Debra Borchardt, Author at Green Market Report

Debra BorchardtDebra BorchardtApril 18, 2019
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6min1740

Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) is acquiring Acreage Holdings, Inc. (CSE: ACGR.U) (OTC: ACRGF) in a deal valued at $3.4 billion. However, the deal will not be consummated until cannabis is federally legal in the U.S. and assuming the shareholders approve as well as the  Supreme Court of British Columbia.

Once the shareholders and the Supreme Court approve, Acreage Holders will immediately receive a payment of US$300 million or approximately US$2.55 per Acreage Subordinate Voting Share. The company also said in a statement that holders of subordinate voting shares of Acreage will get 0.5818 of a common share of Canopy Growth stock for each Acreage Subordinate Voting Share held at the time of closing of the transaction.

“Today we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally-permissible pathway exists,” said Bruce Linton, Chairman, and co-CEO, Canopy Growth. “By combining Acreage’s management team, licenses and assets with Canopy Growth’s intellectual property and brands, there will be tremendous value creation for both companies’ shareholders.”

Complex is an understatement. These companies are based in different countries with varying levels of shareholder ownership and voting rights. Add in the inclusion of Constellation Brands (STZ) and it becomes more complicated. Plus, there is the issue of legalization in the U.S., which it seems both companies are confident will happen sooner rather than later. Shareholder approval is expected to occur in June.

Jonathan Sherman and Jamie Litchen, partners at Cassels Brock who acted on the Acreage transaction for Canopy Growth said, “Canopy Growth’s acquisition of Acreage Holders is the most complex M&A transaction completed in decades. In this deal, one company has conditionally acquired another to be able to operate outside of a jurisdiction whereby the product or service would be considered legal. Canopy Growth’s listing on the TSX and NYSE and involvement of its largest shareholder created a regulatory environment to structure a deal of this magnitude successfully.”

“From the first day we created our company, providing exceptional customer care and delivering shareholder value have been our top priorities. This transaction will help accomplish both,” said Acreage Holdings Chairman, CEO and President Kevin Murphy. “When the right is exercised having access to Canopy Growth’s deep resources will enable us to innovate, develop and distribute quality cannabis brands across the U.S. and continue expanding our U.S. footprint. At the same time, a confluence of factors are making it much more difficult for a multi-state operator to achieve its full potential, including the enormous amount of cash required to scale. Our Board of Directors, management team and I are pleased to deliver significantly increased liquidity to our shareholders and put ourselves in an even stronger position to deliver continued and significant upside.”

Acreage Leadership

Acreage President, George Allen will depart the company effective immediately and Acreage Chairman and CEO Kevin Murphy will assume the duties of President.

The Acreage board has approved of the deal, but there wasn’t any information as to whether the well-known directors like former Speaker John Boehner, former Canadian Prime Minister Brian Mulroney and former Massachusetts Governor and current Presidential candidate Bill Weld will be on the new board. Acreage Holders will hold approximately 12.1% ownership in Canopy Growth (on a pro forma basis) and up to 16.6% if permitted acquisitions are completed prior to the Trigger Event.

The companies said in the statement that they will also execute a licensing agreement granting Acreage access to Canopy Growth’s award-winning line-up of brands such as Tweed and Tokyo Smoke, along with other intellectual property. Once the Right is exercised, Acreage will become part of a leading global cannabis company with access to markets beyond the U.S. Until then, the two companies will continue to operate independently.

Matt Karnes, Founder and Managing Partner of GreenWave Advisors said, “This deal positions Canopy Growth as a leader in the U.S. market while providing Acreage with near term liquidity and other strategic opportunities. It is not surprising that, within expectations of a coming end of U.S. prohibition,  a Canadian LP/U.S. MSO combination would occur. We further believe that the timing and structure of this deal could facilitate similar moves by other Canadian entities as well as further consolidations among U.S. MSOs that could possibly then look towards Canadian acquisitions. We hope that a transaction of this magnitude will help increase pressure on Congress to more swiftly address changes in federal law as the US is increasingly taking a back seat to Canada and other nations in the burgeoning global cannabis market.”

 

LLC


Debra BorchardtDebra BorchardtApril 18, 2019
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3min2400

The NASDAQ Markets Group (NDAQ) has been notoriously reluctant to list any cannabis related companies, even if they are only ancillary and not plant-touching. It seems vape distributor Greenlane Holdings Inc. has broken through the company’s barriers.

Greenlane will begin trading on NASDAQ today with the ticker GNLN after upsizing its initial public offering of six million shares with the offering price of $17. The company had expected to price the shares between $14-$16.

According to the company, Greenlane is offering 5,250,000 shares and the selling stockholders are offering 750,000 shares. In addition, the selling stockholders have granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of Class A common stock. The offering is expected to close on April 23, 2019, subject to satisfaction of customary closing conditions.

