Business Archives - Green Market Report

StaffStaffJune 1, 2020
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6min20

It’s time for your Daily Hit of cannabis financial news for June 1, 2020.

On The Site

Acreage

Multi-state operator Acreage Holdings, Inc. (OTCQX: ACRGF) said it has entered into two definitive funding agreements to receive up to $60 million. According to a company statement, the two funding agreements are as follows:

A Standby Equity Distribution Agreement with an institutional investor, under which the company may, at its discretion, periodically sell to Investor, and pursuant to which the Investor may, at its discretion, require the company to sell to it, up to $50 million of the Company’s Class A Subordinate Voting Shares, no par value.

Completion of a private placement offering, in which it issued $11 million in a principal amount under a secured convertible debenture, with gross proceeds to the Company of $10,000,000 before transaction fees.

Valens

Valens GroWorks Corp. (VLNCF) has entered into a syndicated credit facility with the Canadian Imperial Bank of Commerce as Co-Lead Arranger and Administrative Agent, and ATB Financial as Co-Lead Arranger. The Lenders will provide The Valens Company up to C$40 million of secured debt financing.

International cannabis company Clever Leaves will be listed on the NASDAQ (NASDAQ:NDAQ) as a result of its agreement with the Schultze Special Purpose Acquisition Corp. (NASDAQ: SAMA). According to a company statement, SAMA and Clever Leaves will combine and become a publicly-traded company on NASDAQ.

New Study

Green Horizons released a detailed report studying cannabis consumers and the cannabis market in general. The report addresses a diverse selection of topics like social concerns with using cannabis, talking to non-users about why they choose not to use cannabis, and dispensary reports and findings. An interesting part of the report focused on cannabis branding, and how that impacts cannabis users at large.

With terms like “social distancing”, “quarantine”, and “safer at home” orders now common parlance thanks to the Covid-19 global pandemic, it seems an odd time to forge ahead with opening new retail establishments, yet several determined cannabis companies are betting on a better future and doing just that.

Dispensaries

Small business website “The Balance” itemizes the expenses associated with opening a storefront, which include licensing fees, rent, inventory, staffing, and equipment to name a few.  To open even a small business in an inexpensive city or town can cost thousands of dollars. Factor in the extra costs retailers will have to swallow to stay within Covid-19 guidelines for reopening such as plexiglass cashier guards, protective equipment for staff, and restrictions on the number of customers allowed in the store at any one time, and the overhead becomes untenable for many current and aspiring shop owners.

In Other News

Jushi

Jushi Holdings Inc.  (OTCQX: JUSHF) is temporarily closing its BEYOND / HELLO™ Center City and Northern Liberties store locations in Philadelphia amid ongoing demonstrations. Chief Executive Officer Jim Cacioppo said, “We fully support an individual’s right to freedom of speech and the touching peaceful demonstrations that we have seen around the country. We are heartbroken by the murder of George Floyd and the pain it is causing communities across the country that we not only work in, but live and love.

Unfortunately, certain opportunistic bad actors have at times manifested unacceptable behaviors. This past weekend, our Center City and Northern Liberties locations in Philadelphia were broken into, making it impossible for us to safely operate. In addition to these two temporary store closures, we have limited our hours at certain locations in Pennsylvania and Illinois.”

M Jardin

MJardin Group, Inc. (OTCQX: MJAR) has terminated its previously announced acquisition of Carson City Agency Solutions, dba Cannabella, a producer of edibles and topicals located in Carson City, Nevada.

The acquisition, which was expected to close in late 2019, could be terminated by the parties if the transaction hadn’t closed by April 2020. Given the delay in transferring the license, the Company elected to terminate the acquisition. The Company and the vendor are in discussions regarding fees, expenses, and the status of the deposit consideration made in respect of the acquisition.


Debra BorchardtDebra BorchardtJune 1, 2020
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4min2170

International cannabis company Clever Leaves will be listed on the NASDAQ (NASDAQ:NDAQ) as a result of its agreement with the Schultze Special Purpose Acquisition Corp. (NASDAQ: SAMA). According to a company statement, SAMA and Clever Leaves will combine and become a publicly-traded company on NASDAQ.

Kyle Detwiler, CEO of Clever Leaves said, “The SAMA team possesses significant experience assisting companies similar to Clever Leaves and will be highly additive as we work to advance our commercialization efforts, further develop and broaden our brand portfolio, and expand our operations and distribution channels. As a result of our low-cost, pharmaceutical-grade cannabis cultivation platform and effective distribution network, Clever Leaves is favorably positioned to experience aggressive growth in the rapidly expanding global medicinal cannabis industry. Strengthening our balance sheet and listing on NASDAQ would be important achievements for our company as we are eager to accelerate the commercialization of our high-quality products and to expand our distribution into markets around the world.”

