Cannabis REIT to Invest $49 Million in Massachusetts Cultivation and Processing Facility – New Cannabis Ventures

April 02, 2020
Innovative Industrial Properties Acquires Massachusetts Property and Expands Real Estate Partnership with AWH

Innovative Industrial Properties, Inc. (IIP), the first and only real estate company on the New York Stock Exchange (NYSE: IIPR) focused on the regulated U.S. cannabis industry, announced today that it closed on the acquisition of a property in Athol, Massachusetts, which comprises approximately 199,000 square feet of industrial space.

The purchase price for the Massachusetts property was approximately $26.8 million (excluding transaction costs). Concurrent with the closing of the purchase, IIP entered into a long-term, triple-net lease agreement with a subsidiary of Ascend Wellness Holdings, LLC (AWH) for continued operation as a licensed cannabis cultivation and processing facility. AWH is expected to complete tenant improvements for the property, for which IIP has agreed to provide reimbursement of up to approximately $22.2 million. Assuming full reimbursement for the tenant improvements, IIP’s total investment in the property will be $49.0 million. The lease provides for an initial annualized aggregate base rent of 13.5% of the sum of the initial purchase price and tenant improvement allowance, subject to a phase-in of the base rent associated with the tenant improvement allowance at the beginning of the term.

As the pioneering real estate investment trust (REIT) for the medical-use cannabis industry, IIP partners with experienced medical-use cannabis operators and serves as a source of capital by acquiring and leasing back their real estate assets, in addition to offering other creative real estate-based capital solutions.

This Massachusetts property represents IIP’s third real estate transaction with AWH. In December 2018, IIP acquired a 75,000 square foot industrial facility in Illinois and entered into a long-term, triple-net lease agreement with AWH for use as a regulated cannabis cultivation and processing facility, with IIP’s total investment in the property being $33.0 million. In July 2019, IIP acquired a 145,000 square foot industrial facility in Michigan and entered into a long-term, triple-net lease agreement with AWH for use as a regulated cannabis cultivation and processing facility upon completion of redevelopment, with IIP’s total investment in the property, assuming full reimbursement for tenant improvements, expected to be approximately $19.8 million.

AWH is a vertically integrated cannabis company, and is operating in each of Massachusetts, Illinois, Michigan and Ohio. AWH has raised $100 million in equity capital to date, including a $28.2 million round of financing that closed in December of last year. AWH is expected to have its first cannabis harvest at its Athol facility this month, and in January, received its provisional license from the Massachusetts Cannabis Control Commission for what is expected to be one of the largest dispensaries on the East Coast, a 16,000 square foot retail location situated near Faneuil Hall and TD Garden in the heart of downtown Boston. The Boston location is expected to open in January 2021.

“Abner and his team have achieved a tremendous amount of success over the past year, executing on their focused business model and ramping operations, and we are thrilled to support them as their long-term real estate capital partner on this third transaction in Massachusetts,” said Paul Smithers, President and Chief Executive Officer of IIP. “We are pleased that the Commonwealth of Massachusetts, in step with other state and local jurisdictions, has deemed medical cannabis an essential product, providing continued access to patients throughout the Commonwealth during this very difficult period.”

We greatly value our real estate partnership with IIP, and are very pleased to team with them for a third time on our Athol facility. With the tremendous acclaim and market success of our Ozone brand in Illinois and Michigan, we look forward to bringing our curated selection of cannabis products to the people of Boston and throughout the Commonwealth.

Abner Kurtin, Chief Executive Officer and Co-Founder of AWH

Similar to other states during this coronavirus health crisis, Massachusetts authorities ordered all businesses that are not offering essential services to close operations for a period of time. However, the Massachusetts Cannabis Control Commission deemed Medical Marijuana Treatment Centers and Certifying Health Care Providers as essential services that will remain open during this time, while instituting new protocols, such as certifications via telehealth, social distancing, cleaning and steps to protect populations particularly vulnerable to COVID-19 infection.

As of April 2, 2020, IIP owned 54 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Pennsylvania and Virginia, totaling approximately 4.0 million rentable square feet (including approximately 1.2 million rentable square feet under development/redevelopment), which were 99.1% leased (based on square footage) with a weighted-average remaining lease term of approximately 16.1 years. As of April 2, 2020, IIP had invested approximately $675.5 million in the aggregate (excluding transaction costs) and had committed an additional approximately $158.8 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at IIP’s properties. These statistics do not include up to approximately $13.4 million that may be funded in the future pursuant to IIP’s lease with a tenant at one of IIP’s Illinois properties, or the approximately $32.5 million that may be funded in the future pursuant to IIP’s lease with a tenant at one of IIP’s Massachusetts properties, as the tenants at those properties may not elect to have IIP disburse those funds to them and pay IIP the corresponding base rent on those funds. These statistics also treat IIP’s Los Angeles, California, property as not leased, due to the tenant being in receivership and its ongoing default in its obligation to pay rent at that location.