Greenlane Revenue

Greenlane recorded net sales of $178 million in 2018 and a 102% increase over the $88 million in 2017. The cost of sales in 2018 was $143 million. Still, the company reported a net loss of $6.4 million in 2018.

A significant percentage of the company’s revenue is dependent on sales that it purchases from a small number of key suppliers, including PAX Labs and JUUL Labs. For example, products manufactured by PAX Labs represented approximately 15.6% and 29.4% of Greenlane’s net sales in 2018 and 2017, respectively, and products manufactured by JUUL Labs represented approximately 36.5% and 11.4% of its net sales 2018 and 2017, respectively.

Greenlane shipped over 16.0 million product units to its B2B customers in 2018 compared to over 2.0 million product units to its B2B customers in the fiscal year 2016, representing a growth rate of approximately 687.3%. The company grew its employee headcount from 89 employees as of January 1, 2016, to 256 employees as of December 31, 2018.

Greenlane Chain

Greenlane’s customers include over 6,600 independent smoke shops and regional retail chain stores, which collectively operate approximately 9,700 retail locations, and hundreds of licensed cannabis cultivators, processors and dispensaries. Greenlane also owns and operates two of the most visited North American direct-to-consumer e-commerce websites in the vaporization products and consumption accessories industry, VaporNation.com and VapeWorld.com, which offer convenient, flexible shopping solutions directly to consumers. Greenlane is developing a unique e-commerce platform, Vapor.com, into which its existing e-commerce websites will be consolidated.


Debra BorchardtDebra BorchardtApril 18, 2019
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6min1860

Acreage Holdings, Inc. (CSE: ACRG.U) (OTC: ACRGF) (FSE: 0ZV) announced that on April 17, its subsidiary, High Street Capital Partners agreed to acquire Nevada-based Deep Roots Medical in a deal valued at $120 million. The cash and stock transaction will mark Acreage’s entry into the Nevada market.

This deal plants another flag in Acreage’s growing empire bringing the footprint up to 20 (including pending acquisitions) making it the largest company in the US cannabis industry. The state is only home to three million residents, but the tourist population swells that number to 43 million. Arcview Market Research estimates that Nevada will generate nearly $800 million in legal cannabis sales by 2022.

Kevin Murphy, Founder, Chairman, and Chief Executive Officer of Acreage Holdings, Inc., commented, “We continue to deliver on our shareholder commitments to aggressively expand our presence in the West.  We could not be more excited for what we believe will become a leading operator in the state of Nevada, one of the most important states in the cannabis industry.”

Deal Terms

The total deal is valued at $120 million, including $100 million in common units of High Street Capital Partners, LLC and $20 million in cash.  High Street Capital Partners, LLC will issue up to 4,761,905 common units at a deemed value of $21.00 per unit.  Certain Deep Roots employees will have a portion of their issued common units be subject to a lock-up schedule.  The deal is expected to close in the second quarter of 2019.

Canopy Growth Acquisition

Both Acreage Holdings stock and Canopy Growth Inc. (CGC) stock rose yesterday on rumors that Canopy would acquire Acreage in a multi-billion deal. On Thursday morning, the companies jointly announced that they had reached an agreement for Canopy to acquire Acreage. Acreage shareholders will receive a payout of $300 million and will receive 0.5818 of a common share of Canopy for each Acreage Subordinate Voting Share held. The estimated valued of the deal is $3.4 billion.

Deep Roots Operations:

Deep Roots is a vertically integrated operation that includes cultivation, manufacturing & processing, a wholesale and distribution business, and seven retail dispensary licenses. The company described its operations as follows:

Cultivation: 18,000 SF of indoor flowering canopy for high-end flower housed in a 40,000 SF building in Mesquite, NV.

Manufacturing & Processing: Housed in the same 40,000 SF building in Mesquite, Deep Roots has a manufacturing facility and a butane extraction lab to produce their distillates and edibles.  The facility has ample space to build a Form Factory to expand its own internal house of brands throughout Nevada as well as other third-party brands it has agreements with.

Brands: Deep Roots currently manufactures and produces four internally developed brands.

  • Deep Roots utilizes its name for flower and concentrates and currently produces distillate cartridges, disposable pens, shatter, wax, and distillate for edibles, under the Deep Roots brand name.
  • Chillers hard candies has an extensive variety of flavors including watermelon, lemon, cinnamon, mango, and pineapple.  They are typically sold in a tube with ten hard candies, each containing 10mg of THC.
  • Bluebirds – a line of pre-rolled products that typically come in packs of one or three, made from various strains of Deep Roots’ high-quality flower.
  • Helix Twist – a line of gummies that come in six flavors including Sour Cherry, Key Lime, Blood Orange, Cucumber Serrano, and Ginger Peach.

Wholesale and distribution business: Deep Roots currently sells and distributes its Deep Roots, Chillers, Bluebirds, and Helix Twist branded products, and other third-party brands, into nearly 80% of the retail dispensaries in Nevada, making it one of the most connected wholesale operations in the state.