Clever Leaves has ownership in two medical cannabis distribution companies in Germany as well as a branded nutraceutical producer and distributor in the US and is currently distributing non-cannabis products.  The company’s investments are anticipated to drive sales growth in rapidly expanding cannabis markets within Europe, Australia, the Middle East, and South America. Clever Leaves also recently secured a regional supply agreement with Canopy LATAM Corporation, a wholly-owned and controlled subsidiary of Canopy Growth Corporation.

George J. Schultze, Chairman, and CEO of SAMA, said, “Clever Leaves has earned its industry-leading market position through its high-quality genetics capability and highly scalable cultivation, and extraction capacity. Moreover, the leveragability of its pre-existing distribution infrastructure, unique GMP certification, and disruptive low-cost model bring us great enthusiasm about its future prospects.”

Clever Leaves’ shareholders will own a majority of the equity in the combined public company. SAMA’s cash balances, currently in excess of $130 million, would be used primarily to fund the combined company’s near-term operating expenses, capital expenditures, working capital, and potential M&A opportunities.

The company has successfully developed low-cost, pharmaceutical-grade cannabis cultivation and extraction platform, operating under Colombian Good Manufacturing Practices (GMP) for cannabis production. Clever Leaves is also in the process of becoming one of the few cannabis companies in the world, and the only cannabis company in Latin America, to be granted a European Union Good Manufacturing Practice certification for extracts, subject to the successful completion of the certification process. The

Clever Leaves currently cultivates in over 1.9 million square feet of greenhouses. Clever Leaves employs a staff of approximately 500 globally and has raised approximately $120 million of capital to date, including substantial debt and equity investments from leading institutional investors with a demonstrated track record in the cannabis sector.


StaffStaffJune 1, 2020
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3min360

Valens GroWorks Corp. (VLNCF) has entered into a syndicated credit facility with the Canadian Imperial Bank of Commerce as Co-Lead Arranger and Administrative Agent, and ATB Financial as Co-Lead Arranger. The Lenders will provide The Valens Company up to C$40 million of secured debt financing.

“Although we are already well-capitalized, the Credit Facility increases our financial flexibility and brings down our overall weighted average cost of capital. With our enhanced balance sheet, we are well-positioned to continue to expand our innovative product portfolio, build out our custom manufacturing platform, be opportunistic in a consolidating market and maximize capital allocation to generate the highest return on invested capital for our shareholders,” said Tyler Robson, CEO of The Valens Company.

Valens is the largest third-party extraction Company in Canada with an annual capacity of 425,000 kg of dried cannabis and hemp biomass at our purpose-built facility in Kelowna, British Columbia which is in the process of becoming European Union (EU) Good Manufacturing Practices (GMP) compliant. The Valens Company currently offers a wide range of product formats, including tinctures, two-piece caps, soft gels, oral sprays, and vape pens as well as beverages, concentrates, topicals, edibles, injectables, natural health products and has a strong pipeline of next-generation products in development for future release.

According to the company statement, the Credit Facility consists of a C$20 million secured term loan and a C$20 million secured revolving loan, with an accordion feature that could allow The Valens Company to increase the aggregate commitments by up to an additional C$10 million. The Credit Facility has a three-year term and is secured by a first ranking charge over substantially all the Company’s assets.

Proceeds from the Credit Facility will further strengthen the company’s balance sheet, allowing for the continued expansion of its operations and execution of its corporate strategy, including gaining access to new domestic and global opportunities to increase shareholder value.


Debra BorchardtDebra BorchardtJune 1, 2020
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3min620

Multi-state operator Acreage Holdings, Inc. (OTCQX: ACRGF) said it has entered into two definitive funding agreements to receive up to $60 million. According to a company statement, the two funding agreements are as follows:

  • A Standby Equity Distribution Agreement with an institutional investor, under which the company may, at its discretion, periodically sell to Investor, and pursuant to which the Investor may, at its discretion, require the company to sell to it, up to $50 million of the Company’s Class A Subordinate Voting Shares, no par value.
  • Completion of a private placement offering, in which it issued $11 million in a principal amount under a secured convertible debenture, with gross proceeds to the Company of $10,000,000 before transaction fees.

The announcement comes on the heels of Acreage saying it expects to take an $80-$100 million charge  in the quarter ending March 31, 2020. In 2019, Acreage reported a net loss of $195 million, so it seems 2020 may be off to a rough start as well. Acreage is also late to file its first-quarter 2020 earnings report.

The company is also in the midst of restructuring the company as it scales back on its plans to the largest cannabis company in the country.  Its first steps to scaling back properties include selling Acreage North Dakota, where it operated one medical marijuana dispensary and selling undeveloped real estate on the island of Nantucket in Massachusetts.

The company’s focus is now on key, profitable operations. Acreage believes this will lead to immediate margin improvements and accelerate its pathway to achieve positive pro-forma adjusted EBITDA for the full year 2020.

The company said in a statement that this shift is a direct response to significant changes in capital markets and in anticipation of continued historic pressure on consumer sentiment and regional and national economic uncertainties. “In addition to the sale of some non-core and other underperforming assets, Acreage intends to operate with a more optimized overhead cost structure and corporate team to adapt to an ever-changing cannabis landscape.”

