Sol Global’s Cannabis Holdings Get Haircuts In Valuations

The value of the company's U.S. cannabis investments fell 7% from last year.

SOL Global Investments Corp. (CSE: SOL) (OTC Pink: SOLCF) reported unaudited financial results for the second quarter ended May 31, 2023. The company has become more diversified and its cannabis holdings are only roughly 20% of its business. All figures are in Canadian dollars.

The company reported total revenue of $2.7 million in the quarter, which was an improvement over the first quarter’s revenue of negative $12.8 million. Sol Global delivered a net loss of $1.2 million versus last year’s net loss of $86.7 million for the same time period. Income from investments totaled $2.8 million for the quarter versus a loss of $96.2 million for the same quarter in 2022.

“SOL’s focus on operating efficiency has helped navigate this period of uncertainty,” said Paul Kania, CFO and interim CEO. “We continue to see our portfolio companies operate well in this environment, and coupled with our cost-cutting efforts, we feel SOL has built a great foundation.”

Cash levels have dropped to $354,365 at the end of the second quarter from $575,243 at the end of the 2022 second quarter.

According to company filings, the fair value of the company’s investments in cannabis and related investments in the U.S. at the end of May totaled $18,965,501 versus November 2022 when it was valued at $20,477,067. The fair value of non-U.S. cannabis, cannabis-related investments, and non-cannabis investments totaled $113,257,935 versus November 2022 when it was $124,546,636.

Cannabis Companies

The company’s CBD product line called Simply Better Brands Corp. reported record first-quarter sales of $24.6 million, with 203% growth capturing channel, category, and innovation in clean-ingredient food, next-generation skincare, and plant-based wellness. In February SBBC announced the successful closing of a $2 million second tranche to fully complete its $7 million non-brokered private placement offering of units at a price of $0.25 per unit. The company said that the net proceeds of the offering will be used for new product development, channel expansion, debt reduction, and general working capital purposes.

As of May 31, 2023, the company held 5,605,780 shares and 1,650,000 warrants of Simply Better with a combined fair market value of
$2,586,956 (Six-month period ended May 31, 2022 – 2,789,248 shares with a fair market value of $5,299,571). During the six-month period ending May 31, 2023, the company recorded an unrealized gain of $1,811,573. The six-month period ended May 31, 2022: unrealized loss of $9,849,829.

The company has an investment in Captor Capital Corp. (CSE: CPTR) which is a vertically integrated cannabis investment company. As of May 31, 2023, the fair market value of this position was $2,077,459. The six-month period ended May 31, 2022: $3,692,461. Sol Global also stated that during the quarter, it recorded an unrealized loss of $15,578 (Six-month period ended May 31, 2022: unrealized loss of $8,590,621). The company said that the material drivers of change in the fair market value include expansion of the retail footprint, potential acquisitions, and the recent downturn in cannabis sector capital markets.

In 2021, Sol Global invested $20 million into Common Citizen and in this latest quarter, the fair value of the company’s investment in Common Citizen was $13,681,405. During the six-month ended May 31, 2023, the Company recorded an unrealized loss
of $52,050

Jones Soda also features a cannabis beverage and Sol Global owns 22% of the Jones Soda company. The company only said that gross margins expanded by 200 basis points as it continued to gain market share in its core soda business with the addition of new partners across its distribution channels. Jones Soda named a new CEO in June 2023. The company’s cannabis beverage line is called Mary Jones.

Bitcoin & EVs

Beyond Cannabis Sol Global noted that its bitcoin company Core Scientific, Inc. had presented a plan to emerge from Chapter 11 Bankruptcy after entering in November 2022. Sol Global said that Core Scientific has returned to profitability and currently expects a full recovery in the value of its holdings. Other company updates were mostly a reiteration of the information provided when the first quarter results were published.

The company gave little real information about House of Lithium, which houses its electric vehicle portfolio. It’s worth noting that Reby and Restanca LLC brought a claim against House of Lithium in the Delaware Court of Chancery alleging a breach of a stock purchase agreement between Reby and House of Lithium. House of Lithium’s position is that no such breach under the agreement occurred. The final Debrief took place on March 30, 2023, and the company said in May that a decision would be coming within 90 days. However, the company made clear that Global is not a party to the action and SOL Global has not been named in any action relating to the Reby Agreement.

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.

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