected to supply the company’s subsidiaries and other licensed retail facilities.


Debra BorchardtDebra BorchardtNovember 23, 2020
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5min1470

The number of cases of COVID-19 has spiked in the province of Ontario causing new lockdown orders. It was reported that more than 1,400 new coronavirus cases had been recorded in Ontario on Friday. Toronto has been the hot zone for the latest outbreak as the city broke its record for new infections on Tuesday and has reported several hundred new cases each day this week.

On Friday, November 20, 2020, Attorney General Doug Downey approved an emergency order placing the Toronto and Peel regions under a new lockdown to combat COVID-19. On Sunday, Ontario Regulation 654/20 was made allowing cannabis retail stores located in the lockdown regions to operate through e-commerce, curbside pickup, and home delivery services causing cannabis stores to once again pivot to online orders.

High Tide

High Tide Inc.  (OTCQB: HITIF) announced that it is fully compliant with the order issued by the Province of Ontario to place Toronto and Peel under lockdown. The company noted that in Toronto, the affected locations have been adjusted to offer only curbside pickup with delivery services to follow shortly thereafter for the announced 28-day period. High Tide currently operates 60 other retail cannabis stores across Canada and it does not have any locations in the Peel Region.

“Throughout the pandemic, we have remained agile in our operations to prioritize the needs of our customers across the country in a safe and compliant manner. Our curbside pickup services available at CannaCabana.com and MetaCannabis.com will continue to provide our Toronto-based customers with access to our full catalog of cannabis products throughout the 28-day lockdown,” said Raj Grover, President and Chief Executive Officer of High Tide. “As a diversified cannabis company with 66 retail locations in four provinces, a robust e-commerce portfolio and extensive operations in the US and abroad, we expect the lockdown to minimally impact our business. We will continue to optimize our business and are taking appropriate action to manage our operating costs accordingly,” added Mr. Grover.

Fire & Flower

Fire & Flower Holdings Corp.  (OTC: FFLWF)has said that its stores will once again offer free home delivery and curbside pick-up to safely and responsibly service its customers during the newly-mandated Toronto and Peel region lockdown in the Province of Ontario. “We applaud Attorney General Doug Downey for the practical solution of allowing provincially-licensed cannabis retailers the same e-commerce abilities of delivery and curbside pick-up that all other retailers have during this period of lockdown,” said Trevor Fencott, Chief Executive Officer, Fire & Flower. “This act allows us to safely provide service to our customers and continue to combat the burgeoning illegal market during these challenging times.”

“As the legal industry steps up for the second time and invests in safe delivery for our customers, we hope the Provincial government will recognize that the Ontario Cannabis Store’s monopoly on delivery is an unnecessary burden on public health, taxpayers, customers and economic growth in the Province” continued Fencott. “Lockdowns will eventually end, but the road to economic recovery for private business will be difficult and the large illegal market will continue unchallenged unless the government makes these changes permanent. Our customers expect e-commerce and delivery options from every other kind of retailer in the Province, and deserve to receive equitable treatment for licensed cannabis retailers.”


Debra BorchardtDebra BorchardtNovember 19, 2020
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5min1170

Tilt Holdings Inc. (CSE: TILT) (OTCQB: TLLTF) reported a decline in revenue to $40.4 million for the second quarter of 2020, which was a drop of 12% from the prior-year period.  The net loss was $4.6 million versus a net loss of $9 million in the previous quarter. The company also told investors that it sold its technology platform Blackbird.

“In the third quarter we saw sequential growth across our core Jupiter and plant-touching operations reflecting our diversified position within the growing U.S. cannabis industry,” said Mark Scatterday, CEO of Tilt. “We also reported record adjusted EBITDA that was positive for the third consecutive quarter, a result of our actions to right-size the business while strengthening our platform to scale as a preferred B2B partner to the cannabis industry.”

Sells Blackbird

When TILT first came together as a disparate group of companies, investors had a hard time understanding how all the pieces would fit. Management spent an inordinate amount of time explaining how these pieces would be synergistic. Now it seems, Tilt is going to focus on its biggest member of the family Jupiter, the vape company and is getting out of the tech platform business. Tilt announced that its subsidiary Baker Technologies, Inc. had agreed to sell Yaris Acquisition, LLC known as Blackbird to Slam Dunk, LLC, a Nevada limited liability corporation controlled by Tim Conder, TILT’s Chief Operating Officer and a member of the board of directors of the company. The company said the total valuation of the deal was $15 million and selling Blackbird results in a cut of $3 million in expenses quarterly.

“We continue to believe that the Blackbird platform offers a comprehensive technology solution capable of bringing cannabis brands, retailers, and consumers together on a single platform,” said Gary Santo, President of TILT. “Unfortunately, the marketplace for such solutions is fragmented and hyper-competitive with multiple players offering disparate systems at irrational prices and creating headwinds for sustained profitability.”