The company has also laid off more than 200 employees as a result of its attempts to cut costs.


Kaitlin DomangueKaitlin DomangueJune 1, 2020
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6min830

Green Horizons released a detailed report studying cannabis consumers and the cannabis market in general. The report addresses a diverse selection of topics like social concerns with using cannabis, talking to non-users about why they choose not to use cannabis, and dispensary reports and findings. An interesting part of the report focused on cannabis branding, and how that impacts cannabis users at large.

One of the biggest hurdles of branding cannabis is creating a product that stands out. The report says that “overall, 3 in 10 cannabis users feel all cannabis is ‘pretty much the same.’” Medical users are more likely than recreational users to feel this way, and younger people tend to feel this way more than older people. 34% of those who feel this way are between the ages of 18-34, and 40% of those surveyed are medical users. Medical users might be more likely to feel this way because they have a specific problem they are trying to solve from using cannabis. Younger people may be more inclined to feel this way because of the diverse selection of products they have been accustomed to, versus the older generation who smoked illegally for most of their life up until recently. 

The report notes that even in areas where cannabis is fully legal and users have had more opportunity to experience a diverse selection of products and brands, the feeling of all cannabis being “pretty much the same” still stands. 

Leafs by Snoop Is Best Known Brand

Leafs by Snoop is the topmost recognizable brand to those surveyed, with only 23% saying they know of it. The products, which are promoted by iconic rapper Snoop Dogg, are distributed through Canopy Growth Corp. (NYSE:CGC). It also goes by the initials LBS and is currently facing a lawsuit over the leaf design by the Toronto Maple Leafs professional hockey team.

The report listed 16 more brands, and 32% of people surveyed had never heard of any of the listed brands. Cheeba Chews is the second brand people are most aware of at 22%. 

This signals a potential issue in cannabis branding and the establishment of brand identity. According to the report, “this highlights the immense growth opportunity for brands to break out in an increasingly crowded marketplace. Cannabis users who live in recreational states— and are therefore more likely to visit retail locations—are more likely to report awareness of at least one brand tested. Yet, even in recreational states, no brands approach anything near-universal awareness.”

The report claims that capturing what cannabis users want to feel is a crucial component in leaving a mark with branding. The packaging and brand’s image can be exactly what is trending today, but it is just another pretty name without a cannabis product that works. The report shows that 76% of users want to feel relaxed when they use cannabis, with happy and relieved trailing closely behind. If cannabis brands could tailor to this specific desire with their branding and the product in the package, they would generate lifetime customers and make a splash in the crowded marketplace. This is true for CBD companies as well. In the opinion of many, CBD has become more about fitting into a wellness trend than providing medicine to people. Pretty packaging with the CBD content testing out at close to nothing has been showing up in the marketplace more and more.  

As cannabis becomes more mainstream, those working in the industry aim to combat social stigmas that have been weighing cannabis down for decades. One thing the majority of cannabis industry workers do to fight that is to refer to cannabis as cannabis, instead of “street” names, like weed or pot. The report, though, shows that your average users are most likely to call cannabis weed, with 69% of users saying that is what they call it. Marijuana, pot, and bud follow with 39%, 38%, and 37%, respectively. Recreational users are most likely to refer to it as weed, with 76% of recreational users reporting they call it weed. 

If users would change how they present cannabis to others, especially those in the recreational setting, it could potentially generate great waves of change. 


Julie AitchesonJulie AitchesonJune 1, 2020
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7min760

With terms like “social distancing”, “quarantine”, and “safer at home” orders now common parlance thanks to the Covid-19 global pandemic, it seems an odd time to forge ahead with opening new retail establishments, yet several determined cannabis companies are betting on a better future and doing just that.

 Small business website “The Balance” itemizes the expenses associated with opening a storefront, which include licensing fees, rent, inventory, staffing, and equipment to name a few.  To open even a small business in an inexpensive city or town can cost thousands of dollars. Factor in the extra costs retailers will have to swallow to stay within Covid-19 guidelines for reopening such as plexiglass cashier guards, protective equipment for staff, and restrictions on the number of customers allowed in the store at any one time, and the overhead becomes untenable for many current and aspiring shop owners.

New Dispensaries

Despite these factors, companies like cannabis product manufacturer Green Thumb Industries, cannabis testing laboratory Cannasafe, and cannabis retailer Canna Provisions are expanding their enterprises.

Green Thumb Industries (OTC:GTBIF)  announced that it would be opening its fourth retail location in the Las Vegas, NV area on May 13, as well as the eighth store in Illinois on May 28. This makes for a total of forty-five storefronts nationwide for Green Thumb, with four new locations opening since the Covid-19 crisis began. 

Green Thumb’s approach involves an emphasis on efficient curbside pick-up and delivery strategies to safeguard customer and staff safety. In a May 26 press release about the new Illinois location, Green Thumb Industries founder and chief executive Ben Kovler stated that his company has “continued to move forward through the ongoing COVID-19 crisis to provide jobs and much-needed access to well-being through the power of cannabis during these difficult times, as demonstrated by the opening of Rise Niles, our fourth opening since the crisis began.”

