Green Thumb Acquisition
Green Thumb has acquired a MA cannabis operator; Liberty Compassion Inc. Liberty has three facilities in MA: Two dispensary locations and one cultivation/manufacturing facility. The two dispensaries are located in Boston and West Springfield. Before this deal, Green Thumb owned one dispensary and one cultivation facility in the state. We estimate the TAM for MA's adult-use market is $1.5 Billion. MA has weekly adult-use sales of $24 Million, equating to an annual run rate of $1.15 Billion. Before the acquisition, Green Thumb had a total of 80 facilities, the majority of which are located in PA.
CGC Earnings bomb
After reporting a disastrous 4Q21, CEO David Klein had no other choice but to be bullish on legalization. "I personally believe federal legalization will move faster than a lot of people think." "If you look at where we would focus next with our balance sheet and with an eye toward mergers and acquisitions, it's going to be the U.S." They reported net revenues of $148.4 Million, a 38% increase over Q4 2020. On this $148.4 Million, CGC reported a net loss of $616.7 Million with an adjusted EBITDA loss of $94 Million. The high net loss was primarily driven by unusual expenses of $367 Million attributable to non-cash fair value changes and impairment and restructuring costs. Canopy growth maintains the largest market share of flower, which is the largest subcategory in Canada. According to Hifyre, CGC had an average market share of 15.1% in the past four months; however, it has been decreasing as smaller players continue to gain share. Flower has been a shrinking category in Canada as the 2.0 category gains. CGC, in partnership with Constellation Brands, launched a portfolio of THC beverages in the Canadian recreational market this year. CGC now captures about 30% of the beverage market share in Canada, second to Hexo. In the US, CGC successfully launched a variety of CBD wellness products in partnership with Martha Stewart. According to IRI data, Martha Stewart CBD products are already a top 9 brand among all CBD supplements. CGC also launched Quatreau CBD beverages in the US this quarter. All of CGC's US CBD products can be bought online and shipped within the US. "We made tremendous progress improving our supply chain and right-sizing our manufacturing footprint, bringing supply and demand into balance," added Mike Lee, CFO. "Our cost savings program is on track to deliver $150-$200 million of savings within the next 18 months, and we remain committed to our path to profitability by the end of Fiscal 2022 while continuing to invest in an organization that is focused on insights, innovation and gaining momentum in the U.S. market." CGC management remains confident they will be profitable by the end of fiscal 2022, which would be during May 2022's earnings call. CGC's management sights remain on the US market as profitability in the Canadian market remains sparse. Shares of CGC were down 7% yesterday.
We have our doubts about the path to profitability.
DC Rec Sales Devoid In Biden's Budget
Although recreational cannabis is legal in DC, sales are not....technically. The ban, known as Harris Rider, prevents the sale of any cannabis or cannabis-derived product without a medical card. Some brave entrepreneurs have opened attempted to get around this restriction by "selling" items such as a t-shirt or grinder and then gifting the flower or cannabis product. These shops are not allowed to have a storefront either and risk being shut down. These restrictions prevent larger players from entering the recreational market in DC. Under Biden's new budget, it maintains language that blocks the city from legalizing and taxing the sales of recreational marijuana.
D.C. officials say they’re ready and willing to create a recreational cannabis market in the city. Mayor Muriel Bowser has sought to fully legalize weed for several years, most recently with the Safe Cannabis Sales Act of 2021, which she introduced in February. This act would allow the legal sale of cannabis in DC. DC residents want it badly too. That is why they have a 17% sales tax built-in. The bill will have to go through a congress with no representation from DC as it is not a state. This bill, however, has the best chances to pass during a time when both the house and senate are democratically controlled.
