You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news.
This was a week of big exits in the cannabis industry. The biggest news was that the largest multi-state operator, Curaleaf, is exiting California, Colorado and Oregon, but there was another industry departure that caught our attention and can be a great lesson for investors. NASDAQ-listed Akerna is selling its cannabis software assets to another public company and will be merging with a bitcoin miner.
Originally, we were excited by the way MJ Freeway, as it was known originally, went public through a merger with a SPAC in early 2019, opening the NASDAQ as an exchange for cannabis investors. The stock shot up early and then collapsed substantially. Some may recall that it was a $10 SPAC, so the close on Friday at $1.22 seems pretty bad. In fact, though, there was a 1-20 reverse split in late 2022, so the damage is a lot worse. The stock is trading more than 99% lower than the SPAC IPO price.
MJ Freeway changed its name to Akerna upon the closing of the merger. We used Urban Dictionary to learn that “akerna” meant something terrible in slang. We don’t blame the poor name choice for the problems the company encountered. MTech Acquisition Corp, the SPAC, raised $50 million in early 2018, and it announced the acquisition of MJ Freeway in October 2018 for $70 million in stock. In the end, Akerna will receive only $4 million for its cannabis assets.
We pulled Akerna out of our Global Cannabis Stock Index last year due to the declining price and dollar-volume that left it ineligible. It was added initially in July 2019, and we removed it in April 2022. We also removed it from the New Cannabis Ventures Ancillary Cannabis Index in July. It finally requalified for that index, but we aren’t adding it back due to its departure from the cannabis industry.
We think that there are many lessons here. First, SPACs can be dangerous. Second, investors need to be careful when the CEO leaves, as was the case with Amy Poinsett, who was replaced by Jessica Billingsley, a co-founder of the company. We think Jessica is a nice person, but her performance as CEO of the publicly-traded company was not good in our view. She had some very bad acquisitions, like the $18 million invested in solo sciences in stock and the $38.2 million to buy Ample Organics, where the prior CEO quickly exited. Before exiting the cannabis industry, it sold 365 Cannabis, which it had bought in September 2021 for $17 million from Microsoft, for just $2.8 million.
Another thing investors can learn here is to pay attention to financials. The revenue growth, despite all of the acquisitions, was never great and missed expectations. Worse, the cash flow was very negative. The company burned through cash and then issued convertible debt, which it wasn’t able to service. The cash flow from operations was negative in the entire history as a public company, and the YTD cash flow in 2022 through Q3 was a lot worse than in 2021, moving from -$5.1 million to -$10.5 million.
The buyer of Akerna’s assets is a publicly-traded company that trades on the OTC and hasn’t been profitable. The company has no analysts covering it, and it doesn’t qualify for inclusion in our indices. Ultimately, Akerna was a terrible company for investors and its exit from the cannabis industry could be a great contrarian indicator for the industry.
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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
December and January have been a slow reporting period, but New Cannabis Ventures, which manages the Public Cannabis Company Revenue & Income Tracker anticipates February will be more interesting. The tracker, which ranks the top revenue producing cannabis companies, offers senior and junior lists. To be on the senior list, a company must have quarterly revenue of at least US$25 million or C$33.4 million. To qualify for the junior list a company must have a minimum quarterly revenue of US$12.5 million, or C$16.7 million.
Playing defensively, Ayr Wellness has decided not to go forward with its previously announced proposed acquisition of the equity interests of Gentle Ventures, LLC d/b/a Dispensary 33, and certain of its affiliates that collectively own and operate two licensed retail dispensaries in Chicago. The company attributed the mutual decision to the changing marketplace. “We are focused on optimizing our business and will prioritize our efforts in markets where we can build meaningful depth and drive strong revenue and cash flow in the near term,” said President David Goubert. The company said the decision was mutual.
Ascend Wellness Holdings has agreed to purchase the Maryland assets of Devi Holdings, Inc., which owns and operates four licensed dispensaries under the names Nature’s Medicines and True Wellness. The deal expands Ascend’s operations into a seventh state as the company continues to build its footprint in limited license states across the Midwest and East Coast. “This agreement reflects our strategy of entering limited-license, late-stage medical markets with an anticipated adult-use cannabis market launch. This approach has made AWH a leader in New Jersey and Illinois, and we are following the same playbook in Ohio, Pennsylvania, and now, Maryland,” said Abner Kurtin, executive chairman and founder. The deal is valued at $19 million, $12 million of which will be paid in cash and $7 million, or 5.19 million shares of Class A Common Stock.
Curaleaf Holdings is calling it quits in several challenging cannabis markets. The company is closing most of its operations in California, Colorado and Oregon effective this month. The company also is consolidating its Massachusetts-based cultivation and processing operations into a single facility. In addition, it reduced its payroll by 10%. “These adjustments were necessary for the future success and profitability of the business and were made as a result of recent legislative decisions, price compression, and lack of enforcement of the illicit market,” the company stated in a news release. The company said it will now devote greater resources to “tangible growth opportunities,” including emerging markets in Europe.
MariMed recently closed a $35 million secured credit facility to accelerate its growth plans. The company said it plans to use the money to build-out of a new cultivation and processing facility in Illinois and a new processing kitchen in Missouri. It also will expand existing cultivation and processing facilities in Massachusetts and Maryland, as well as fund other capital expenditures and repay in full the Kind Therapeutics seller notes from the company’s Maryland acquisition in April 2022. The remaining balance will be used for acquisitions.
Village Farms is raising $25 million from the sale of shares with warrants at $1.35 each through a direct offering. Net proceeds will be used for general working capital purposes. The warrants will have an exercise price of US$1.65, will be exercisable beginning six months from issuance, and will expire five years from the date of initial exercisability. In a recent exclusive interview, the company’s President and CEO Michael DeGiglio discussed its plans for the U.S. and beyond.
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Alan & Joel
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