Retail Dispensary operations: Deep Roots has licenses to operate seven retail dispensaries, one of which is currently in operation, another is under construction, and five additional locations that are currently in development. Of the five remaining licenses to be developed, four are in the greater Las Vegas area and the fifth is in Reno.

 


Debra BorchardtDebra BorchardtApril 17, 2019
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4min2370

Acreage Holdings Inc. (ACRG.U) stock rose over 9% to close at $22.49 on rumors of an acquisition by Canopy Growth Inc. (CGC) on Wednesday. Both company CEO’s are scheduled to appear on CNBC on Thursday morning at 6:50 am adding fire to the whispers.

Acreage CEO Kevin Murphy and Canopy Growth CEO Bruce Linton are set to appear with Melissa Lee in the morning as the two companies are supposed to be finalizing the agreement this evening. It had been suggested that Canopy had been looking for a U.S. company and Acreage is one of the largest multi-state operators in the country. In addition to that, the two CEO’s have appeared together frequently at various events and are familiar with each other.

The biggest issue though could be the listing at the New York Stock Exchange. Canopy is listed at the NYSE, which has been steadfast about only listing Canadian cannabis companies and not U.S. based companies. The reasoning was that Canadian cannabis companies were not breaking the law since cannabis is fully legal in the country. However, in the U.S. cannabis is still federally illegal. This is not allowed as per the NYSE listing requirements. So, the question remains – how can Canopy maintain its listing at the NYSE if it acquires Acreage?

Acreage did not respond to a request for comment.

Acreage Holdings

The company holds licenses in 17 states of which 12 are in operation and Acreage has licenses to process in 12 states, seven are operations. The company has licenses to operate 68 retail dispensaries in 12 states, of which 21 are currently operational in 10 states. The Botanist is its retail concept designed to appeal to both adult use and medicinal consumers.

Acreage is licensed to open four stores in New York state home under the company name NYCANNA. The company is also planting its flag in Queens with its latest Botanist opening this past week on February 20. It is Acreage’s first dispensary in the New York City area.

Its operation in Florida is the result of its purchase of Nature’s Way Nursery of Miami, which it acquired for $67 million in January 2019. Acreage plans to open 18 retailers in 2019 in the state.  Its Michigan properties were the result of an agreement with Blue Tire Holdings reached in August 2018.

Other states include Ohio, North Dakota, New Jersey, Massachusetts, California, Connecticut, Iowa, Maine, Maryland, New Hampshire, Pennsylvania, Oregon and Oklahoma. There are pending acquisitions in Rhode Island and the Form Factory in Oregon that has operations in Washington and California.

 

 


Debra BorchardtDebra BorchardtApril 17, 2019
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6min1140

The cannabis consumer is typically characterized as a “stoner” – a lovable, slacker with no ambition wandering around in a high stupor. So, it’s pretty unusual to read the account of a sober millennial working in one of the biggest cannabis companies in the country.  Jackson D. Tilley’s full-time job is the vice president of strategic partnerships and communications for Organa Brands, a vape company that has sold over $100 million in cannabis products.  Somehow, he has found time to write this book Billion Dollar Dimebag: An Insider’s Account of America’s Legalish Cannabis Industry. 

“The book is being published by Post Hill Press, and will be distributed by Simon & Schuster.” It is available now for pre-orders at www.billiondollardimebag.com and it is a true story of being at the right place and the right time for success in the cannabis industry. Tilly started as an intern at O.penVape in Denver Colorado in 2014 just as the adult use cannabis industry began to take off.

O.pen.VAPE is owned by Organa Brands, which just announced the acquisition by Slang Worldwide (SLNG). By logging long hours, massive amounts of travel and lots of hard work, Tilley rose through the ranks to his current position. The book chronicles the changes in the cannabis industry as the stigma quickly fell away, but also highlights the constant challenges that cannabis companies endured along the way.

“Working in public relations for so long, I’ve become fascinated with the ways in which people absorb content and internally assign meaning to it in their own lives,” said Tilley. “You see a lot of people rallying against our industry, repeating the same talking points they were using decades ago. And then, on the other side, you had people who were totally in favor of legalization but still painting the industry and community as a bunch of burnouts.” Tilley said he was motivated to write the book because his experience within the industry wasn’t something that those outside the industry saw. Primarily – really brilliant people taking risks with their careers to advance the cannabis industry.

Sober In Cannabis

Attend any cannabis event in a fully legal state and you will inevitably be offered the product to consume. Corporate events are  known to give the product away for free in gift bags and cannabis is easily accessible. Imagine being sober in this environment. Tilley said that was another reason why he wrote the book, “I’m sober and gay and work in the cannabis industry and that combination is pretty rare,” he said.

However, ask any person working in corporate cannabis and they will tell you how the hours are long, very long. People will often approach a cannabis executive and suggest how awesome it is to work while getting stoned all day. Many will say, if I got stoned all day I’d never get anything done.  It is close to impossible to build a solid company if you spend the day stoned.

