offering Archives - Green Market Report

Debra BorchardtDebra BorchardtAugust 4, 2020
law.jpg

6min3510

A cautionary tale for cannabis companies and the Securities & Exchange Commission (SEC) was laid bare last week when the Central District of California filed a $25 million complaint against nine defendants. The group raised money from investors by selling the unregistered stock for the purpose of funding a marijuana farm in Salinas California. 

The individuals named included Anthony Todd Johnson (aka Todd Johnson), Jeremy Johnson, Richard Portillo, Charles Lloyd, Mark Heckele, and Michael Gregory. The companies that wanted funds for the marijuana farm were named as Smart Initiatives, LLC, Valley View Enterprises LLC, Target Equity LLC, Zabala Farms Group, LLC, and Green Growth Ventures, LLC. The companies that raised money for a CBD extraction facility were named as – C Quadrant LLC, GPA Enterprises LLC, RJ Holdings Group, LLC, and Extraction Capital Tier 1, LLC. 

Alleged Actions

The group engaged in so many alleged actions, it’s easiest to just list them as follows:

  • Claimed the investments would generate returns of 100% or more
  • Misrepresented their compensation
  • Misappropriated $2.7 million
  • misled and deceived investors about a purported “business loan,” secured by C-Quadrant’s real property
  • Rather than using that business loan for the benefit of C-Quadrant, Gregory used the loan proceeds to pay off different investors in an entirely unrelated entity. 
  • Falsely claimed a relationship with a prominent California University
  • Acted as unregistered broker-dealers in connection with the offerings, none of which were registered with the Commission
  • Used general solicitation to attract prospective investors, including via cold calls, Craigslist, Facebook, and other websites and social media.
  • None of the securities offerings were registered with the Commission as required by the Securities Act
  • Many of the investors in each offering were unaccredited and unsophisticated. 
  • The defendants did not take reasonable steps to verify the investors’ accreditation status

The alleged behavior took place between 2017 and 2019. The Johnsons used pro-forma numbers when soliciting investors. The farm though revised those figures.   The revised pro forma P&L statement adjusted the farm’s projected net income significantly downward, from a range of $23 to 37 million per year to a range of just $6 – $23 million per year. The group though continued to raise money knowing the farm could not generate the amounts they are accused of touting. They also told the investors they would get quarterly payments, which the farm said it had not agreed to make.

C-Quadrant Property

The case says that the sales team touted C-Quadrant’s ownership of the property, the Johnsons and Gregory failed to disclose that they had collateralized C-Quadrant’s property and that Gregory had used the loan proceeds to pay off investors in an unrelated entity. In early 2018, C-Quadrant purchased a former recycling plant, where it planned to locate its extraction facility. In October 2018, prior to the start of the second C-Quadrant offering, the Johnsons and Gregory transferred ownership of the property to another entity they controlled and used it as collateral for an almost $2.9 million loan. Gregory used the majority of the loan proceeds to make payments to investors in an unrelated cannabis farm that he owned. 

Less Than Honest Bios

The group was also less than honest with investors about their backgrounds.  Johnson told prospective investors, in Gregory’s presence, that Gregory had an MBA, which he apparently did not have. Jeremy Johnson had filed for personal bankruptcy in 2012 but did not disclose this to investors. 

Portillo has an extensive criminal record that also wasn’t disclosed to investors. In June 2018, Portillo was convicted of felony domestic violence and witness intimidation. He had at least two prior convictions for domestic violence, and was on probation and subject to a restraining order at the time of the 2018 assault. Portillo also has prior convictions for felony possession of marijuana for sale, felony taking of a vehicle, and felony assault with a deadly weapon. Investors, no doubt, would have liked to have this information.  

Punishment

The SEC is asking the group to disgorge all the money received and pay civil fines.


Debra BorchardtDebra BorchardtJanuary 26, 2018
shutterstock_376790377.jpg

6min29327

High Times Holding Corporation (OACQ) issued a preliminary prospectus on Thursday to raise $50 million at a price of $11 a share. The company is highly dependent on getting listed on the NASDAQ exchange in order to meet its capital raising goals. To meet the NASDAQ listing requirements,  High Times will need $17.2 million from this offering. At the minimum, the company is raising $5 million, with the ability to go to $50 million.

In addition to raising money, High Times said it would also address its debt obligations. High Times had extended a loan payment that it owed to ExWorks from August 2017 to August 2018 for a principal amount of $11.5 million. It made a down payment of $2.7 million but was staring at this huge looming payment due in months. The merger with Origo Acquisition was expected to be closed months ago and the stock would’ve been listed on NASDAQ and all would be good. Instead, the merger has dragged on for months and the clock has been ticking away. The idea is that the company will now have a new note of $12.2 million due in February 2021.

In the offering, High Times said, “We intend to complete or terminate this Offering of our Class A Common Stock prior to seeking to consummate the Origo Merger.”

The Back Story

Hightimes Holding Corp. was established in December 2016 to acquire Trans-High and the THC Group. Founded in 1974, the THC Group published the famous High Times magazine and sponsored the Cannabis Cup events. The deal was valued at $70 million. Then, Hightimes Holding entered into a merger agreement, dated August 4, 2017, as amended on September 25, 2017, with Origo Acquisition Corp., a Cayman Islands corporation whose shares are currently listed on Nasdaq under the symbol ORAC. This was the way that High Times would become a NASDAQ listed company. This deal was valued at a whopping $250 million.

