Key Takeaways; Cannabis Sector

• Malta moved to become the first European country to legalize Cannabis for adult use.
• Two Cannabis REITs to Lend Acreage Holdings an Initial $100 Million at 9.75% for 4 Years.
• Innovative Industrial Buys $72.7 Million Sale-Leaseback Portfolio.
• HEXO Q1 Revenue Increased 29% sequentially to $50.2 Million as Loss Widened; The Company promised consumer focus after the loss.
• NASDAQ-Listed Waitr Holdings Considers Buying Cannabis Dispensary Software Company Cova for $90 Million.
• Curaleaf Borrows $425 Million for 5 Years at 8%.
• Glass House Taps $100 Million Debt Facility to Fund Buildout of California Cultivation Facility.

Key Takeaways; Psychedelic Sector

• Awakn Life Sciences Appoints Former EVP & CCO of Gilead Sciences, Paul Carter, to its Board of Directors; The Company also Reported Fiscal Third Quarter 2021 Financial Results

In this week’s roundup in the Cannabis and Psychedelic sectors, we begin with news from Europe where on Tuesday, December 14, Malta’s parliament passed a groundbreaking bill that decriminalized consumption of small amounts of recreational Cannabis, regulated home cultivation of marijuana, and permitted nonprofit cannabis clubs in the European Union country. The bill is anticipated to be signed by the president of the island nation, George Vella, in the coming days.

Malta will become the first European Union (EU) country to legalize small amounts of adult-use Cannabis for personal use under the new law. However, the bill does not regulate the commercial sale of recreational Cannabis to consumers, which means that such transactions will continue to take place in the shadows, out of reach of legal businesses – and out of sight of regulators. Instead, nonprofit cannabis clubs will be permitted, allowing for the cultivation and possession of Cannabis for distribution among members – as long as the organizations are limited to 500 persons and adhere to regulatory requirements. Also, under the new bill, cultivation of up to four plants per household will be authorized, as well as the storage of up to 50 grams of dried Cannabis at home for personal use.

Some European countries are taking measures to decriminalize Cannabis to varying degrees, but none have gone so far as to create major, regulated markets for the drug. Luxembourg recently reversed an earlier pledge to establish a fully controlled recreational marijuana market modeled like Canada’s. The country now intends to allow up to four plants to be grown at home for personal use. But the retail sale of Cannabis will remain prohibited. The new German administration has agreed to regulate recreational cannabis distribution and sale. But details on the planned German initiative, on the other hand, are scarce.

After the roundup on the key development in Europe, it is now time to go through some companies that hit the headlines with some important announcements and deals.

Top Marijuana Companies for Week

#1: Acreage Holdings

Real estate lenders AFC Gamma and Viridescent Realty Trust partnered up to lend $100 million to Acreage Holdings, Inc. (OTC: ACRHF), a multistate cannabis operator, with an option to lend an additional $50 million.

According to the December 16 news release, Acreage Holdings, which is based in New York, will use the senior secured credit facility “to fund expansion plans, repay existing debt, and provide additional operating capital.” The initial credit facility, which totals $100 million, includes $60 million from AFC Gamma, which is based in Florida, $10 million from an unnamed affiliate, and $30 million from Viridescent, which is based in Texas.

The credit facility has an annual interest rate of 9.75 percent, which will be paid monthly. And the credit facility will expire in January 2026. The news release reported that the loan is going to be secured by Acreage’s real estate “and other commercial security interests.” It was also reported that a further $50 million credit facility would be available once unspecified milestones are achieved.

“This transaction represents another strategic step in our efforts to drive profitability, strengthen our balance sheet and accelerate our growth in our core markets which will ultimately maximize shareholder value,” said Acreage CFO Steve Goertz in a statement.

Acreage also revealed that the terms of the $33 million loan arrangement announced in September 2020 had been changed.

Shares of Acreage Holdings trade on the Canadian Securities Exchange and on U.S. over-the-counter markets. The Company was formerly known as High Street Capital Partners. Acreage is a principal investment firm specializing in the cannabis industry. The Company was founded in 2014 and is based in New York, New York.

AFC Gamma trades on the NASDAQ stock exchange.