“I think sobriety is becoming a more interesting topic to a new generation of people, and I wanted to develop a piece of writing that really illustrates the notion that you don’t need to consume cannabis to fully support its legalization,” said Tilley.

Why Do You Need This Book?

If you think you don’t belong in the cannabis industry, this book could change your mind. Tilley said he’s hopeful that people will read his book and find that working at a cannabis company isn’t like working for a drug dealer. He believes the book is helpful for people both outside and inside the cannabis industry.

Tilley said, “For me – company culture is everything. If you have solid core values for your organization, and you stick to them at every decision point, you can succeed. You can retain talent. You can make sure everyone is working toward a common goal. You might be able to have a successful company without that culture–but what might it cost?”

According to The Hollywood Reporter Simon & Schuster will distribute in hardcover and e-book format, while Tilley has also struck a deal with Audible for the audio rights to the book with Tilley on board to narrate. The book is expected to hit the shelves on September 17.


Debra BorchardtDebra BorchardtApril 17, 2019
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8min990

MariMed Inc. (OTCQB: MRMD) reported its fourth-quarter and 2018 results. For the quarter ending December 31, 2018, revenues grew 118% to $3.44 million versus $1.58 million for the same time period in 2017. The company did not break out additional details for the quarter, opting instead to just release the details for the full year.

Full Year 2018

For the full year 2018, revenues grew to $11.85 million, up 95% over $6.07 million reported for 2017; Adjusted EBITDA grew 53% to $2.4M. The company delivered a net loss for the year of $13.6 million which they attributed to the result of non-cash amortization relating to equity compensation granted during the year ($13.97 million). Loss per share was $0.71 for the full year.

MariMed CEO Bob Fireman said in a statement, “We are encouraged that the company maintained its strong operating performance and dynamic growth. We made a series of key investments to leverage opportunities we see for the years ahead, from branding and marketing to a major investment in GenCanna Global, perhaps the world’s leader in industrial hemp genetics and production.”

Hemp

The company said in its statement, that in November 2018, MariMed made a $30 million investment in GenCanna Global USA Inc. Based in Kentucky, GenCanna is a global innovator in hemp genetics, and with MariMed support will be one of the largest US producers of CBD derived from hemp. MariMed has established a new division, MariMed Hemp which will develop CBD brands and products, as well as pursue other high-margin business opportunities, as the hemp CBD industry separates from the cannabis industry.

Consolidation Plans

The company said in its filing that it has started the consolidation process “is at various stages of completion due to the respective state laws governing cannabis license ownership. Once the consolidation is completed, the company will own, manage, and operate cultivation, manufacturing and retail dispensary operations in these states.” The following was taken from the company’s filing:

Massachusetts

The company successfully converted ARL Healthcare Inc., its cannabis-licensed client, from a non-profit entity to a for-profit corporation with the Company as the sole shareholder. The Company now owns ARL and its cannabis licenses for cannabis cultivation, production and dispensing, with rights for up to nine statewide locations in both the medical and adult-use programs. The Company is constructing a 70,000 square foot state-of-the-art cultivation and production facility for ARL in New Bedford within the Company’s 138,000 square foot facility purchased in 2017. ARL’s manufactured cannabis products will be sold to licensed dispensaries throughout the state serving both the medical and adult-use markets.

The Company also owns a 22,700 square foot building in Middleborough in which a 10,000 square foot dispensary is planned to be open for business in May 2019. Furthermore, the Company intends to open two more dispensaries in the Boston area in 2019.

Maryland

The Company has entered into a memorandum of understanding to acquire Kind Therapeutics USA Inc. , its cannabis-licensed client that holds licenses for the cultivation, production, and dispensing of medical cannabis. The parties are finalizing a merger document to effectuate the transaction which is conditioned on the approval by the Maryland Medical Cannabis Commission, which is expected to occur in October 2019. Until then, the Company will continue to provide management and operational advisory services to Kind, whose operations are conducted within a 100,000 square foot cultivation and manufacturing facility within a Company-owned 180,000 square foot industrial building in Hagerstown. Additionally, the Company has contracted to purchase a 9,000 square foot building in Anne Arundel County for the development of a dispensary, currently scheduled to open in late 2019.

Illinois

In October 2018, the Company entered into a purchase agreement to acquire the ownership interests of KPG of Anna LLC and KPG of Harrisburg LLC, the Company’s two cannabis-licensed clients that operate Company-built and owned medical marijuana dispensaries in the state of Illinois (both entities collectively, the “KPGs”), from the current ownership group of the KPGs. As part of this transaction, the Company will also acquire this ownership group’s interests in Mari Holdings IL LLC, the Company’s subsidiary which owns the real estate in which the KPGs’ dispensaries are located. The Company is currently awaiting approval for this transaction from the state, which is expected to be received in the near future.