Cresco Labs  (OTCQX:CRLBF) opened Sunnyside River North, the first Illinois adult-use dispensary in Chicago in the prestigious River North neighborhood. Sunnyside opened for adult-use cannabis sales on May 28th for online orders and in-store pick up that day through a pop-up retail experience. “We are thrilled to be opening the first adult use store in Chicago under the state’s new legislation and to provide an example of what normalized and professionalized cannabis looks like with a location in a traditional business district, a local and diverse operating team and a tremendous amount of community input and support,” said Charlie Bachtell, Cresco Labs’ CEO and Co-founder.

Cresco Labs has said it has implemented procedures system-wide to eliminate wait lines, crowding, and social distancing during the COVID-19 pandemic and the River North location will launch with online orders only through Sunnyside.shop. Once customers receive a text notification that their order is ready, they can check-in at the Guest Experience Center at 22 W. Hubbard to be entered into the virtual pickup queue.

Meanwhile, Cannasafe has announced the opening of three new ISO-accredited laboratories in Oregon, Florida, and Illinois to help meet the increased demand for cannabis during the pandemic. Canna Provisions has opened a new storefront in Easthampton, MA with another in nearby Holyoke slated to open shortly. Another Lee, MA location shut down due to the pandemic will also be reopening. Canna Provisions is using a quick transaction model involving ID checks, a wireless ATM card reader, and frequent sanitizing to facilitate safe customer interface while offering additional support via Zoom links and instructional videos to help customers understand the new system. 

These considered moves by some of the industry’s best-known names have all of the makings of successful ventures, especially given the attention to the potential infection hazards inherent in storefront retail. Still, as demand for cannabis continues strong and companies build capacity to meet that demand, it remains to be seen whether Covid-19 and a potential “second wave” will frame a gamble on the future of in-person sales as one worth taking or not.


Sean HockingSean HockingMay 30, 2020
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22min180

If you wish to re-publish this story please do so with the following accreditation
AUTHOR:  aBIZinaBOX Inc. CPAs – Jordan S. Zoot, CPA
PUBLISHER:  CANNABIS LAW REPORT

Salvaging Equity Programs – this is our fourth article relating to the impact of the COVID-19 crisis on the cannabis industry.   This will not be our last article on this topic.  We initially anticipated only four, but we now see additional issues.

The immediate impact of this crisis was obvious.  The long-term impact of this crisis and the related depression is not at all clear.  Businesses large and small are attempting to adjust to an uncertain future.  The cannabis industry has always involved more uncertainties than most industries.  The COVID-19 crisis added a layer of uncertainties that are the grist for additional articles.

This article focuses on the “Cannabis Equity Programs” a number of local jurisdictions have established.  These programs are largely the product of a politically driven social policy.  Cannabis Equity Programs attempt to remedy inequities that flowed from the “War on Drugs” that immorally injured so many.

In this article, we will describe how the information we presented in the first three articles can be utilized to accomplish the goals of these Equity Programs.  The principles we described in these first three articles can be utilized by all cannabis businesses to increase profitability.  The principles we have described for increasing the profitability of any cannabis business provide even larger benefits when these principles are utilized in an Equity Program.

Cannabis Equity Programs invariably involve support for the establishment of cannabis businesses owned by economically disadvantaged individuals.  Preferences relating to licensing along with various forms of economic subsidies are generally provided to those individuals who qualify to participate in such programs.

The City of Oakland’s Cannabis Equity Program was one of the first such programs.  The bedrock concept for Oakland’s Program was a limitation on the number of non-equity cannabis business licenses to the number of Equity cannabis business licenses.  Oakland placed no limit on the number of cannabis business licenses the City would issue except for cannabis dispensaries.  Equity applicants were given financial subsidies and licensing preferences.  Preferences in the issuance of licenses to non-equity applicants were given to those non-equity applicants that sponsored and subsidized applicants that qualified under Oakland’s Program.

 

 

Oakland was very successful in issuing cannabis business licenses.  Oakland has issued more cannabis business licenses per capita than most California jurisdictions.  The vast majority of these licensed cannabis businesses, whether Equity or non-equity, have not been successful.  A license is an essential requirement for the operation of a legal cannabis business.  Success in a cannabis business requires far more than a license.

Oakland encouraged and subsidized the proliferation of Equity cannabis businesses but failed to provide the support and assistance necessary for such businesses to succeed.  Oakland’s Cannabis Equity Program is failing because most of the cannabis businesses that Oakland licensed had no financial advantages and were lacking in business skills.  Oakland’s Equity Program can utilize the principles we described in the first three articles to give its Equity cannabis businesses financial advantages if it can provide the necessary training and education.

The principles we have described in the first three articles provide enhanced financial rewards when they are utilized to benefit a local community rather than to make money for investors. As a consequence, these principles are especially beneficial when used in an Equity Program.  It is far easier to generate quality jobs for the members of a local community than it is to make successful entrepreneurs out of those same individuals.