About Innovative Industrial Properties

Innovative Industrial Properties, Inc. is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. Innovative Industrial Properties, Inc. has elected to be taxed as a real estate investment trust, commencing with the year ended December 31, 2017. Additional information is available at www.innovativeindustrialproperties.com.

About AWH

AWH is a market leading, vertically-integrated operator with retail and production facilities in Illinois, Ohio, Massachusetts, Michigan and New Jersey. AWH is breaking down traditional walls in the cannabis marketplace to create a unique, in-store customer experience and providing exclusive brand partnerships. AWH owns and operates state of the art cultivation facilities, growing heirloom and exotic-blend strains and producing a curated selection of products with effect-based categorization. AWH operates under the retail brands Illinois Supply and Provisions (IS&P), Michigan Supply and Provisions (MS&P) and Ohio Supply and Provisions (OS&P). AWH produces and distributes Ozone products and fosters exclusive brand partnerships with brands such as Cookies. For more information about AWH, visit www.awholdings.com.

Original press release

American Cannabis Operator Index Plunges 28% in March Despite Big Bounce – New Cannabis Ventures

March 31, 2020

The American Cannabis Operator Index fell for the twelfth consecutive month, declining 27.9% to 21.09, its lowest monthly close since inception:

The index, which launched at the end of October 2018 with a value of 100, reached a closing high of 124.16 a week later before declining to 70.64 in late December 2018. It then rallied as high as 119.53 in early April before selling off over the balance of the year, ending 2019 at 43.27. The index has now dropped 51.3% in 2020. This past month, it posted an all-time closing low on March 18th at 14.50 before recovering a portion of its losses:

During March, the index included 16 companies, including 13 multi-state operators (MSOs) and 3 focused solely on CBD extracted from industrial hemp. Several MSOs are pursuing CBD strategies apart from their state-licensed cannabis businesses, giving the index additional exposure to that market beyond the pure-plays. No companies managed positive returns, while thirteen posted double-digit percentage losses, including three that lost more than 40% of their value:

The four best performing stocks were Trulieve (CSE: TRUL) (OTC: TCNNF), cbdMD (NYSE American: YCBD), MedMen (CSE: MMEN) (OTC: MMNFF) and CV Sciences (OTC: CVSI). Trulieve, which will be reporting its Q4 financials in early April, was quiet on the news front, but investors likely gravitated to the name due to it being profitable historically. cbdMD was one of the better relative performers for the second month in a row after a being the worst performer in January, when it raised capital. MedMen was one of last month’s worst performers, when it lost 46%. CV Sciences reported a Q4 that showed revenue in decline and gave weak guidance for Q1 as well but bounced after the report.

The four worst performing stocks were Green Growth Brands (CSE: GGB) (OTC: GGBXF), Harvest Health and Recreation (CSE: HARV) (OTC: HRVSF), Acreage Holdings (CSE: ACRG) (OTC: ACRGF) and Planet 13 Holdings (CSE: PLTH) (OTC: PLNHF). Green Growth Brands announced a potential sale of its CBD business, but that looks to be wrecked by COVID-19. The company’s CEO resigned and many of its employees were terminated. Harvest fell sharply after it announced a capital raise. It also terminated its pending acquisition of Verano Holdings. Acreage Holdings reported in late February. In March, it accessed $43 million in debt. Planet 13, which currently generates all of its revenue from a single store that caters to tourists in Las Vegas, was likely impacted by the shutdown of tourism. I recently published an in depth review of the company for subscribers at 420 Investor ahead of their Q4 financials that will be released in April.

For April, the number of names in the index will will decrease to 15 with the departures of Green Growth Brands and Marimed (OTC: MRMD), both of which fell below the minimum price required for inclusion, and the return of AYR Strategies (CSE: AYR) (OTC: AYRSF).

In the next monthly review, we will summarize the performance for April and discuss any additions or deletions. Be sure to bookmark the page to stay current on American cannabis operators stock price movements within the day or from day-to-day.

Financial Reports Highlight American Cannabis Industry Strength and CBD Weakness – New Cannabis Ventures

March 29, 2020

The Public Cannabis Company Revenue & Income Tracker, managed by New Cannabis Ventures, ranks the top revenue producing cannabis stocks that generate industry sales of more than US$7.5 million per quarter (C$10.5 million). This data-driven, fact-based tracker will continually update based on new financial filings so that readers can stay up to date. Companies must file with the SEC or SEDAR to be considered for inclusion. Please note that we raised the minimum quarterly revenue in May 2019 from US$2.5 million and from US$5.0 million in October 2019.

46 companies currently qualify for inclusion, with 29 filing in U.S dollars and 17 in the Canadian currency, which is up from 45 when we reported at the end of February. Two Canadian licensed producers, Delta 9 Cannabis (TSX: DN) (OTC: VRNDF) and Radient Technologies (TSXV: RTI) (OTC: RDDTF), qualified for inclusion based on recent reports, while we have removed Origin House, which was acquired earlier this year by Cresco Labs.