Nevada

In November 2018, the Company contracted to acquire 100% of the ownership interests of The Harvest Foundation LLC, the Company’s cannabis-licensed client in the state of Nevada. The acquisition is conditioned upon the approval of the state cannabis commission which is in process. Harvest holds both medical and adult-use cannabis licenses, and operates in approximately 10,000 square feet of an industrial building that the Company leases and has built out into a cannabis cultivation facility.

Delaware

Delaware currently is a not-for-profit state with regard to the ownership of cannabis licenses. The Company provides comprehensive management and real estate services to First State Compassion Center (“FSCC”), the Company’s cannabis-licensed client which was awarded Delaware’s first ever seed-to-sale medical cannabis license, and owns two out of the four statewide licenses.

The state is expected to allow “for-profit” ownership of cannabis licenses in the near future, at which time the Company will look to acquire FSCC and obtain ownership of the licenses and operations

Rhode Island

Rhode Island currently is a not-for-profit state with regard to the ownership of cannabis licenses. The Company is in negotiations to purchase the real estate which is leased to its cannabis-licensed client, the Thomas C. Slater Compassion Center. Subject to state approval, the Company intends to acquire the management company that oversees Slater’s operations. After these transactions are completed, the Company will generate real estate and management fees until the state allows “for-profit” ownership, which is expected to occur in 2020. At that time, the Company will seek to acquire Slater’s cannabis licenses and operations.

 


Debra BorchardtDebra BorchardtApril 16, 2019
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14min3673

Horizons ETFs Management (Canada) Inc. said that it has filed its final prospectus to launch the Horizons US Marijuana Index ETF. Units of the exchange-traded fund have been conditionally approved for listing by the NEO Exchange and are slated to begin trading on April 18, 2019, under the ticker symbols HMUS (Canadian dollar units) and HMUS.U (U.S. dollar units).

“While marijuana remains federally illegal for medical and recreational usage in the United States, the number of legal cultivators and distributors at the U.S. state level continues to grow. Many of these companies have chosen Canadian stock exchanges to list their stocks in order to raise capital to meet growing investor demand,” said Steve Hawkins, President, and CEO of Horizons ETFs. “HMUS will be the first index ETF solution to focus solely on identifying and investing directly in, U.S. marijuana and hemp companies. As the U.S. continues to further liberalize its marijuana regulations, we anticipate that more investors will be looking to invest in companies with significant business operations in the U.S. market and HMUS will provide a diversified and liquid way to gain that exposure in one ETF.”

The company said that HMUS will be the first ETF in the world that is solely focused on providing exposure to companies with significant business activities in, or significant exposure to, the United States marijuana or hemp industries. HMUS is an index  ETF, which seeks to replicate, to the extent possible, the performance of the US Marijuana Companies Index, net of expenses.

The NEO Exchange is a Canadian stock exchange based in Toronto. According to Wikipedia, it is marketed as Canada’s New Stock Exchange, NEO aims to help companies, dealers, and investors by creating a better listing experience, eliminating predatory market behaviors such as high-frequency trading and implementing a unique market making program to ensure liquidity.

Companies In The Index

The top-20 constituents and weights of the Underlying Index as of April 15, 2019, are in the table below:

CONSTITUENT NAME

TICKER

WEIGHT

CURALEAF HOLDINGS INC

CURA :CSE

12.60%

CRESCO LABS, INC

CL :CSE

11.94%

CHARLOTTE’S WEB HOLDINGS, INC

CWEB :CSE

10.96%

MEDMEN ENTERPRISES INC

MMEN :CSE

8.68%

GREEN THUMB INDUSTRIES INC

GTII :CSE

7.61%

ACREAGE HOLDINGS INC

ACRG/U :CSE

5.16%

IANTHUS CAPITAL HOLDINGS, INC

IAN :CSE

4.96%

GREEN GROWTH BRANDS INC

GGB :CSE

3.85%

TERRASCEND CORP

TER :CSE

3.76%

CANNAROYALTY CORP

OH :CSE

3.68%

HARVEST HEALTH & RECREATION INC

HARV :CSE

3.64%

FLOWER ONE HOLDINGS INC

FONE :CSE

3.32%

SLANG WORLDWIDE INC

SLNG :CSE

2.60%

CANNABIS ONE HOLDINGS INC

CBIS :CSE

1.68%

LIBERTY HEALTH SCIENCES INC

LHS :CSE

1.62%

VALENS GROWORKS CORP

VGW :CSE

1.57%

CANNABIS STRATEGIES ACQ. CORP

CSA/a: NEO

1.48%

PLANET 13 HOLDINGS INC

PLTH :CSE

1.27%

TRULIEVE CANNABIS CORP

TRUL :CSE

1.05%

SUNNIVA INC.