 

 

 

Oakland’s Cannabis Equity Program was designed to fail, although this design flaw was wholly unintentional.  Oakland’s Program encourages and subsidizes the entry of under-resourced businesses into a highly competitive industry that already has too many participants.  Many well-capitalized and well-organized cannabis businesses will fail.  What is the likelihood of success for an under-resourced business in such an environment?  Success in such an environment requires far more than a license and a modest financial subsidy.

The preceding is the foundation for understanding how shifting Oakland’s approach to its Equity Program will allow it to accomplish far more than it will accomplish if it does not change course.  The COVID-19 pause is forcing all governmental agencies to reconsider their programs and priorities.  Oakland’s leadership can seize the opportunity this crisis has created.  Oakland is uniquely positioned to use the principles we described in the three preceding articles to establish itself as the epicenter of California’s legal, tax-compliant cannabis industry.

Oakland has a once in a lifetime opportunity to establish a top-to-bottom, cultivator to the consumer, wholly legal, fully tax-compliant cannabis industry.  Oakland’s Cannabis Equity Program can utilize local community ownership and control to create an industry that can successfully compete with conventional cannabis businesses.  Conventional business structures have to make money for investors.  Equity cannabis businesses can successfully compete with conventionally structured businesses because Equity status can be utilized to make these businesses financially more efficient.

The present crisis is the most significant opportunity Oakland has seen in this century.  A substantial portion of California’s underground cannabis industry is already conducting business in Oakland.  Oakland can utilize its Cannabis Equity Program to convert its already existing outlaw industry into a wholly legal, fully tax-compliant industry that can effectively compete with conventional cannabis businesses.  Such a course of action will bring money into Oakland from elsewhere in California.

 

 

It will be difficult for some to understand why such a radical change in Oakland’s utilization of its Equity Program is required.  It is likely it will be even more difficult to secure the political support that is required for such a radical change.  Such a change is contrary to one of the major political forces that produced the present state of California’s cannabis industry – the belief in an opportunity to make money.

California has struggled with legalization for multiple reasons.

We have written about some of these issues.  [Major Cannabis Tremors!] One substantial reason California encountered difficulties with legalization was a well-established, quasi-legal cannabis industry.  California is still struggling with the conversion of its underground cannabis industry into a legal, regulated industry.  This struggle will continue for the foreseeable future.  [Reboot in 2020!!]

We have slightly accelerated the publication of this article as a consequence of Hillary Bricken’s publication of “L.A. Cannabis Update: Little Fires Everywhere” on May 28, 2020.  Los Angeles is twenty times larger in population than Oakland.   In every aspect, including problems, the cannabis industry in Los Angeles is more than twenty times larger than the cannabis industry in Oakland.  The same bodies of federal and California law, however, apply both to Los Angeles and to Oakland.

Oakland faces many of the issues that have hampered California as well as Los Angeles.  Oakland is far better situated than either to convert its underground cannabis industry into a wholly legal, fully tax-compliant cannabis industry.  Oakland can utilize its Equity Program to facilitate such a conversion.  The principles we described in the three preceding articles can be utilized through the Equity Program to provide those involved in Oakland’s underground industry with the same financial benefits they are presently achieving through an outlaw industry.  The difference for Oakland and for the participants in such a conversion is that the financial benefits following the transformation of Oakland’s cannabis industry will come from wholly legal, fully tax-compliant businesses.

It is false and misleading to classify cannabis businesses as

“legal” or “illegal,” or as “licensed” or “unlicensed.”

 

All California cannabis businesses fall under a Bell Curve that stretches from 100% legal to 100% illegal.  No Oakland cannabis business is likely to be more than two standard deviations from the center of that Bell Curve in one direction or the other.  Most are within the first standard deviation.  Oakland’s non-equity cannabis businesses, its Equity cannabis businesses, and its underground cannabis businesses are competing for the same consumer dollars.  All fall under the same Bell Curve of California cannabis businesses.

We are publishing this article to describe some resources California’s Equity Programs have that few realize they have that facilitate such a conversion.  The chaos in California’s cannabis industry coupled with the “pause” to address the COVID-19 crisis, has created an opportunity for Oakland to convert its existing cannabis industry into a wholly legal, fully tax-compliant industry that can effectively compete with both conventional cannabis businesses and underground cannabis businesses.

There are provisions in the tax laws as well as in California’s cannabis laws that can be utilized to create a financial advantage for an Equity cannabis business over a non-equity cannabis business engaged in precisely the same business function.  Equity businesses can exploit the tax laws and regulatory laws for the benefit of cultivators, employees, and consumers involved with these businesses far more easily than non-equity cannabis businesses.  Oakland can utilize its Equity Program for the benefit of its residents far more easily than any other California city.  We have written this article for the benefit of Oakland as well as those Emerald Triangle cannabis cultivators who are already positioned to provide the supplemental raw material for Equity cannabis businesses in East and West Oakland.