In May 2019, we began to include an additional metric, “Adjusted Operating Income”, as we detailed in our newsletter. The calculation takes the reported operating income and adjusts it for any changes in the fair value of biological assets required under IFRS accounting. We believe that this adjustment improves comparability for the companies across IFRS and GAAP accounting. We note that often operating income can include one-time items like stock compensation, inventory write-downs or public listing expenses, and we recommend that readers understand how these non-cash items can impact quarterly financials. Many companies are moving from IFRS to U.S. GAAP accounting, which will reduce our need to make adjustments.

One trend we have observed is that many of the companies are now providing pro forma revenue as well, which is an attempt to more accurately portray the operations by taking into account the results of closed and pending acquisitions as the multi-state operator (MSO) space rapidly consolidates. Our rankings include only actual reported revenue.

For companies that report in U.S. dollars, Charlotte’s Web (TSX: CWEB) (OTC: CWBHF), Columbia Care (NEO: CCHW) (OTC: CCHWF), Curaleaf Holdings (CSE: CURA) (OTC: CURLF), CV Sciences (OTC: CVSI), Green Thumb Industries (CSE: GTII) (OTC: GTBIF), GrowGeneration (NASDAQ: GRWG) and Tilray (NASDAQ: TLRY) have reported in the first four weeks of March. The U.S. cannabis operators have shown solid growth in revenue, while the CBD companies have seen sales decline sharply from Q3.

GTI, perhaps just temporarily, took the lead among MSOs in terms of revenue, with its Q4 revenue growing 12% from Q3 and 265% from a year ago to $75.8 million. It provided guidance that revenue in Q1 will be in a range of $91-95 million, up 20-25% from Q4. Curaleaf grew revenue in Q4 by 22% to $75.5 million, while Columbia Care experienced sequential growth of 5%. Curaleaf expects is managed revenue to grow from $81.7 million to at least $100 million.

In line with the top-line growth among MSOs, GrowGeneration experienced 17% sequential growth to $25.4 million and provided 2020 guidance of $130-135 million, including projected Q1 revenue of $32 million, 144% above year-ago revenue.

In contrast to the growth by the state-regulated cannabis operators, CV Sciences saw revenue decline 25% in Q4 from Q3 and by 34% from a year ago. It also projected further declines in Q1 to $6-8 million. Charlotte’s Web experienced a sequential decline of 9%, with its $22.8 million Q4 revenue growing 6% from a year ago. It provided guidance for 2020 revenue growth of 10-20%, with Q1 revenue expected to be approximately $20 million. Both companies cited intense competition in the natural health channel as well as delays by the FDA regarding regulation for ingestibles as contributing factors to the near-term weakness.

Finally, Canadian LP Tilray saw revenue decline sequentially in its Q4 by 20%.

American Dollar Reporting – Public Cannabis Company Revenue Tracker

Village Farms (TSX: VFF) (NASDAQ: VFF) will report its Q4 on March 30th, while Marimed (OTC: MRMD), which is taking a large write-down, expects to report its Q4 on March 31st, and it will be removed due to its no longer qualifying based on its pre-announcement that suggested revenue will be less than $6 million. During April, we expect reports from a substantial number of companies, though only Harvest Health (CSE: HARV) (OTC: HRVSF) and iAnthus (CSE: IAN) (OTC: ITHUF) have announced dates.

Harvest is expected, according to Sentieo, to have generated Q4 revenue of $41.1 million, representing 24% growth from Q3. iAnthus is expected to have seen Q4 revenue expand by 26% to $28.1 million compared to Q3.

Two of the larger MSOs that haven’t yet announced dates for their Q4 conference calls are Trulieve (CSE: TRUL) (OTC: TCNNF) and Cresco Labs (CSE: CL) (OTC: CRLBF). Trulieve could regain its leadership position among MSOs, as it is expected to have generated $78.4 million in revenue, up 11% from Q3, while Cresco Labs is expected to grow revenue sequentially by 25% to $45.3 million.

KushCo Holdings (OTC: KSHB) pre-announced Q2 revenue at approximately $30 million, representing a decline of 14% from Q1.

Of the companies that report in Canadian dollars, LPs Delta 9 and Radient Technologies and retailer Alcanna (TSX: CLIQ) (OTC: LQSIF) reported in the first four weeks of March. Delta 9’s revenue grew 59% in Q4 compared to Q3, driven by sales of grow pods and other B2B offerings, which accounted for 36% of overall revenue. All of the revenue for Radient Technologies was generated through a single customer, presumably Aurora Cannabis (TSX: ACB) (NYSE: ACB). The vast majority of revenue at Alcanna is generated through its alcohol stores, but its cannabis operations generated C$13 million, similar to Q3.

Canadian Dollar Reporting – Public Cannabis Company Revenue Tracker

Over the balance of March and through April, we will receive financial updates from LPs Medipharm Labs (TSX: LABS) (OTC: MEDIF), Sundial Growers (NASDAQ: SNDL), Cronos Group (TSX: CRON) (NASDAQ: CRON) and HEXO Corp (TSX: HEXO) (NYSE: HEXO) and retailer High Tide (CSE: HITI) (OTC: HITIF) this week and LPs Aphria (TSX: APHA) (NYSE: APHA), Organigram (TSX: OGI) (NASDAQ: OGI) and TerrAscend (CSE: TER) (OTC: TRSSF) in mid-April. Retailers Fire & Flower (TSX: FAF) (OTC: FFLWF) and Meta Growth (TSXV: META) (OTC: NACNF) and LP Valens Company (TSXV: VLNS) (OTC: VLNCF) are expected to report by the end of April.