SNN :CSE

0.99%

Horizons said in a statement that the companies in the index are selected from Canadian and U.S. exchanges. While some securities may be listed on major North American exchanges, the majority of the securities currently trade on North American exchanges that include but are not limited to the Canadian Securities Exchange and NEO.

The Underlying Index is market-capitalization-weighted, subject to a cap for each constituent issuer of a maximum of 10% of the net asset value of the Underlying Index at the time of any rebalancing. For a security to be eligible for the Underlying Index, the issuer will generally need to have a market capitalization of greater than $75 million.

“The Horizons Marijuana Life Sciences Index ETF was the first Marijuana ETF listed in the world. We launched that ETF shortly before cannabis was fully legalized in Canada,” said Mr. Hawkins. “We see a lot of similarities with the regulatory environment in the U.S. to what we saw in Canada, three years ago. If the U.S. were to enact any type of federal legalization, either medical or recreational, that would immediately make the U.S. the largest federally approved cannabis market in the world. HMUS will give investors direct diversified access to this early stage sector which has the potential of future U.S. regulatory change.”


Debra BorchardtDebra BorchardtApril 15, 2019
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6min2770

Aphria Inc. (TSX: APHA) (NYSE: APHA) reported its results, for the third quarter ending February 28, 2019. The company delivered net revenue of $73.6 million up 240% from the prior quarter and 617% from the prior year. Still, the company reported a net loss of $108 million versus last year’s net income of $12 million for the same time period.

Irwin D. Simon , Aphria’s Chairman, and Interim Chief Executive Officer said, “Our organization has experienced significant change in a very short period of time which was necessary to propel the Company forward.  Our Board of Directors and executive team will remain focused on the advancement of Aphria’s leadership position in the global cannabis industry and we are pleased to have announced today the appointment of two new independent directors.”

The Board appointed two new independent directors, effective today. Walter Robb and David Hopkinson will fill two of the three current director vacancies. Walter Robb was a former co-CEO of Whole Foods Market. David Hopkinson serves as Real Madrid Club de Futbol’s (“Real Madrid”) Global Head of Partnerships. He joined Real Madrid in August 2018 and brings his 25 years of professional sports sales, marketing and leadership experience to Aphria.

Green Growth Brands

The company issued a separate press release and said it continues to recommend that Aphria shareholders reject the Green Growth Brands (GGB) Offer and to not tender Aphria shares to the GGB Offer.

Simon said, “We plan to use the $89.0 million in proceeds from the transaction to fund our strategic global expansion initiatives. On behalf of our Board of Directors and management team, we continue to recommend that Aphria shareholders reject the GGB offer and do not tender their Aphria shares to the GGB offer.”

GGB has entered into a share purchase agreement with GA Opportunities Corp. (GAOC) pursuant to which GGB has agreed to purchase for cancellation 27.3 million shares held by GAOC, for an aggregate purchase price of $89.0 millionThe terms of the Share Purchase Agreement include, among other things, that GGB will pay in cash $50.0 million of the Purchase Price to GAOC within 30 days of the date hereof and will issue a promissory note to GAOC for $39.0 million due in six months from the Closing Date.

Aphria has entered into a shortened deposit period agreement with GGB to facilitate the acceleration of the expiry of GGB’s offer to purchase all of the issued and outstanding shares of Aphria. Aphria has agreed to reduce the initial deposit period of the bid to 92 days from January 23, 2019. GGB will be mailing a Notice of Variation providing that the GGB Offer will expire at 5:00 p.m. on April 25, 2019. Based on the closing price of $3.86 per GGB share on the Canadian Securities Exchange on April 12, 2019 , the implied consideration under the GGB Offer would be $6.07 per Aphria share, representing a significant 54.7% discount to Aphria’s closing price on the Toronto Stock Exchange of $13.41 per share on the same day.

Latin America Assets

The company had formed a Special Committee as per the Ontario Securities Commission request as part of a continuous disclosure review that the company performs an impairment test on its LATAM assets subsequent to the filing of the 2019 second quarter financial statements. The committee concluded the review and found that the acquisition of LATAM assets was within an acceptable range, albeit near the top of the range of observable valuation metrics; the company’s investment in LATAM assets is approximately $225 million , after recording the aforementioned non-cash impairment charge, which is approximately $30 million more than the original agreed purchase price of approximately $195 million.

Mr. Simon continued, “We continue to take decisive actions to increase efficiency, including investing additional capital in automation and packaging and adapting production to a new growing method. While this contributed to an increase in our costs, we expect higher future yields per square foot leading to stronger results as we start fiscal year 2020.”


Debra BorchardtDebra BorchardtApril 15, 2019
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5min1140

Organigram Holdings Inc. (TSX: OGI) (OTCQX: OGRMF) announced its results for the second quarter ending February 28, 2019 with net revenue of $26.9 million, a 693% increase over last year’s net income $3.3 million. The net loss from continuing operations was $6.4 million or $(0.05) per share on a diluted basis versus $1.2 million net income, or $0.01 per share on a diluted basis for the same time period in the previous year.