“Blackbird is effectively a start-up company contributing 4% to our revenue year-to-date while requiring additional capital and resources in order to achieve scale,” continued Santo. “Given the growth potential within Jupiter and our cannabis operations, we believe the opportunity costs associated with continuing to invest in the platform are not in our shareholder’s best interests. Upon closing, we expect this transaction to significantly improve profitability and free up cash flow that can be redeployed to grow our core businesses, while the proposed structure will allow TILT to participate in Blackbird’s future success.”

Focus On Jupiter

Following the vape crisis, Jupiter struggled, but it seems to have recovered and Tilt has decided to focus its efforts here. Scatterday said on the company’s earnings call, “In the third quarter, Jupiter returned to generating positive top-line growth and with its lean centralized and highly productive operating footprint, it continues to be a steady positive cash flow engine for TILT. Momentum picked up throughout the quarter as order patterns returned to normal and large customers continued to increase their order size. In September, we shipped the record number of total cartridges. Our disposable product category is still being impacted by the effects of COVID, where tourist centric markets like Nevada are still feeling the effects.”

 


Debra BorchardtDebra BorchardtNovember 19, 2020
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5min1090

TerrAscend Corp.  (OTCQX: TRSSF) reported financial results for its third quarter ending September 30, 2020, with net sales of $50.9 million versus $47 million in the second quarter. It was almost double last year’s $26.8 in sales for the same time period in 2019. The company delivered a net loss of $17.5 million, which was slightly higher than last year’s third-quarter net loss of $17.3 million.

The company did note that its net income for the quarter was $12.7 million, a positive result for the first time in company history.

“We continued to build out our footprint in the northeast, including completion of an additional 25% cultivation expansion at our Pennsylvania facility in Q3, which began selling into the market in November,” said Jason Ackerman, CEO and Executive Chairman of TerrAscend. “In New Jersey, where I believe we will be a major player, sales from our newly operational cultivation facility and our first retail location in Phillipsburg are expected to begin in the coming days. I look forward to realizing the full benefit of our substantially larger cultivation and manufacturing capacities across our system, including our recently announced Maryland acquisition, to further accelerate our revenue and adjusted EBITDA growth in Q4 and beyond.”

Increased Guidance

TerrAscend said it is increasing its full year 2020 guidance to at least $196 million in net sales and at least $54 million of adjusted EBITDA. TerrAscend is also providing first-time guidance for 2021 saying it expects net sales of $360-380 million and adjusted EBITDA of $140-160 million for the full year.

The company said its outlook is driven by its emphasis on organic growth through expansion in high-quality, limited license markets while continuing to maintain tight control on costs. TerrAscend’s sales and profits in Pennsylvania are expected to continue to scale following its recently completed 25% cultivation expansion.” In New Jersey, sales from the Company’s greenhouse and indoor cultivation facilities are expected to commence this month and ramp throughout 2021. TerrAscend’s Phillipsburg, New Jersey dispensary is expected to open in the coming days, with plans to open two additional dispensaries in the state in the first half of 2021.”

Gross Margin Increase

Gross margins increased to 59% in the quarter versus 18% for the same time period in 2019 and improved over the second quarter’s 56%. The company attributed the sequential increase in gross margin to a higher mix as well as improved yields and lower cost per pound from the Pennsylvania operations. “Additionally, the turnaround of the Canadian operations has contributed to this sequential improvement.”

The company has been cutting costs delivering a third-quarter G&A expense of $13.7 million, representing 27% of net sales. This was lower than the second quarter’s expenses amounting to 33% of net sales and 45% of net sales in the 2019 third quarter. This strong leverage is a result of tight control of costs combined with continued robust revenue growth.

Cash and cash equivalents, including restricted cash, were $45 million as of September 30, 2020, compared to $6.9 million as of September 30, 2019, and $75 million as of June 30, 2020.

The stock is nearing its 52-week high of $8.20 as it was lately selling at $8.02.


Debra BorchardtDebra BorchardtNovember 18, 2020
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4min1490

Cresco Labs Inc.  (OTCQX: CRLBF) released its unaudited financial results for the third quarter ending September 30, 2020, with revenue hitting $153.3 million. This was a 63% sequential increase over the second-quarter revenue of $93 million and an even bigger jump over last year’s revenue of $36 million for the 2019 third quarter. This also easily beat the Yahoo Finance average analyst estimate for revenue of $115 million. Cresco Labs attributed the increase in revenue to wholesale growth driven by an increase in harvests from expanded capacity in Illinois and Pennsylvania and strong growth in California. Retail growth was driven by strong sequential same-store growth and two new store openings in Illinois.

The company also delivered a net income of $4.9 million for the quarter versus last year’s net loss of $85 for the same time period last year.