MediPharm Labs, which reports on March 30th, is expected to see Q4 revenue decline by almost 10% from Q3, according to Sentieo’s analyst consensus, which is at C$39.3 million. The company began generating revenue in 2019. Sundial Growers reports on the 30th and will host a call on the 31st. The company, which has delayed its report in order to complete modifications to its credit agreements, is also expected to have experienced a decline in Q4 revenue from C$33.5 to C$31.6 million. It generated $28 million from its cannabis operations in Q3, with the balance from ornamental flowers. HEXO Corp will report on the 30th, which is after the filing deadline. The company announced in mid-March that its Q2 net revenue grew sequentially by 17% to C$17 million. It also indicated that it expects to take an impairment charge of up to C$280 million. Cronos Group had previously scheduled its call for late February but delayed for unstated reasons. As an accelerated filer, it was required to file by March 2nd but took an extension of 15 days. It later revealed that it was restating its prior financials and hopes to have its Q4 audited financials available by the 30th, but it indicated that the timeline might not be met due to the COVID-19 pandemic. Analysts expect the company to have generated C$16.2 million during Q4. Cronos Group had previously reported C$14.6 million revenue for Q3, but it has indicated that it will be restated to C$9.5 million. High Tide will be reporting financials for its Q1.

TerrAscend will be reporting its Q4 financials on April 15th, with analysts projecting revenue of C$40 million, up 49% from Q3, according to Sentieo. Aphria and Organigram will be providing quarterly financials. Neither company has yet announced the date, but they are due by April 14th. Aphria, which generates the majority of its revenue from non-cannabis operations, is expected to have Q3 revenue $130 million, which would represent growth of 8% over Q2. The company provided annual guidance for the fiscal year of net revenue of C$575-625 million with adjusted EBITDA of C$35-42 million in January, having reported year-to-date revenue of C$247 million and adjusted EBITDA of C$2.9 million. Organigram is projected to increase revenue by 9% to C$27.4 million in its Q2 compared to its Q1, up slightly from year-ago revenue.

Fire & Flower will be reporting its fiscal year-end, while Meta Growth and Valens will be providing quarter-end financials.

Visit the Public Cannabis Company Revenue Tracker to track and explore the complete list of qualifying companies. We have recently created a way for our readers to access our library of Revenue Tracker articles. For our readers who are interested in staying on top of scheduled earnings calls in the sector, we have have created and continually update the Cannabis Investor Earnings Conference Call Calendar. Finally, for many of these companies, we publish comprehensive earnings previews for subscribers at 420 Investor.

Medicine Man Technologies Launches Online Marketplace for Strategic Partners’ Dispensary Operations – New Cannabis Ventures

March 27, 2020

DENVER–(BUSINESS WIRE)–Medicine Man Technologies, Inc. (OTCQX: MDCL) (“Medicine Man Technologies” or “the Company”) today launched a collective platform to support strategic partners through COVID-19.

In accordance with emergency rules and regulations in place throughout the state of Colorado due to COVID-19, cannabis dispensaries are now meeting the needs of patients and adult-use consumers via curbside service only. As such dispensaries have moved to new methods of order taking both via online and via the phone. Medicine Man Technologies has launched a platform to bring together all the Company’s strategic partners offerings to one place.

Our strategic partners are hard at work ensuring the safety of employees, the patients and adult-use consumers and the communities where they operate. To support their efforts, we have created an online marketplace platform to bring together our strategic partners’ ordering capabilities, collectively in one place.

Shane Sampson, Chief Marketing and Merchandising Officer

“This technology platform brings consumers another avenue for fulfilling their cannabis needs,” said Nirup Krishnamurthy, Chief Integration and Information Officer. “Medicine Man Technologies platform enables Colorado consumers to find information and updates for the Company’s strategic partners dispensary operations as we all navigate through COVID-19.”

The Company’s dispensary strategic partners include Medicine Man, Starbuds, Colorado Harvest Company, Strawberry Fields, Roots Rx and Mesa Organics. Visit https://www.medicinemantechnologies.com/marketplace/ to learn more about our partners and their cannabis offerings.

For more information about Medicine Man Technologies, please visit www.MedicineManTechnologies.com.

About Medicine Man Technologies

Denver, Colorado-based Medicine Man Technologies (OTCQX:MDCL) is a rapidly growing provider of cannabis consulting services, nutrients, and supplies. The Company’s client portfolio includes active and past clients throughout the cannabis industry in 20 states and seven countries. The Company has entered into agreements to become one of the largest vertically integrated seed-to-sale operators in the global cannabis industry. Current agreements will enable Medicine Man Technologies to offer cultivation, extraction, distribution and retail pharma-grade products. Management includes decades of cannabis experience, a unique combination of first movers in industrial cannabis and proven Fortune 500 corporate executives.