The impact of the COVID-19 induced depression is different for every country, for every industry, and for every community.  For some industries, this depression is a train-wreck, e.g., sports entertainment.  For some industries, this depression is merely disruptive and requires some adjustments to systems, processes, and operating procedures, e.g., professional services.  For other industries, this depression has created an expansion opportunity, e.g. package delivery services.  Oakland and its Equity Program fall into this third category.

We addressed planning for the conduct of business in post-COVID-19 cannabis industry in our second and third articles.  Our second article introduced Cannabis Consumer Cooperatives as the most financially efficient structure for the operation of a dispensary.  Our third article described how to maximize financial efficiency in the movement of cannabis from cultivator to consumer.  Oakland’s Cannabis Equity Program, and comparable programs elsewhere including Los Angeles, are uniquely able to exploit the principles described in our three earlier articles to accomplish the goals of these programs.

In our third article, we described four different types of Cannabis Consumer Cooperatives: (1) for-profit, adult-use Cannabis Consumer Cooperatives; (2) nonprofit, adult-use Cannabis Consumer Cooperatives; (3) for-profit, medical Cannabis Consumer Cooperatives; and (4) nonprofit, medical Cannabis Consumer Cooperatives.  [“Cannabis Tax Management”]

Each of these four types of Cannabis Consumer Cooperatives provides a different set of financial benefits.

If you compare the total combined financial benefits of these four structures for the owners, operators and consumers, the total benefits increase as you move from (1) to (4).  A comparison of the benefits that can be achieved through these four different structures illustrates how they can be utilized by Equity Programs.

The distribution of medical cannabis has a financial advantage over adult-use cannabis because no Sales Tax is imposed on medical cannabis.  In many jurisdictions, the local tax rates on cannabis are lower for medical cannabis in comparison to adult-use cannabis.  There are also some regulatory benefits for medical cannabis as compared to adult-use cannabis that can be utilized for financial advantage.  Nonprofit business activities have an advantage over for-profit business activities because the owners of the businesses do not directly profit as owners.

Suppose the tax savings from the sale of cannabis to consumers through a medical dispensary in comparison to an adult-use dispensary are 12%.  Stated differently, a medical dispensary can sell cannabis to its customers for 12% less than an adult-use dispensary, and the owners and employees make the same amount of money.  Further suppose that the owners of a for-profit dispensary, whether medical or adult-use, make an average 12% before-income tax profit as owners from the cannabis sales.  If these additional potential savings are taken into account, a nonprofit medical dispensary can sell cannabis to its customers for 24% less than a for-profit dispensary selling the same cannabis to its customers.  In such an instance all of the employees of the cannabis businesses involved as well as the cannabis cultivators make the same amount of money, but consumers save 24%.

The preceding illustrates there is at least a 24% financial advantage available for cannabis businesses that are established through Oakland’s Cannabis Equity Program if it helps these businesses exploit this advantage.  The 24% differential is solely for purposes of illustration.  In some of our earlier articles, we pointed out that the financial advantages of tax minimization can reduce consumer prices by almost 40% with the cultivators making twice as much money.

The savings created through financially efficient operating structures need not be wholly passed-on to consumers.  Owners can take some of these savings and still undercut competitors who are utilizing less financially efficient structures.  It is, for this reason, conventional for-profit cannabis businesses can utilize the information in our first three articles to improve their financial efficiency.  Equity cannabis businesses can do even better than conventional cannabis businesses.

Oakland does not need struggling small cannabis businesses that are trying to survive.  The residents of East Oakland and West Oakland need good-paying jobs.  Oakland’s Equity Program can utilize the tax and regulatory advantages of medical cannabis and nonprofit organizations to establish a cannabis industry in Oakland that has a competitive advantage vis-a-vis California’s for-profit cannabis industry.  Such businesses will not only survive, they will thrive.  They will thrive because they have a competitive advantage.  East and West Oakland as communities will benefit because the residents of these communities are the owners of these businesses whether directly or indirectly.

It will make little difference for a resident of West Oakland to make $90K per annum owning and running a small cannabis business in comparison to being paid $90K per annum for running a nonprofit medical cannabis business sponsored by Oakland’s Equity Program that is engaged in the same business activity.  The latter business, however, has a far greater likelihood of long-term success than the former.  Oakland’s Cannabis Equity Program, however, can do far more than create good jobs.

Oakland’s cannabis industry extends from cultivation to consumption.  Cultivation in Oakland is extensive.  It is almost exclusively indoor cultivation.  In our third article, we described how a Cannabis Cooperative Association (“CCA”) could be utilized to maximize the financial efficiency of the movement of cannabis from cultivator to dispensary through a minimization of the impact of taxes.  [[ In that article we noted that some of the benefits CCAs have been overlooked.  One of the benefits of CCAs that we did not mention in our third article is the utilization of a CCA by indoor cannabis cultivators.