“Cresco Labs entered the third quarter firing on all cylinders achieving record levels of revenue, profitability, and cash flow. We remain the number one operator in the industry focused on, and delivering results in, the wholesale distribution of branded products. Our retail is outperforming, and we are generating substantial operating leverage,” said Charles Bachtell, Co-founder and CEO of Cresco Labs. “Comparing Q1 to Q3, we increased revenue by $87 million while keeping SG&A flat. The investments we made to support growth are paying off, and as a result our profitability has grown dollar for dollar with gross profit. Because of the decisions we’ve made, the changes we’ve managed through and the hard work devoted by our team over the last 12 months, Cresco Labs has substantiated itself within the very top tier of the industry and confirmed the value that is driven by our differentiated strategy. This is a unique story of strategic breadth, depth and execution. As we look toward our next phase of growth, it’s rinse and repeat – the playbook will be applied to more states and, again, we will achieve meaningful, material market positions.”

Operational gross profit as a percentage of revenuwas 53%in the quarter as compared to 47% in the prior quarter driven by increased efficiency in our expanded Illinois and Pennsylvania facilities. The adjusted EBITDA  was $46.4 million, which was an increase of 182% sequentially driven primarily by higher revenue, increased operational gross profit across our largest markets and strong SG&A control which dropped dramatically as a percentage of revenue.

The company also noted that its net cash provided by operating activities was $17.8 million, compared to $9.9 million used in Q2. The increase in cash provided by operating activities was driven by increased operating leverage across the business as the Company scales.

 


Debra BorchardtDebra BorchardtNovember 17, 2020
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5min740

The smoking accessory e-commerce giant Greenlane Holdings, Inc. (Nasdaq: GNLN) reported that its net sales fell 20% to $35.8 million in the third quarter ending September 30, 2020 versus $44.9 million in the 2019 third quarter. This narrowly topped the Yahoo Finance analyst estimates for revenue of $35.7 million.

The net loss for Greenlane was $13.7 million versus a net loss of $8.9 million in the 2019 third quarter. The company also delivered a loss per share of ($0.35) which missed the analyst estimates for a loss per share of ($0.10).

Greenlane attributed the drop in revenue is largely attributable to the company’s decision to move away from low-margin nicotine sales typically JUUL pods, to focus on higher-margin products. On a sequential basis, Q3 2020 net sales increased 10% from $32.4 million in the second quarter of 2020. Sales of nicotine products decreased to approximately $3.5 million in the third quarter, from approximately $21.1 million in the same time period of 2019. Net sales of Greenlane branded products grew to approximately $5.6 million, representing 15.5% of total revenue in the third quarter of 2020, as compared to approximately $3.4 million in the third quarter of 2019, or 7.5% of total revenue.

“During the third quarter, with the help of our new senior leadership team, we acted on several key initiatives related to our go forward category emphasis, organizational structure, and related staffing levels. Building on the success we’ve achieved in growing Greenlane brands and non-nicotine sales year over year by 65% and 36%, respectively, we’ve taken additional decisive steps to de-emphasize certain product lines, invest in our fastest growing and highest margin opportunities, and further reduced our headcount by 4.5%,” said Aaron LoCascio, Greenlane’s Chairman and Chief Executive Officer. “While this has had an impact on our Q3 financials, we believe these decisions have positioned Greenlane to return to near-term profitability and long term success.”

Cutting Expenses

Greenlane is sitting on top of $40.0 million in cash and had total debt was $8.2 million as of September 30, 2020, compared to $47.8 million and $8.3 million, respectively, as of December 31, 2019. Year to date, cash used in operating activities was $3.8 million, compared to $33.5 million in the prior year, an 89% improvement. Greenlane said it continues to actively manage its balance sheet to fund its growth initiatives and potential M&A opportunities.

Benefits of Branding

In the third quarter, gross profits were $2.5 million, or 6.9% of net sales, compared to $6.4 million, or 14.3% of net sales in the third quarter of 2019. The company recorded write-offs and adjustments of $4.8 million to damaged and obsolete inventory. Excluding the impact of these inventory adjustments, gross margin would otherwise have been $7.3 million and gross profit margin would otherwise have been 20.4% or 610 basis points higher than the  2019 gross profit. Greenlane expects the overall gross margin to expand from the current adjusted levels of 20.4% as it executes on its strategic vision with Greenlane Brands at its core.

Mr. LoCascio added, “We are building a comprehensive suite of high-quality, Greenlane branded products which will enable us to capture more of the margin on each product we sell. At the same time, we continue to work very closely with our brand partners to launch innovative new products into the market leveraging our best-in-class global distribution platform. I remain very encouraged that we are on track to enter 2021 on a solid footing, returning to positive adjusted EBITDA in the first quarter as a result of the changes we have implemented.”



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