Harvest Health & Recreation Inc. (OTCQX: HRVSF) said that it has completed the initial closing of certain retail properties in California to Hightimes Holding Corp. as previously announced on April 28, 2020, and June 12, 2020. The deal was recently amended from the original 13 operational and pending properties to ten. Those terms have now been reduced to a deal now valued at $67.5 million. The terms are now $1.5 million in cash and a $4.5 million one-year promissory note with 10% interest and $61.5 million in Series A Preferred stock issued by Hightimes Holding Corp.
$4.5 million was due at the initial closing according to the SEC filing. The second closing, though is subject to various closing conditions and contingencies including third party and regulatory approvals. Harvest and its affiliates said they plan to sell additional equity and assets with respect to two planned dispensaries in California for a total consideration of $6 million in Series A Preferred Stock issued by Hightimes.
One of those third parties, Alexis Bronson says he hasn’t heard from High Times Chairman Adam Levine since the deal was originally announced. The property that he has gotten his license for is on Geary Street in San Francisco next to a Chanel boutique. The rent for the high-end location is an eye-popping $2.1 million a year. Bronson said that another cannabis MSO (multi-state operator) expressed interest in the location until seeing the rent and then backed out saying it was too rich.
High Times is well aware of the challenge it faces in trying to convince Bronson to come on board. In the purchase agreement, High Times acknowledged that “Harvest Health is currently engaged in litigation in the State of Washington with Kunkel which may affect the ability of Seller to obtain the Third-Party Approvals.” Ryan Kunkel is Bronson’s former business partner. He sold his half of the property without Bronson’s approval to Harvest Health, who in turn sold it to High Times. Several of the other Have A Heart dispensary properties have third parties in addition to Kunkel and there is no indication from these parties as to whether they are on board with High Times or not.
In the original purchase agreement, High Times was supposed to pay at the closing (a) USD$12,500,000 in cash inclusive of the Contract Deposits and (b) 675,000 shares of Hightimes’ 16% Series A voting convertible preferred stock. The Series A Preferred Stock has a value of $100.00 per share or $67.5 million. Other shareholders might not know that the Series A Preferred Stock has a priority on liquidation or a change of control of Hightimes over any
other series of preferred stock created by Hightimes or its Common Stock. Beginning in September 2020, the Preferred Series A was to begin the 16% payments. High Times paid $1 million in the initial deposit and owed $4 million 45 days from the effective date.
High Times has not reported any financial information on the company since June 2019. Due to the pandemic, all in-person events have been canceled. This was the main revenue producer for the company. The publisher also hasn’t printed a Dope or Culture magazine in months and this also accounted for a respectable source of advertising income. The flagship publication High Times is up-to-date online with its stories, but the last print edition looks to be April 2020. The company laid off writers and said that the loss of walk-in traffic to dispensaries caused it to suspend printed editions for now. Print magazines in general have struggled as the costs outweigh the consumers buying magazines.
The company has also experienced a revolving door of executives in the C-Suite with former Green Growth Brands CEO Peter Horvath becoming the latest to take on the role. His retail experience is seen as a strong point as the company pivots from publishing to retail.
Harvest Health Keeps Four
Harvest will retain four operating dispensaries located in Grover Beach, Napa, Palm Springs, and Venice and select licenses for potential retail locations in California following completion of this planned divestment.