Oakland’s Cannabis Equity Program has the opportunity to use one or more CCAs to create a cannabis industry consisting largely of Equity cannabis businesses.  All of these cannabis businesses will be more financially efficient than those cannabis businesses operated outside the umbrella of a CCA based on Equity businesses.   Oakland’s Equity Program has the opportunity through CCAs to establish cannabis businesses that are so financially efficient they can compete with underground businesses.

We can see a couple of potential flaws in the preceding for Oakland.  It is not obvious Oakland’s politics will allow the City to pivot in this manner.  It is not clear the City Administrator is capable of such radical change.  We believe the most significant flaw is likely to be the inability of Oakland to provide the information relating to business systems and processes as well as the training in the use of these business systems and processes that is necessary for Equity cannabis businesses to compete in a highly competitive industry.

The benefit to Oakland, of course, lies not in creating Equity businesses that can successfully compete with other Oakland businesses.  The benefit to Oakland lies in bringing money into Oakland by successfully competing with cannabis businesses outside of Oakland.  Oakland benefits by using its Equity Program to establish cultivators, distributors, manufacturers, and delivery services that bring money into Oakland from other jurisdictions.

 


AvatarHeather AllmanMay 30, 2020
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8min260

The issues with cannabis and traditional media are not new. Buying ads, using social media, and other marketing avenues are closed. Paid media continues to … Read More…

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AUTHOR: Heather Allman

PUBLISHER:  CANNABIS LAW REPORT

CLAB / Cannabis LAB, or Cannabis Law, Accounting, and Business —

FOUNDER: Robert Friedman 

EVENT REPORT: Meet the Press: Media & Cannabis, May 14, 2020

EXPERT GUESTS:

MODERATOR: Charles Felix, Cannabis News Florida

 

KEY DISCUSSION:

The issues with cannabis and traditional media are not new. Buying ads, using social media, and other marketing avenues are closed. Paid media continues to be a struggle while earned media seems to be the emerging area of opportunity. We have invited journalists, publishers and public relations experts to explore the landscape, debunk myths and talk about what is real in the world of cannabis and media.

KEY INSIGHTS:

Straight from the experts, here are the key insights that were highlighted at this May 14, 2020 CLAB panel; let the well-crafted, unique editorial submissions begin.

– According to Samantha Gross: “There must be a clear line between sponsored content or paid media, such as ads, and earned media (public relations and editorial content). With editorial content, you esentially receive neutral third party coverage of your product or services.

– According to Charles Warner: “Submit a story that’s balanced, accurate, and without bias and you’ll get my attention.”

– According to Jonathan Small: I want to print 700-800 word stories that accomplish one or a combination of the following goals: to inform, educate, inspire, entertain, or add to the conversation… but it also must be backed by facts and statistics for accuracy.”

– According to Durée Ross: Working with clients in CBD, HEMP, and CANNABIS, I discovered that while all three are essentially the same industry and in the same sphere, they are very different. This is due to cannabis being an illegal scheduled drug, while CBD and hemp are legal through the 2018 Farm Bill. Concerning social media, LinkedIn and Twitter are more professional and not as discriminating against cannabis content as Facebook and Instagram.”

 

KEY TAKEAWAYS:

  1. For editorial or earned media, media avenues are indeed open for cannabis and hemp companies and services.
  2. You have to do your homework: know who you are pitching and know what they cover.
  3. You need to build a credible professional reputation with publications and editors when opportunities arise by being balanced, accurate and unbiased.
  4. You need to be flexible and creative— your media content must adapt according to the news or media outlet to which you are pitching.
  5. Do not tie your main business email address to a social media account. Take the extra step of creating an email specifically for each social media account; if your account is flagged, your professional business or credibility are not jeopardized.
  6. Paid media continues to be a struggle while earned media seems to be the emerging area of opportunity.
  7. An outlet’s earned media (PR) and paid media (advertising) must be balanced and work together to provide fair, unbiased content to their target audience or readership.

 

CURRENT EDITORIAL INTERESTS:

– From Jonathan Small at Green Entrepreneur:

“I’m interested mainly in how-to submissions, or content that provides a service. Editorial content must bring value to our readers.”

– From Samantha Gross at the Miami Herald:

“My main focus is on Florida stories, especially hemp licensing in Florida and new licenses. Of course, I am always interested in cannabis and CBD content. Just keep in mind that the target audience you are attempting to reach with your content should determine your target media outlet. “

– From Charles Warner at CannaTech Today:

“I’m drawn to innovative stories and stories concerning innovation, whether in hemp or cannabis. I want content that highlights new opportunities in business and outright addresses where these opportunities can be found. Focus your content on problems of any type that need to be solved.”

 

CONCLUSIONS:

Concerning cannabis, CBD, or hemp in print or social media, in order to successfully catch a news outlet’s attention, you must know the difference between PAID MEDIA and EARNED MEDIA, or editorial content.

Be original and innovative in your editorial content submissions.

Finally, generate editorial content aimed at the target audience of the media outlet to which you are submitting.


