Cannabis Speaker Call with CB1 Capital’s Todd Harrison on the outlook for 2021
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CLICK HERE for event details (includes video, dial-in, and materials link) |
Todd is the Founding Partner and the Chief Investment Officer of CB1 Capital. Todd has been on Wall Street for the past three decades and became a student of the cannabis space in the past decade, eventually launching CB1 Capital in 2017.
We will discuss with Todd how the industry is setting up for 2021 following a big run-up in cannabis stocks and the election accelerating the green wave.
Some points of discussion include:
- His experience managing cannabis assets
- Many industry executives believe we are at a point of no return for legalization and that the Biden administration will finally change the investing landscape for cannabis companies. How reasonable is that assumption, and what roadblocks are out there?
- Do cannabis stocks need to pause before they can get another move higher?
Two different CEOs have recently said:
"We've spent more money in DC than anyone and know what's going on. We'll get SAFE banking within six months and likely an amended Cole Memo that'll address fin-cen guidance."
-Boris Jordan, Executive Chairman of Curaleaf (CURLF)
"In terms of the uplisting, we believe strongly that within the next 12 to 24 months, the end of prohibition will have a regulatory framework that will allow for the US senior exchanges to feel comfortable with a listing. If we look, the only leaf touching company on a major exchange is IIPR on the NYSE. The NYSE got comfortable with IIPR because of the Cole Memo. When the Cole Memo was rescinded, both NASDAQ and the NYSE stood down on listing additional names involved in the cannabis industry. We are fairly confident that the new Attorney General will come out with similar guidance under the Biden administration pretty quickly after taking office in January of 2021. So we anticipate being able to list on the US exchange in the next calendar year."
-Michael Auerbach, Founder, and Chairman of Subversive Capital Acquisition Corp. (SBVCF)
- Will an amended Cole Memo enable companies to be uplisted, and will more institutions be permitted to invest in cannabis? Or do we need cannabis to be de-scheduled for this to happen?
- How should we think about Cannabis 3.0 when prohibition is lifted, and how should investors consider issues like interstate commerce?
And so much more! As always, if you have any questions, please email , and we will ask Todd!
Aphria and Tilray said to be in advanced merger talks (APHA, TLRY)
We are removing APHA from the Hedgeye Cannabis Best Idea SHORT and TLRY from the Hedgeye Cannabis SHORT Bias List.
According to BNN Bloomberg, Aphria and Tilray are in advanced merger talks, with an announcement coming as early as this week. Sources familiar with the matter say that the merged company is expected to keep the Tilray name with Aphria CEO Irwin Simon at the helm. The combined entity is reportedly to likely move its headquarters to the U.S. in a strategic shift away from the Canadian market to the accelerating U.S. market. BNN Bloomberg’s source also said the companies expect to achieve annualized cost savings of C$100 million, with Aphria taking over the bulk of production capacity with their underutilized cultivation facilities while Tilray would conversely pare down theirs.
Upon a successful merger, the resulting entity would become the largest cannabis company in Canada with a significant global presence, especially in Europe. The Aphria One facility in Leamington, Ontario is certified for European Union-Good Manufacturing Practices (EU-GMP), and the company sells into the Germany market through its wholly-owned subsidiary CC Pharma GmbH, a leading distributor of pharmaceutical products and medical marijuana in Germany. Tilray has an EU-GMP certified cultivation and processing facility in Portugal spanning 2.7 million square feet, complemented by established sales and distribution arrangements to supply medical cannabis through major pharmaceutical distribution channels throughout Germany and other European markets. While the global market does have better margins, the exceptionally high production costs of Canadian LPs and the declining revenues per unit sold will likely keep profitability far off.
The companies’ most recent quarterly results and the SweetWater Brewing acquisition by Aphria suggest annualized revenues exceeding C$920 million or US$724 million. This marks the second time in 2020 that Aphria has been involved in merger talks. Over the summer, Aphria was in serious discussions with Aurora Cannabis, but negotiations fell through over disagreements on board composition and compensation.
Notably, Tilray generates approximately half of its revenues from its Manitoba Harvest hemp food business, a hemp and CBD products platform in the U.S. which it acquired in 2019. Integrating the natural foods subsidiary would align with Irwin guiding Aphria to becoming more of a diversified CPG company, evidenced by the recent acquisition of U.S. craft beer brewer SweetWater.
While we are covering our shorts, we are going to wait for the dust to settle on the merger. However, we don’t believe diversification is what investors want from a cannabis company as it detracts from the core cannabis business. Furthermore, we have strong reservations on Irwin Simon based on his past management of Hain Celestial. Hain Celestial, the company he built, was merely a roll-up story that he eventually destroyed through cost-cutting, lack of brand investment, and an eventual dry up in the well of small fast-growing companies he could tack on top to maintain top-line growth profile.
GrowGeneration makes the fourth acquisition of Q4 2020 in California (GRWG, HYFM)
GrowGen announced its acquisition of Grassroots Hydroponics, a three-store chain of hydroponic garden centers in Southern California. The acquisition kick starts GrowGen's plans for rapid expansion in Southern California. GrowGen will operate 13 stores in the California cultivation market and 39 total retail locations across the country with these additions. Founded in 2008, Grassroots Hydroponics is one of Southern California's largest hydroponic operations, with annual revenues approaching $20 million.
The company has been on an acquisition spree in Q4 – Grassroots Hydroponics marks its fourth purchase in the quarter and its seventh this year. In November, GrowGen announced the signing of an asset purchase agreement to acquire The GrowBiz, the nation’s third-largest chain of hydroponic garden centers, with five stores across California and Oregon. The addition of The GrowBiz is expected to generate annual revenues approaching $50 million. On October 12th, GrowGen announced its acquisition of Hydroponics Depot, Phoenix's largest indoor and outdoor garden center. At the time of the acquisition, the Arizona storefront had year-to-date sales above $5 million and year-over-year growth of 50%. A little over a week later, the company announced its acquisition of Big Green Tomato ("BGT"), a two-store chain in Battle Creek and Taylor, Michigan. BGT has two well-established locations with strong commercial operations and annual revenues approaching $16 million.
Competitor Hydrofarm Holdings Group (HYFM) IPO’d on the Nasdaq last Thursday, the same day as Airbnb, and saw its shares soar as high as 160% on its first day of trading. HYFM opened at $46, more than double the $20 price set in Wednesday’s offering. Net proceeds to Hydrofarm from the offering, after deducting the underwriter discounts and commissions and estimated offering expenses, were approximately $182.5 million. Hydrofarm plans on using its IPO proceeds to pay down debt and for M&A. For the 12 months ended September 30, 2020, the hydroponics and specialty indoor gardening market supplier earned $309 million in revenues. Founded in 1977, Hydrofarm has a network exceeding 2,000 wholesale customer accounts, with most of these wholesalers connected via the company’s proprietary e-commerce platform. More than 80% of its net sales are from specialty hydroponic retailers.
As legalization momentum continues to gain across the country, these ancillary, non-plant touching companies have the opportunity to consolidate a highly fragmented industry poised to grow with the green wave.