ManifestSeven Implodes Despite Raising Millions

 How does a company raise millions, make millions, but then basically go out of business in just a few years? It seems to happen more and more in the cannabis industry. ManifestSeven is one such company. Too much debt and bloated salaries conspired to bring the company down.

M7 started as MJIC and was one of the original cannabis platform companies. It published the MJIC Marijuana Index, a site that has since been pulled down and hosted some of the first cannabis business conferences. There were big plans for expansion into tech platforms and other cannabis operations. Green Market Report reached out to the company and received no response to our inquiries.

In 2019, the company officially changed its name to ManifestSeven (M7) and embarked on plans to go public. Throughout 2020 M7 went on an acquisition spree buying a dispensary called Healthy Healing Holistic Options (H3O) for $6 million, a delivery business, and a 1-800-cannabis phone number.  Fun fact, M7 paid $300,000 for the 800 number. Everything was looking rosy. 

Raising Millions

Money was also flowing in via various fundraises. In September 2020, ManifestSeven closed on an aggregate of $10.2 million in gross proceeds raised via three private placements of equity and convertible debt in 2020.

 At the time CEO Sturges Karban said, “Today’s announcement is a resounding affirmation of M7’s business model and corporate resilience in the face of economic headwinds, making us one of the few cannabis companies to raise capital in this environment successfully. We are truly encouraged by this level of financial backing from the investment community, which solidifies M7’s position as one of the leading operators in the legal cannabis market. This injection of capital allows M7 to continue expanding our seamless, compliant omnichannel across California, and eventually evaluate other markets in North America as opportunities arise.”

The company began trading on the CSE using the symbol MSVN in September 2020 through a reverse takeover with a company called P&P Ventures. It truly looked like this small company was building something – raising money, making acquisitions, and going public. However, one month after the RTO, M7 noted in its third-quarter earnings announcement in October 2020 that it was on a cost-cutting plan. It could be argued that it was prudent to review the cost structure as the company had gone on a buying spree, however, it also doesn’t make sense to be cutting costs while the company was also in expansion mode. 

Expansion Mode

In November 2020, M7 received another $2.31 million ($3.0 million CAD) from a noteholder in fulfillment of a subscription to the company’s 17.5% Subordinated Secured Convertible Notes. By February 2021, M7 announced the opening of its fully-licensed, multi-purpose facility in Brisbane, California, located directly south of San Francisco. The Brisbane facility marked a significant strategic milestone for M7 as it expanded its cannabis operations.

The following month March 2021, M7 announced that it has more than tripled the size of its fleet of distribution vehicles, augmenting the company’s logistics and transport capabilities of the company’s business-to-business division, Highlanders Distribution. M7 also brought in more funds that month when the company completed a non-brokered private placement resulting in gross proceeds of approximately C$3,314,605 ($2.5 million). 

However, another red flag went up when M7 refinanced the secured promissory note related to the Weden dispensary in Santa Ana, California, extending the note’s maturity date to January 1, 2022, with the ability to extend the maturity date by an additional 12 months upon the satisfaction of certain conditions. To be fair, this was smack dab in the middle of the pandemic and lots of companies were pushing out debt payments. Yet, knowing how this story ends, these signs were pointing to problems. Cutting costs and delaying making debt payments were all signs of trouble ahead.

Sales Decline

As the company moved into April 2021, M7 reported its fiscal first-quarter 2021 earnings. M7 said it generated consolidated revenue of $3.8 million during the first fiscal quarter, which fell from $4.1 million for the same prior-year period. M7 said “This decrease was primarily due to a decline in revenue generated from ancillary product sales due to a disruption in one of the company’s third-party e-commerce distribution channels that caused extended delays in the delivery time of products to customers and was partially corrected following the conclusion of the first fiscal quarter.” At least the company was generating revenue. 