Debra BorchardtDebra BorchardtMay 29, 2020
canopy3-1280x854.jpg

5min6650

Canopy Growth Corporation (NYSE: CGC) announced declining revenues and massive losses for the fourth quarter ending March 31, 2020. The net revenue in the quarter dropped by 13% sequentially to $107 million as the company blamed lower Canadian recreational revenue. Canopy Growth also delivered a staggering net loss of $1.3 billion in the quarter which was attributed to impairment and restructuring charges. All numbers are in Canadian dollars.

The stock was falling over 22% in early trading as the company’s GAAP EPS came in at -$3.72 and missed analyst estimates by $3.31.

“Through the COVID-19 pandemic, we have worked hard to ensure the health and well-being of our teams and customers and the continuity of our business.  During this time, our team has rolled out our exciting new cannabis-infused beverages and vape products in Canada and a portfolio of CBD products in the US,” shared CEO David Klein. “True to key priorities that I have outlined for Canopy, we have taken steps to align our capacity with the current market demand and focus our resources against the core markets with the largest and most tangible near-term profit opportunity.”

Guidance Pulled As Company Reboots

Canopy said it will no longer strive to be the first to every market, but strives to the best and become a leading consumer insight and product development company in select priority markets, that matches products and consumer preferences in the cannabis space. The company also said that it expects Fiscal 2021 to be a transition year as it resets its strategic focus, rolls out a new organizational design, and implements a comprehensive operational and supply chain productivity program. Canopy has withdrawn its previously communicated milestones for achieving positive Adjusted EBITDA and Net Income.

Fiscal 2020 Results

The company reported revenue of $398 million for the fiscal year 2020, an increase of 76% over 2019. Unfortunately, the total operating expenses for 2020 were $1.6 billion and the total operating loss for the year was $1.6 billion. The net loss for the year was $1.3 billion.

The basic and diluted loss per share was -$3.80 which was much higher than 2019’s net loss per share of -$2.76.

The company began the year with $2.4 billion in cash and cash equivalents. By the end of 2020, the cash was run down to $1.3 billion. During the last quarter, the company’s free cash flow was a negative $304,725.

New Strategy

The company outlined its new strategy in an earnings statement as follows:

  • Becoming a relentlessly consumer-centric organization by building world-class consumer insights and analytics, coupled with focused, leading-edge R&D and innovation to produce a differentiated product portfolio that will delight consumers. The Company will bring these products to the hands of consumers through best-in-class sales execution;
  • Markets and product categories with the highest and most tangible profit opportunities in the near term. Core markets will be Canada, the US, and Germany with a focus on recreational and medical. To capture future opportunities in emerging markets and categories outside the core, Canopy Growth will deploy an asset-light approach;
  • Driving quality in all aspects of our operation and be positioned to deliver the right product at the right time at the right price from the right facility; and
  • Continuing to lead the industry and set industry standards. This includes spearheading the next phase of the cannabis industry evolution and shaping how the industry evolves. The Company will continue to give back to neighbors and communities through its Grow Good Together initiatives.

Klein added, “I am excited to implement our strategy reset and organization redesign over the course of fiscal 2021.  We have a renewed strategic focus and a clear change agenda that is already underway. We are building what we believe is the best cannabis company in the world by putting the consumer at the heart of everything we do and are re-aligning our organization to be faster and more agile.”


Video StaffVideo StaffMay 29, 2020

2min1170

It was a short trading week due to the Memorial holiday on Monday, however, there were still some earnings to report.

MedMen (OTC:MMNFF) warned that COVID had affected its sales beginning at the end of March although the company said that as restrictions begin to lift, sales look to be returning. The company reported revenue of $45 million in the third quarter and a net loss of $76 million. The losses have been trimmed a bit from $96 million in the previous quarter.

Zynerba Pharmaceuticals, Inc. (ZYNE) announced positive top-line results from the exploratory, open-label Phase 2 BRIGHT study The trial was designed to assess the safety, tolerability, and efficacy of the Zynerba drug called Zygel in pediatric and adolescent patients with autism spectrum disorder (ASD)

Organic cannabis company The Green Organic Dutchman Holdings Ltd. (OTC: TGODF) reported revenue of C$3.06 million for the first quarter of 2020 ended March 31, 2020. The company also delivered a net loss of $73.4 million – a staggering amount when the revenues are so small, but it was at least an improvement over the fourth quarter’s net loss of $144 million.

Tilray’s (TLRY) wholly-owned subsidiary High Park Gardens will close its doors over the course of the next six weeks. the company said it expects to realize annualized net savings of approximately C$7.5 million. Tilray acquired Natura Naturals Inc., in a deal valued at C$35 million and has since operated it as High Park Gardens.
We have some stock housekeeping changes.

Aphria Inc.has decided to throw in the towel on its listing at the New York Stock Exchange and is moving to NASDAQ effective Friday, June 5, 2020, after the market close.

Aleafia Health Changes TSX Ticker Symbols from ALEF.to to “AH”. The OTC ticker remains the same.



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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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