California Cannabis Is Hard
I know it's hard to make money in California cannabis, but I thought this time would be different. We have made two big mistakes covering Cannabis stocks over the years, IAnthus, and now The Parent Company. GRAMF released earnings last night, and it was a disaster, with the company reporting a 1Q21 annual revenue run rate at 50% of what the company guided to during the de-spacing process. Several factors contributed to this, including a soft 1Q21 and removing M&A from its guidance, which should have never been included in the first place. But that one is one me, for not having picked up on that. There is still a chance the company announces an M&A transaction in 2021, but the chance of that happening seems very slim.
I believe that this company is positioned to be a long-term winner in the cannabis space to build brands and own the CA market, but that will take much longer than we previously expected. Investors will be gun shy to buy the stock for the foreseeable future until they prove they can deliver what they have set out to do. Solidifying the long-term opportunity, Mercer Park, GH Group, and The Parent Company have entered into a letter of intent regarding both a long-term supply agreement, whereby The Parent Company will source a variety of premium flower and trim from GH Group and a retail distribution agreement, which would see The Parent Company’s suite of branded products sold across GH Group retail locations. In a separate agreement, GRAMF also announced a $50 million strategic investment in GH Group through a private placement offering by Mercer Park Brand Acquisition Corp. While the investment in the GH Group will help the de-spac process, the fact that the GRAMF SPAC was a disaster out of the box will cast a long shadow over the GH Group (MRCQF) SPAC.
We are removing GRAMF from the LONG list.
ALABAMA MEDICAL BILL SIGNED INTO LAW
Alabama Gov. Kay Ivey signed a medical marijuana legalization bill into law on Monday. “This is certainly a sensitive and emotional issue and something that is continually being studied. As research evolves, Sen. Melson and I discussed how critical it is to continue finding ways to work on this to ensure we have a productive, safe, and responsible operation in Alabama.” The Alabama House passed the legislation in a 68-34 vote earlier this month. The biggest benefit for the potential for national legalization is the bill was led by Republicans and passed by a comfortable margin. The Senate quickly approved the changes made by the House, and the bill advanced easily to Ivey. Still, it wasn’t clear if Ivey would sign the bill or not — and she waited until the last moment to finally do so. The bill’s list of acceptable medical conditions includes autism spectrum disorder, epilepsy, other seizure conditions, HIV or AIDS-related nausea or weight loss, PTSD, a terminal illness, chemotherapy, and many other things.
Curaleaf in CO
Curaleaf Holdings, Inc. signed definitive documents to acquire the Los Sueños Farms and its related entities, the largest outdoor grow in Colorado. This will significantly expand Curaleaf's Colorado presence, vertically integrating into the state with large-scale outdoor cannabis cultivation. The proposed transaction includes three Pueblo; Colorado outdoor cannabis grows facilities covering 66 acres of cultivation capacity, including land, equipment, licensed operating entities, 1,800 plants indoor grow, and two retail cannabis dispensary locations serving adult-use customers. The total base consideration for the proposed acquisition is approximately $49 million for the Los Sueños operating companies and $18 million for the real estate and farm assets. The total consideration of $67 million to be paid 61% in Curaleaf subordinate voting shares, 29% in cash at closing, and 10% in assumed debt maturing in five years. Additional contingent consideration of up to $8 million in stock will be paid based upon operating cash flow-based targets for 2022.