Original press release

This Manitoba-Based Cannabis Company Is Leveraging a Diversified Strategy to Expand Across Canada – New Cannabis Ventures

March 25, 2020

Exclusive Interview with Delta 9 Founder and CEO John Arbuthnot

Delta 9 (TSX: DN) (OTCQX: VRNDF), based in Winnipeg, Manitoba, has three distinct business segments: wholesale, retail and B2B. This diversified strategy has helped the vertically integrated operator to expand across western Canada, and it is now looking to push to the east. Founder and CEO John Arbuthnot spoke with New Cannabis Ventures about the company’s Grow Pods, retail operations and phased expansion plans. The audio of the entire conversation is available at the end of this written summary.

From 2012 to Today

In 2012, Arbuthnot started Delta 9 with his father Bill Arbuthnot under the MMPR program, gaining the 14th Health Canada license issued in March 2014. For the first few years of its operations, the privately held company supplied cannabis to a few thousand medical patients. In 2017, Delta 9 hit several major growth milestones. It raised approximately $10 million throughout the year and listed its shares on the TSX Venture. Since that time, the company has raised approximately $80 million and put that capital toward its three main business segments, according to Arbuthnot. The company’s shares have also been uplisted to the TSX, and Delta 9 has recorded profit from operations in its most recent quarter.

The Delta 9 Team

The company has approximately 220 employees, most of which are located at its large site in Manitoba. Delta 9 has built out a large management team to support its three main businesses. It has VPs in each main segment with experience in analogous industries. Leaders in the production and distribution piece of the business have experience in manufacturing and agriculture. Leaders in the retail segment have experience in the liquor industry, and leaders in the B2B piece of the business have experience in areas such as Health Canada compliance, construction, security and consulting.

Arbuthnot also pointed to a number of Delta 9’s directors and executive leaders as important elements of the leadership team. The board of directors, including Nitin Kaushal, Hugh Aird and Joanne Duhoux-Defehr, bring with them extensive experience in corporate governance. Bill Arbuthnot serves as Chairman, as well as President. Seasoned CFO Jim Lawson and VP of Corporate Affairs Ian Chadsey are also important members of the senior-level management team.

Retail

Delta 9 has four of about 30 retail stores in Manitoba, but the company has managed to achieve an outsized market share, according to Arbuthnot. The company captures that market share through its location and pricing strategies. It has placed its retail stores in high visibility areas with a lot of foot traffic, located by other retailers like grocery stores and liquor stores for consumer convenience. Delta 9 also has a lean markup on its products, which has helped to position it as a price leader in the market. This strategy has allowed it to compete against not only legal operators but against the black market as well, according to Arbuthnot.

Delta 9 Retail Stores Are Located in High-Visibility Areas.

In 2019, retail operations generated about $15.4 million in revenue, and this business segment is set for further growth. The company has a pending deal for its first two stores in Alberta and plans to open up to 12 additional stores over the next couple of years.

The company’s three different business segments are designed to be complementary. The data generated by the thousands of daily transactions processed at retail locations can be analyzed to understand consumer demographics, price point demand and product preference. In turn, this information can be used to guide the strategy for the company’s production and wholesale operations.

Since the launch of Cannabis 2.0 products, Arbuthnot has seen significant consumer demand. Initially, he has observed the average cart size increasing. Consumers are still buying dried flower and prerolls, but they are adding other 2.0 products to try. He expects to have a good sense of how the new product categories will play out after another few quarters.

The Interior of a Delta 9 Retail Location

Grow Pods and Wholesale Distribution

Delta 9 has an 80,000-square-foot facility in Winnipeg, but it takes a different approach to cultivation. Instead of the greenhouse or outdoor model, the company grows its cannabis in retrofitted shipping containers called Grow Pods. The company customizes standard 40-foot high cubic shipping containers with wall panels, lights, HVAC and security systems. These Pods are scalable and stackable.

Delta 9’s Modular Grow Pods Are Stackable.

This model has several benefits. First, it affords the company a high level of control over the growing environment, which can be a challenge in large-scale cultivation operations. The conditions of the Pods are carefully controlled to maximize the quality of the finished product. The smaller, separate Pods also mitigate some of the risks associated with growing. If disease or contamination occurs in a large, open operation, it can spread throughout the entire facility. With separate pods, Delta 9 is able to decrease this risk. Contamination or disease in one pod does not mean the facility’s entire crop is affected.

Additionally, the Grow Pods help the company to specialize. Delta 9 is producing about 30 different varieties of cannabis at any time, according to Arbuthnot. Different strains of cannabis can require different environments, and the separate pods allow for that customization.

The company manufactures the pods, a lean capex model. Right now, it has 297 Grow Pods in production, which supports an annual production capacity of 8,300 to 8,500 kilograms. Delta 9 is currently distributing in Manitoba, Alberta, Saskatchewan and British Columbia. It is beginning to look at opportunities in eastern provinces like Ontario. Eventually, Arbuthnot is envisioning the company as a national distributor. In 2019, the company’s wholesale revenue was $9.5 million.