The adjusted EBITDA of $13.3 million or 49% (of net revenue) was positive for the third consecutive quarter and increased from an adjusted EBITDA loss of $0.3 million in Q2-2018 driven by exponentially higher unit sales.

“For the second consecutive quarter, our results reflected operational excellence which translated into record revenue for the Company, industry-leading adjusted gross margin, and positive adjusted EBITDA, all of which differentiates us from most of the Canadian industry today,” said Greg Engel, Chief Executive Officer. “Our team has already progressed several key initiatives in preparation for the derivative and edibles launch in the fall of 2019.”

Q2-2019 gross revenue of $33.5 million included the first full quarter of adult-use recreational sales and increased 1,044% over the previous year’s gross revenue of $2.9 million. The cash cost of cultivation was $0.65 and “all-in” cost of cultivation of $0.85 (including non-cash depreciation and share-based compensation) per gram of dried flower harvested decreased from $1.24 and $1.48, respectively, in Q2-2018 largely due to higher yields per plant.

Adjusted gross margin (a non-IFRS measure that excludes the effects of fair value adjustments on biological assets and inventories) increased to $16.0 million or 60% (of net revenue) from $1.8 million or 52% (of net revenue) in Q2 2018 as explained by increased unit volume sales. Q2-2019 reported gross margin (includes fair value adjustments on biological assets and changes in inventory) equaled $8.0 million compared to $6.2 million in Q2-2018.

Sales and marketing and general and administrative expenses were $5.7 million (excluding non-cash share-based compensation), up from $2.7 million in Q2-2018. As a percentage of net revenue, SG&A expenses excluding share-based compensation decreased to 21% from 79% in Q2-2018 as management continued with their disciplined approach to overhead spending during this high growth period.

Edibles & Beverage Launch

Organigram said it is well-positioned for the launch of the derivatives products in the fall of 2019. The company is currently focusing its interests on vaporizable pen technologies and a selection of edible products.  A chocolate molding line and additional fully automated packaging equipment for product lines such as edibles and other derivative based products have been ordered and short path distillation equipment for edibles and vape pens has been purchased.

Organigram said that it believes it has also developed a shelf stable, water-soluble and tasteless cannabinoid nano-emulsion formulation that provides an initial onset within 10 to 15 minutes if used in a beverage. Non-cannabis formulations with a similar molecule size are water-soluble in humans (i.e., absorbed through the bloodstream rather than requiring first-pass liver metabolism, which results in longer onset and duration). The company expects to receive appropriate research and development licensing in the very near future at which point it will be able to confirm the onset of action and duration of effect. At this point, the company is not planning to launch its own cannabinoid infused beverages and is actively seeking a strategic partner with proven experience in beverage product development.

It is expanding capacity with the Phase 4 and Phase 5 expansions of its Moncton facility as well as the extraction agreement with Valens.  The company has an exclusive consulting agreement with TGS International LLC, a vertically integrated cannabis company and proven market leader in Colorado, to better understand the demand for certain derivative-based products, market share trends over time and for the development of commercial-scale extraction and product development and processing.


Debra BorchardtDebra BorchardtApril 12, 2019
legalization.jpg

12min1260

By Jeff Remsburg, Contributing Editor InvestorPlace.com Apr 8, 2019, 7:13 pm EDT

Where we stand with federal marijuana reform initiatives, and what that means for your marijuana investments today

With last Friday’s “landmark” bill, Congress is closer than ever to long-awaited reform measures that would, in effect, legalize marijuana.

“Landmark” is how Rep. Earl Blumenauer (D-OR) described the legislation introduced this past Friday. If passed, it would end the federal prohibition on marijuana.

The legislation is called the STATES Act (Strengthening the Tenth Amendment Through Entrusting States). In practical terms, it would allow each state or territory to decide its own policy on marijuana, without federal intervention.

(You can follow all the proposed legislation here)

It will still be a while before the bill gets a full House vote. Regardless, the momentum and growing support from an increasing number of politicians are what’s important for now. It’s part of a new wave of legalization that has already created massive stock winners. At this point, it’s undeniable — legal marijuana is one of the biggest investment opportunities of this generation.

So, given this federal milestone, in today’s Digest, let’s review federal marijuana reform efforts that have taken place over the last few months. Then, in light of where we stand today, let’s discuss which investments are likely to thrive in this environment.

***Major federal reform began with the passing of the 2018 Farm Bill this past December

The Farm Bill was major news for marijuana investors. To understand why, I’m going to turn to our resident marijuana expert, Matt McCall. Matt is one of the most respected, and successful, marijuana analysts in the business.