Strategic Review

By July 2021, the party was essentially over not even a year after going public. M7 reported its fiscal second-quarter earnings with revenue of $3.8 million, essentially flat but more importantly, M7 said it had initiated a strategic review. That’s Wall Street talk for things are not going well and we’ve got to figure a way out of this mess. Maximizing shareholder value is code for selling assets. More importantly, the company said it was working with its creditors about making debt payments. So, within 18 months of raising millions, the company was already unable to make debt payments. As of August 31, 2021, the company only had $170,704 in cash. The company had a net working capital deficit of $28,251,574.

Despite the trouble, Sturges Karban, M7’s Chief Executive Officer told shareholders in July, “While we work to maximize the organic growth potential of the regulated infrastructure we have developed across California, the world’s largest and most vibrant cannabis market, we also continue to evaluate potential acquisitions and joint ventures to expand M7’s market share, while also enhancing its bottom line. As we look to the second half of 2021, we see significant opportunities to grow the physical and commercial footprint of our core B2B and B2C operations in California and, eventually, outside of our home state, as well.”

A few months later in October 2021, M7 told investors that it was in default of certain debt obligations from prior periods and continued to be in default as of the date of that report. The company had total liabilities of $33 million.  The company announced a modification to the terms of the New H3O Note on July 26, 2021. The company did not make interest payments due on the New H3O Note on July 1, 2021. The note was due January 2022 and carried a whopping 18% interest rate. H3O was the dispensary M7 bought in 2019.

Even as the company was saying it was cutting costs, over a nine-month period with revenues of $11 million, salaries were $5 million. Plus, it spent over a million dollars on consulting fees to tell the company how to cut costs. 

In November 2021, M7 reported revenue in the third quarter of $4.2 million, said it was still cutting costs and was still in default on its debts. The company also agreed to sell the dispensary Health Healing Holistic Options (H3O) for $6.7 million to a company called Stachs LLC, a subsidiary of Eaze. This was announced in December and at the time, M7 said it was going to focus on its distribution business. This was also about the time that Hardcar distribution thought M7 might merge or buy the company, but that didn’t happen. By February 2022, M7 said it was also discontinuing its distribution business. 

In March 2022, the company said that the discontinued cannabis distribution operations accounted for $3.32 million of revenue and a net loss of $2.76 million during the three quarters that ended August 31, 2021. “Eliminating these operations reduces the company’s cash needs on a go-forward basis and minimizes the accrual of additional liabilities associated with those operations.“ The company said it would continue to operate its ancillary e-commerce platforms and subscription services, including Rolling Paper Depot, Hippie Butler, and Puff Pack. 

At the end of March M7 said it was in serious financial difficulty. Despite this, it completed the first tranche of a non-brokered private placement of units of the company at a price of C$0.07 for gross proceeds of up to $2,100,000. All purchased by CEO Karban. 

Follow the Money

Green Market Report has reached out to the company to verify some of this information but received no response. The last published earnings were from October 2021 when the quarter ending in August was posted and since then no financials have been provided. The stock was briefly traded on the OTC Markets, but no financials were provided to that exchange either. The third-quarter earnings were announced in a press release in November 2021, but not a formal financial filing. The company’s auditor left in March 2022 and since there have been no financial filings, the stock has ceased to trade on the CSE. 

In April 2022, Dilshad Kasmani tendered his resignation as President and Chief Legal Officer of the company. The company was also suspended from trading in April on the CSE (Canadian Stock Exchange). The OTC Market has the stock designated for Expert Market only meaning the stock is not eligible for proprietary broker-dealer quotations. “All quotes in this stock reflect unsolicited customer orders. Unsolicited-Only stocks have a higher risk of wider spreads, increased volatility, and price dislocations. Investors may have difficulty selling this stock.”

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


2 comments

  • cactuspat

    June 28, 2022 at 2:38 pm

    Thanks for the post mortem.

    Reply

  • Martha Z

    July 14, 2022 at 6:23 pm

    It was always pump and dump. This went exactly according to plan. The original stockholders made plenty. Look at who’s behind the curtain and you’ll see a lonnnnnnnng history of penny stock P&Ds. They’re masters of the “convertible” note. The word salad from the executives was just smoke and mirrors. There’s no stress over there (aside from a few employees). They’re smoking cigars and drinking brandy. Mission accomplished. On to the next one.

    Reply

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