B2B Services

Delta 9’s B2B service line has three main components. The company sells its proprietary Grow Pods to other licensed and pre-licensed companies. It offers consulting and licensing services. And, it sells its genetics–the company has a seed bank of approximately 75 different cannabis strains. This division of the company helps other cannabis entrepreneurs enter the space. The company is able to offer these customers equipment, help them navigate the Health Canada licensing process and ultimately provide them with genetics. Beyond that, the company will often sign long-term offtake agreements with its B2B customers. Arbuthnot sees this is a way to create an ecosystem of smaller craft producers, which sell their products through Delta 9’s existing distribution channels.

The B2B division has become a more significant source of revenue for the company over the past year. In 2019, revenue for this division was about $6.2 million, up from $900,000 in the previous year. Roughly 90 percent of the B2B division’s revenue comes from the sale of Grow Pods, while the remainder is split equally between the consulting and genetics offerings, according to Arbuthnot.

Industry Partnerships

Delta 9 sees value in forming long-term relationships with fellow cannabis companies. For example, it works closely with Auxly. Auxly is a large strategic investor in the company (it invested $16.25 million in Delta 9 in 2018), and it has a long-term supply agreement with Delta 9. The company is providing Auxly with high-quality flower, as well as trim and extraction-grade material to make Cannabis 2.0 products. Additionally, Delta 9 has announced a commercial rights agreement to purchase products from Auxly and distribute them through its retail network.

The company also has a white labeling agreement with Westleaf. Delta 9 is providing Westleaf Labs in Calgary with offtake and extraction material, which is being used to manufacture Delta 9 Cannabis 2.0 products. The first products will be Delta 9 branded vaporizers. Arbuthnot sees these kinds of relationships as beneficial for the companies involved and their investors.

Expansion Plans

Last year, Delta 9 focused on the second phase of its expansion plans. The company went from 154 of its Grow Pods to 297. Next, the company is planning to complete its purpose-built processing center. This fully automated facility will allow the company to bottle, package and label approximately 25,000 kilograms of consumer packaged goods each year. Delta 9 will also be expanding its 80,000-square-foot facility to 135,000 square feet, which will allow for the addition of another 128 Grow Pods, taking the total to over 420.

The company is well-funded for its phase two expansion, which will be staged out over 2020 and beyond as required, according to Arbuthnot. Delta 9 is also looking ahead to the third phase of its expansion plan, which will roll out over the next several years. The expense for this phase is expected to be around $120 million.

Delta 9 is planning to largely fund future expansion with cash flow, rather than going back to the equity markets. If necessary, it will consider equity or non-dilutive financing. The company has access to an $18.1 million credit facility with Canadian Western Bank, which speaks to the company’s maturity, according to Arbuthnot.

Growth in an Uncertain Landscape

While the COVID-19 pandemic continues to disrupt daily life, Delta 9 has been able to continue making routine shipments and to maintain its retail and B2B operations thus far. The company is prioritizing the health and safety of its staff and customers. It is encouraging social distancing, providing workers with personal protective equipment and installing Plexiglas shields at the checkout areas in its retail locations. The company will continue to adhere to advice from provincial and federal healthcare officials as the situation evolves.

The company is not providing formal guidance for 2020. Rather, it is pointing to its 2019 results to demonstrate its management team’s focus on execution. Delta 9 had approximately $31 million in operating revenues last year, up from $7.6 million in the previous year, with a little more than $10 million in gross profit for the year, according to Arbuthnot. The company also finished the year with $22.8 million in working capital.

While the current pandemic makes future plans uncertain, Delta 9 is planning to expand into new provincial distribution markets, grow its retail footprint, add new products and continue building relationships through its B2B division. The company will focus on creating shareholder value across all of its initiatives.

To learn more, visit the Delta 9 website. Listen to the entire interview:

Market Offers an Opportunity to Reposition Cannabis Investments – New Cannabis Ventures

March 22, 2020

You’re reading a copy of this week’s edition of the free New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015.

Sign up to receive a copy in your inbox each Sunday morning.

Friends,

The cannabis sector experienced something we haven’t seen in quite a while Friday, rallying sharply despite weakness in the broad stock market. In fact, the New Cannabis Ventures Global Cannabis Stock Index bounced 14.3% from the all-time low set on Wednesday as the S&P 500 fell almost 4%. For the full week, cannabis stocks declined 8.5%, far less than the 15% drop in the S&P 500.

Extreme Pessimism

For perspective, cannabis stocks have performed quite poorly. Even with the bounce, they are down 54.1% in 2020 thus far, and this follows declines of 34.1% last year and 54.9% in 2018. Our survey in last week’s newsletter, not surprisingly, revealed extreme pessimism among respondents, with over 70% expecting the decline to persist at least over the balance of the month:

The index had closed at 21.18 on the Friday before our newsletter went out, but we kept the survey open until Monday evening, when the index closed at 18.99 and note that it closed at 19.38 on Friday.