The bill legalized hemp — a cannabis derivative — for the first time in nearly a century, opening up what could be a $20+ billion industry in a relatively short amount of time. As hemp-derived cannabidiol (CBD) oil hits the mainstream, we’re looking at an industry with the potential to be 55 times larger in just five years … it has game-changing ramifications on the hemp industry …

Prior to that, hemp was classified as a Schedule 1 drug according to the Drug Enforcement Administration (DEA), and federal laws prohibited growing or selling it. A previous Farm Bill from 2014 allowed a few states to give out limited permits to grow hemp for specific uses, but it mostly remained illegal.

The DEA’s classification made no sense. Schedule 1 drugs are the most addictive and dangerous in the world and have zero medical benefits. We know that isn’t true with hemp. Can you believe that the DEA viewed hemp as more dangerous than cocaine, which is a Schedule 2 drug?

Given this hemp legalization, we’re now seeing CBD-infused products being sold in traditional outlets including Walgreens and CVS. Beyond that, CBD has already become so popular it’s making its way into products you may never have suspected — for instance, CBD dog treats.

This CBD-popularity dovetails into the second area of federal reform — the FDA.

***While the conversation is evolving, real reform from the FDA appears slow … but moving

While CBD made from hemp is now legal thanks to the 2018 Farm Bill, CBD made from marijuana is still illegal. That’s because marijuana remains a controlled substance.

The lack of formal guidance from the FDA has led to lots of confusion as to which CBD products are legal versus illegal, as well as marketing claims and general advertising. This has slowed CBD’s growth (even though its current growth is staggering despite these challenges).

During one of his last days as FDA commissioner, Scott Gottlieb appeared before a House appropriations subcommittee and explained the challenge. In essence, regulating CBD will require a unique model that may take years to complete.

“That’s the conundrum here,” he said. “We don’t have a really modern proxy for where this has happened.”

That’s why Gottlieb suggested that congressional action on CBD could lead to a faster resolution than paths through the FDA.

But in an effort to push the ball forward, the FDA will hold its first public hearings on whether to allow CBD to be legally used as a food-and-drink ingredient on May 31.

If you want to be a part of this conversation, the agency is asking for public comment. If you’d like to learn more and have your voice heard, click here for more information.

***Another key piece of federal reform is happening with the SAFE Banking Act

On March 28th, a congressional committee approved the Secure and Fair Enforcement (SAFE) Banking Act. The legislation is intended to increase marijuana businesses’ access to banks.

This is big because with marijuana still illegal under federal law, getting banks to accept deposits from marijuana-related companies is extremely difficult. That’s because any bank that does business with marijuana companies could be charged with “aiding and abetting” — which is a federal crime.

In order for the marijuana industry to make its next quantum leap, banks need to be in on the game. And last Thursday’s vote from the House Financial Services Committee is evidence that’s happening.

The vote is also significant since it was approved despite some resistance from Republicans. You see, when Republicans held the House majority, they blocked marijuana amendments from even being considered.

Even last week, top Republicans on the Financial Services Committee requested to delay the vote, given some unanswered questions. The vote went ahead and was passed despite this request, which is a reflection of the chamber’s new Democratic majority.

When the legislation will reach the floor is unclear. But if passed, federal banking regulators will not be able to punish financial institutions just because they service marijuana businesses that enjoy legal status under state or local law. That will be a watershed moment for the legalized marijuana industry.

***Coming full circle, given the status of these various federal reform efforts, where do we see the most impact on investments?

Marijuana is still illegal on the federal level. So, as you would expect, the investments seeing the biggest gains are those that have less risk of federal prosecution. CBD falls into this area, despite the current murkiness surrounding its FDA approval. Given this, many CBD stocks are exploding.

Matt’s own Elixinol is one example. Elixinol makes and distributes CBD supplements and skincare products. At the time of this writing, Matt’s subscribers are up over 175% since December.

So, CBD companies should be on your radar if you’re looking to begin a portfolio of marijuana investments.

A second marijuana investment area that has some insulation from federal repercussions is found in “picks and shovels” companies — in other words, companies that provide services to the marijuana industry, but don’t directly participate. For instance, a company that provides fertilizer and production equipment to a grower.

The example from Matt’s portfolio is Innovative Industrial Properties (IIPR). It’s a REIT which buys properties from medical marijuana growers, then leases the buildings back to the growers. At the time of this writing, Matt’s subscribers are up over 150% since August.

As to pure-play marijuana companies, such as those that sell marijuana directly to consumers, we expect they’ll thrive in the coming years after full federal legalization. But until that happens, we anticipate outperformance from these “safer” marijuana plays.

That said, if you’re looking for huge investment returns, the time to invest is usually before the crowd piles in. That means an investment in more direct marijuana companies today could pay off huge tomorrow.

If you’re looking for help identifying marijuana investments, Matt will be hosting his first-ever Cannabis Stock Summit where he will explain the area he’s most excited about right now. It’s based on a strategy that targets a specific type of marijuana company positioned to benefit from a unique market event. Click here to learn more.

In the meantime, we’ll continue to keep you up to speed as to the status of federal reform as 2019 unfolds.

 



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