It’s been a tumultuous two months for venerable cannabis publisher High Times following an equally bumpy road to going public. On Wednesday, Chairman Adam Levine sent a letter to shareholders of the private company stating that it would once again extend its fundraising campaign and abandon its efforts to list on the NASDAQ Marketsite Exchange (NASDAQ: NDAQ).
The news to quit the NASDAQ listing is not actually new news. This past June, the former CEO Kraig Fox confirmed that the company fell short of its goal to raise $50 million and that it was no longer pursuing the Exchange and instead would switch its focus to the OTC Market. Fox also stated in November that the company hired strategic advisor Lazer & Lazer, who gave the company $1 million through its British Virgin Islands company, identified as El Capital in SEC filings. Fox quit one month later in December after only joining the company in April.
Rayray Pays $5.50, You Pay $11
23,000 shareholders ponied up roughly $15 million for shares that were priced at $11 a share. However, just a couple of weeks ago, High Times did a private placement on January 14, 2020, with Rayray Investments, Inc., an Ontario corporation in which the company only paid $5.50 a share for 363,636 shares for approximately $2 million.
The latest extended offering will terminate on the first to occur of either the date on which all 4,545,454 shares are sold or March 31, 2020. These shares though are priced back at $11 with the goal of raising another $5 million.
According to the most recent corporate presentation, High Times had 32,460, 313 issued shares and if all were valued at $11, that is a $357 million market cap. The company’s current total liabilities are $68 million.
The last reported revenue figures were for six months ending June 30, 2019, and that was $10.7 million. If that stays flat, the company is only bringing in $20 million a year. It’s operating costs for those six months was $14 million.
The company’s latest presentation says it will increase it events, which has been traditionally the source of its biggest revenue production. However, it is barely breaking even on events, which brought in $6.7 million for those six months but cost $6.5 million to produce. Still, the addition of The Big Show and Spannibus acquisitions could eventually add to the company’s top-line revenue, however, in the company’s last annual report in June it stated that it hadn’t actually closed those acquisitions.
“Not According To Plan”
Levine was apologetic in his letter saying, “What we have learned is that things don’t always go as according to plan. Candidly, we have made a few decisions that in hindsight we may have done differently today. Our largest misgiving is that High Times had hoped to be public by now. But given the market’s volatility in the cannabis sector, we also believe this may have been a blessing in disguise for our company and shareholders alike. We are now more focused and realigned.”
The company has reduced its monthly printing calendar to a quarterly publication. It has consolidated its editorial staff to one location. David Tran, Dope’s founder may be gone, but the magazine along with Culture, has contributed $1.7 million in advertising revenues for the six months ending in June 2019.
High Times says it is pivoting to opening dispensaries and has signed binding letters of intent for two dispensaries. One in Los Angeles and one in Nevada. In a recent filing, the company stated, “We have not, as yet, entered into any definitive agreements to acquire any of the above-referenced businesses. Even if we are able to execute definitive acquisition agreements, our ability to consummate such acquisitions will be subject to a number of conditions, including our having adequate capital and, with respect to our proposed dispensary acquisitions, obtaining the approval of the applicable regulators in Nevada and California and other municipal agencies for the change of ownership of and transfer of dispensary licenses for such businesses. Accordingly, there can be no assurance that we will be able to consummate any or all of these or other intended acquisitions.”
Levine’s shareholder letter did review the recent changes in the C-suite following Fox’s decision to quit in December. “We recently hired e-commerce pioneer Stormy Simon to take over as High Times’s Chief Executive Officer.” and the notice of a new President, ” Simon certainly has her work cut out for her. She is tasked with creating an e-commerce business in a company whose merchandising sales have fallen. She’ll also oversee the transition to operating dispensaries. Not to mention, numerous other endeavors running the gamut from a distribution business to a music label.
Paul Henderson, the former CEO of Groupo Flor, joined as the new President. Henderson served on the board of Cultivate Capital, a Calgary-based cannabis financing company. At the same time, from August 2017 until January 2020, Mr. Henderson was managing partner of Matchbox Partners, a cannabis consulting firm focused on helping cannabis businesses thrive by providing financial forecasting, assisting companies in obtaining financing, as well as assisting with compliance and marketing. From 2017 until 2019, Mr. Henderson was also CEO of Grupo Flor, a California-based cannabis-related real estate company. In addition, from 2016 until 2017, Mr. Henderson served as a consultant and chief financial officer at Edible Management, a California-based company. Prior to entering the cannabis space, from 2009 to 2016, Mr. Henderson was co-owner of Ridgeline Specialty Sports, a bike and ski shop in Idaho and he worked in sales and finance at GE Capital (2011-2014) and Goldman Sachs (2006-2011).