More Gains Ahead or Just a Bounce?

Is this the beginning of a new bull market in cannabis stocks, which have declined 82% from the peak exactly a year ago, or is this a chance to sell? We think it is a bit early to call a bottom and have seen many other apparent bottoms prove not to be, but we hope the plunge and partial recovery does signify the end of the decline that began in early 2018. We would attribute the bounce to two factors. First, there was likely some short-covering. Second, and perhaps more importantly, news reports of surging demand for cannabis along with all states that are restricting business activities not forcing dispensaries to close likely attracted some buyers.

Of course, the short-term spike in sales, as described by Akerna as an increase of 19.2% on March 18th from March 11th, isn’t sustainable, but we do think that when some sense of normalcy returns, there are likely to be two big takeaways for cannabis investors. First, we have come a long way in recent years such that state governments categorize cannabis as “essential”. This reinforces the state-legal proliferation thesis. Second, the pandemic isn’t likely to end quickly, which leads to two positive implications. First, cannabis legalization could be seen as more important to states looking for tax revenue and job growth. Second, cannabis companies may see more demand as consumers cope with increased anxiety, trouble sleeping and other conditions that are being exacerbated by this crisis.

Rather than suggest to our readers to be buyers or sellers in general, we will share this perspective: This is a great time to consider repositioning. Last week, we warned that many companies will be forced to raise capital on egregious terms, diluting existing shareholders. Some companies, though, are better positioned to weather the current environment than others. Some of the biggest bounces are taking place in some of the companies less likely to avoid dilution, and we think it could make sense to use the rally to reduce exposure to them and to increase it to companies that are in a better position. At our premium service, 420 Investor, we have been discussing this theme extensively as we also reposition our model portfolios.

A New Threat to Investors Emerges

This week, something that caught our attention should alarm investors in small cannabis companies, the “take-under” of Indus Holdings. This is a story most readers probably aren’t following, so let us summarize. A week ago, the California cultivator and processor, which has its own brands but also provides turnkey services to other companies, had a market cap of just $7 million (and today as well) at a price of just $0.21 (C$0.30). The company, which generated $10.1 million revenue in Q3 and $26.2 million year-to-date, had used $31.3 million to fund its operations through the first three quarters of the year and had ended the quarter with just $2.7 million in unrestricted cash, leaving it in dire need of additional investment, which it found through an outside investment group.

The pending Geronimo Capital investment into Indus consists of up to $14.5 million in a convertible note with a conversion price of $0.20, approximately where the stock had closed previously. Doing the math, this would convert to over 72 million shares for a company that currently has just 32.5 million shares and no debt. Though there will be no shareholder vote apparently, this is a change-in-control, with existing shareholders owning potentially just 31% of the recapitalized company. Since the investment is debt, it is possible that the new investors could end up with the entire company should the financial condition deteriorate and the company seek creditor protection.

Indus went public with a $40 million capital raise at $11.60, so this next round is a bit of a down-round at $0.20, down almost 98%. The balance sheet of the company showed assets, nearly all tangible, as $85.8 million, with liabilities of $44.1 million. The company agreed to give control to outside investors (as well as some insiders that are participating) at a valuation that represented approximately 16% of tangible book value. Annualizing the Q3 revenue, the valuation represented 16% of one-year sales as well. The alternative to selling out at such a low price may have been worse, as the company may not have been able to continue as a going concern.

Focus on Earnings

We caution our readers to be particularly careful with companies that aren’t on a path to profitability and that lack access to capital, as we expect many other small cannabis companies could be taken over at terms that aren’t favorable or risk extinction, as we discussed in last week’s newsletter. This environment elevates the risks to investors in these types of companies in general but especially in our industry, where capital is even more constrained. On the other hand, several companies that are either close to or at profitability or that are adequately capitalized have declined with the market-wide sell off, and this could be an opportunity for investors who want to participate in the growth ahead.


You’re reading a copy of this week’s edition of the New Cannabis Ventures newsletter, which provides thought-provoking commentary on the industry from a financial and business perspective. We do this at no cost to our expansive readership, which spans greatly from industry executives, family investment offices, competing industries, regulators and retail investors. The newsletter represents an example of the extensive content we provide daily and in real-time on Alan Brochstein’s 420 Investor service, built to help investors navigate the complexities of the cannabis sector.