The planned merger has failed to close and has a March 2018 date set for the final month to complete the deal. NASDAQ has tried to boot the group out of the exchange. First for not having over 300 shareholders and then for not holding an annual meeting in 2016. Each time, the company has filed an appeal. Even if the merger is completed, it’s no guarantee NASDAQ will keep High Times as a listed company.

The Debt Mountain

High Times owes $17.6 million in payments this year alone. $8.7 million in long-term debt obligations, $2.8 million in interest payments, $6 million in convertible note obligations and $72,000 in lease commitments.

To partially finance the High Times Group acquisition, Hightimes Holding, Trans-High and each of the other members of the High Times Group executed a loan and security agreement with ExWorks Capital Fund I, L.P. The loan is now $11.5 million. This is the debt referenced above that the company is trying to push out to a later date.

Hightimes Holding also issued $30,000,000 of purchase notes to the former stockholders of THC. If the purchase notes do not convert into Class A Common Stock, High Times will owe the former stockholders of THC quarterly installments payments of $1.5 million, plus accrued interest, with a final payment of $16.5 million due on February 28, 2020.

As of September 30th, the company reported total assets of just $3.55 million, but the debt is listed at $38.6 million and with total liabilities of $46.7 million.

How Can It Pay This Debt?

In the offering, High Times says, “During the three-year period from 2014 to 2016, the net income of THC and its subsidiaries declined from $3,421,592 in 2014 to net loss of ($2,926,000) in 2016. For the nine months ended September 30, 2017, the consolidated net loss of the Hightimes Group was ($15,955,000).”

It went on to state, “Although $6,689,000 of the net loss for the nine months ended September 30, 2017 resulted from a non-recurring non-cash stock compensation charge, and an additional $2,744,000 non-cash charge for debt discount and change in derivate value for the same period, High Times Group is anticipating a return to profitability commencing in the fiscal year 2018.”

High Times has noted that ad sales for the magazine have declined and it plans on increasing the lucrative Cannabis Cup events in order to bring in more money. Still, there are a limited number of states and countries that will allow these types of events. Multiple events in some states will end up saturating the calendar and losing the appeal of the events.

It’s A Nail Biter

High Times said, “Unless Ex Works significantly extends the maturity date of our obligations to such senior lender or we are able to refinance such indebtedness we will have to apply at least $12.7 million of net proceeds of this Offering to retire such indebtedness. As at the date of this Offering Circular, we have no binding commitments from ExWorks to extend the August 28, 2018, maturity date of the ExWorks loan or from a third party investor or lender to refinancing such ExWorks loan.”

 


Debra BorchardtDebra BorchardtJanuary 24, 2018
Medmen.jpg

4min930611

California-based cannabis company MedMen is planning to become a publicly traded company in the early part of the second quarter. Rather than do an Initial Public Offering (IPO), MedMen is planning on a reverse merger in the Canadian market. C0-founder and CEO Adam Bierman is making the announcement in Vancouver at a Canaccord event.

Company spokesman Daniel Yi said several companies were being considered for the purpose of serving as its entry into the public market. Yi also noted that MedMen preferred a major exchange like the ones in Canada versus the OTC Marketplace in the U.S. “The Canadian Stock Exchange seemed the appropriate vehicle,” said Yi. “It’s where companies like Canopy and MedReleaf have been able to raise lots of money.”

MedMen’s first fund was very successful and raised $100 million. In 2017, the company announced it would start a second fund and raise $250 million. Yi said $75 million was raised for the second fund when the decision was made that it would be easier to go public instead and the fundraising effort stopped. Investors in both funds will receive shares in the public company.

Chris Leavey, who had been hired to help raise private money and was a co-chairman will no longer work with the company, however, he will remain as an investor. “He had come out of retirement to work with MedMen and has no interest in working for a public company,” said Yi.

The proceeds of the offering will be used for expansion purposes. MedMen was founded 10 years ago as Bierman and Co-founder and President Andrew Modlin formed a team to open medical marijuana dispensaries. MedMen’s plans are to be hyper-focused on the California, Nevada and New York markets. The strategy is to be located in only the largest markets with the heaviest tourist traffic.

The company has quickly grown from two to seven dispensaries in California. Sales have tripled at the California dispensaries since the state legalized adult use marijuana. There are plans to open three locations in Las Vegas by the end of the first quarter. One MedMen dispensary will be located directly on the Vegas strip. In addition to that, the company just finished constructing a 45,000 square foot cultivation and manufacturing facility near Reno

MedMen owns one of only 10 state issued vertical licenses in New York, of which only five are operational.  The company holds a lease on a Fifth Avenue location in Manhattan but is biding its time until New York’s marijuana laws ease. It has no plans to enter the New Jersey market.

The company has grown to several hundred employees in a short time and according to Paysa, the average salary is $104,000.



About Us

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


READ MORE



Recent Tweets

Back to Top

You have Successfully Subscribed!