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Nevada cannabis retailer is latest to offer medical-only sales

March 19, 2020
The Source, with two marijuana locations in Las Vegas, said it is transitioning to medical-only sales for its patients as an additional safety precaution amid the coronavirus pandemic, becoming the latest retailer to do so

Illinois: Impact of marijuana legalization important lesson for employers

March 19, 2020
Human resources executives around the state are realizing that the real work of understanding and applying the law to their employees is just beginning. Employers will need to refine existing policies and, in many cases, craft entirely new ones to address the issues created with legalization, a proc

California marijuana retailers see sales boom, but coronavirus forces them to address other challenges

March 18, 2020
Fallout surrounding coronavirus has pushed some California marijuana firms further to the brink as they deal with new business uncertainties

GenCanna Bankruptcy Leads MariMed to Write-Down $63 Million for its Investment and Receivables – New Cannabis Ventures

March 17, 2020

In late 2018, MariMed (OTC: MRMD) announced a $30 Million investment into GenCanna Global, a Kentucky-based hemp company, to help it expand its processing facilities. Today, the company revealed in an SEC Form NT 10-K that it has written off not only its investment in the company, which declared bankruptcy in February, but also an additional $33 million related to its $29 million receivables balance with GenCanna as well as its $4 million unearned revenue.

Through the third quarter, MariMed had reported year-to-date revenue of over $40 million, with $29 million from GenCanna. In its 10-Q, it highlighted the receivables on its balance sheet:

To be clear, the company booked revenue of $29 million from the affilated GenCanna without receiving a dime. This is detailed in the same filing:

During the nine months ended September 30, 2019, MariMed Hemp purchased $21.6 million of hemp seeds for its wholesale hemp distribution business and to develop hemp-derived CBD products. The seeds meet the U.S. government’s definition of federally legal industrial hemp, which was descheduled as a controlled substance and classified as an agricultural commodity upon the signing of the 2018 U.S. Farm Bill. As previously disclosed in Note 1 – Organization and Description of Business, as of September 30, 2019, MariMed Hemp sold a majority of these seeds to GenCanna, a related party, at market value which generated $33.2 million of receipts. The Company provided GenCanna with extended payment terms through December 2019, to coincide with the completion of the seeds’ harvest, although the payment by GenCanna is not contingent upon the success of such harvest or its yield.

As required by the relevant accounting guidance, the Company classified the $33.2 million of billings to GenCanna as a receivable from a related party, with approximately $29,0 million recognized as revenue from a related party for the nine months ended September 30, 2019, and approximately $4.2 million recorded under Unearned Revenue From Related Party on the balance sheet. Upon payment of the receivable balance by GenCanna, the amount in Unearned Revenue From Related Party will be recognized as revenue.

MariMed closed at $0.206, down almost 96% from its all-time high of $5.80 set in late 2018:

The company expects to file its 10-K by the end of the month. It provided additional information, including full year projected revenue of $46 million, including the $29 million it recognized previously from GenCanna. Q4 revenue, then will be approximately $5.4 million, suggesting modest improvement from the $4.2 million it reported beyond its GenCanna-related sales. Further, full year cost of goods is expected to be $27 million, while operating expenses are projected to be $52-60 million, which includes the $29 million receivable write-down as well as an additional $10-18 million in write-downs. Additionally, it expects to report $40 million non-operating expenses, which includes its $30 million GenCanna investment and $13 million in interest expense. Adding it all up, the company sees a pre-tax loss of $73-81 million for the full year, almost all of which will hit during Q4 given the year-to-date pre-tax loss of $612,369 through Q3.

The loss would appear to eliminate almost all of the equity on the balance sheet at Q3, which was $82.8 million. MariMed ended Q3 with just $136,682 in cash and reported current liabilities in excess of $35 million, including a $21 million note payable, some of which was due in 2019 and the balance of which was due in January. In February, the company amended a note for $11.5 million that was due in January:

On February 10, 2020, MariMed Inc. (the “Registrant”) entered into an Amendment Agreement (the “Amendment Agreement”) with respect to the Facility Agreement and Promissory Note (the “Original Note”) dated as of June 4, 2019 between the Registrant, MariMed Hemp, Inc., a wholly owned subsidiary of the Registrant and SYYM LLC (the “Holder”). The Original Note provided for a payment in the amount of $11,500,000 on January 31, 2020 from the Registrant to the Holder. Pursuant to the terms of the Amendment Agreement, the Registrant issued to the Holder an Amended and Restated Promissory Note (the “New Note”) in the principal amount of $11,500,000, bearing interest at the rate of fifteen percent per annum, due on June 15, 2020, with minimum amortization payments of $3,000,000 due on or before April 30, 2020. The New Note is secured by a first priority security interest in the assets of certain of the Registrant’s subsidiaries and brands and a pledge of the Registrant’s ownership interest in certain of its subsidiaries.

Later in the month, the company borrowed $4.4 million from Navy Capital. Investors will learn more shortly about the company’s financial position when it files the 10-K, but clearly the hemp venture has significantly damaged the financial condition of MariMed, which also owns and operates state-licensed cannabis facilities in Delaware, Illinois, Rhode Island, Maine, Massachusetts, Maryland and Nevada.

George Scorsis has been in the highly regulated sector for nearly two decades. He worked with companies that provide energy drink, medical cannabis, and alcoholic beverages. His over 15 years of work experience made him an asset to the company. He was the CEO and director of Liberty Health Sciences, a cannabis provider in the United States. He was the President of Red Bull Canada for over four years and generated total sales of $150 million. He was the President of Mettrum Health Corporation and the chairman of the board of directors of Scythian Biosciences Corporation.

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