#2: Innovative Industrial

On Tuesday, December 14, 2021, Innovative Industrial Properties, Inc. (NYSE: IIPR), a real estate investment trust, said it had paid $72.7 million for a portfolio of 27 cannabis properties in Colorado, North Dakota, and Pennsylvania, excluding transaction fees. As a result, the San Diego-based REIT now controls 103 properties in 19 states totaling 7.7 million square feet of rentable space.

According to the Tuesday news release, Innovative Industrial reported that all of the assets in the recent transaction are leased for use as state-legal dispensaries, processing, and/or cultivation facilities. Innovative Industrial said that the portfolio comprises 24 locations in Colorado, two in North Dakota, and one in Pennsylvania.

The Company further reported that the portfolios are distributed under the following marijuana operators: 16 are leased to a subsidiary of New York-based multistate operator Columbia Care, three to subsidiaries of Massachusetts-based Curaleaf Holdings, four to subsidiaries of Denver-headquartered Schwazze, three to subsidiaries of Colorado-headquartered LivWell Holdings, and one to Colorado-based Kaya Cannabis.

IIPR CEO Paul Smithers said that the transactions represent an expansion of the Company’s long-term real estate partnerships with Columbia Care, Curaleaf, and LivWell and new relationships with Schwazze and Kaya.

Innovative Industrial Properties, Inc. is a self-advised Maryland corporation focused on acquiring, owning, and managing specialized properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. The Company trades on the New York Stock Exchange under the ticker symbol IIPR.

#3: HEXO

After losing 117 million Canadian dollars ($91 million) in the first quarter of fiscal 2022, the struggling Quebec-based cannabis producer HEXO Corp. (NASDAQ: HEXO) is switching up its board and also promised a renewed focus on its customers. Since 2016, the Company has now lost a total of CA$885.8 million.

HEXO claimed in the news release that its acquisitions of rival cannabis producers Redecan and 48North added CA$14.7 million in sales in the quarter ending October 31, 2021. The purchases of Redecan, 48North, and Zenabis, which all closed this year, came with transaction expenses of CA$24.4 million, according to the company. In addition, impairment charges for duplicate assets and investments were CA$50.7 million, including CA$4 million in executive reorganization costs.

Despite the headwinds, CEO Scott Cooper told analysts he expects Hexo to reach profitability in the near future. “The days of unprofitable cannabis companies are numbered,” Cooper said on a call with analysts. “We believe we will get to EBITDA-positive in this current quarter.”

HEXO’s August-October quarter Adjusted EBITDA, which is a measure of profitability, was minus-CA$11.6 million. Hexo reiterated its expectation of being cash-flow positive within the next four quarters. “We will put the customer and consumer at the center of everything we do,” Cooper said.

Hexo’s sales by category in the quarter, compared to the previous quarter, were: adult-use Cannabis: CA$35.9 million (+47%), Beverages: CA$3.2 million (-40%), Canada medical: CA$668,000 (+210%), Wholesale: CA$4.1 million (+116%), and International: CA$6 million (-11%).

HEXO also announced some significant changes to its C-suite approximately two months after longtime CEO Sébastien St. Louis stepped down in October. The Company is again changing chief financial officers, which will be the fifth time a fresh executive will fill the CFO role in three years.

The current CFO, Trent MacDonald, is stepping down, effective March 11, 2022. MacDonald will continue in his role while the Company completes its search for a new CFO, per Hexo’s announcement. Also shuffled out was board Chair Michael Munzar. Hexo appointed John Bell as Munzar’s replacement, effective immediately. Bell served on Canopy Growth’s board from 2014 to 2020. Hexo also added Jackie Fletcher, vice president of science and technology, to the executive team.

The executive shake-up is part of Hexo’s “transformative plan,” which was announced concurrently with the first-quarter loss. According to the release, the plan involves solidifying its position as the No. 1 cannabis producer in Canada by market share, “with the goal of becoming the first amongst its peers to be cash flow positive from operations.”

Hexo expects to generate CA$37.5 million in incremental cash flow this fiscal year and CA$135 million in 2023 via cost reductions and revenue growth.

HEXO Corp., through its subsidiaries, produces, markets, and sells Cannabis in Canada. The Company offers its adult-use and medical products under the HEXO brand name. It provides cannabis beverages under the Little Victory, House of Terpenes, Mollo, Veryvell, and XMG brands; and cannabis products under UP Cannabis, Original Stash, and Up brand names. The Company’s shares trade as HEXO on the Nasdaq and Toronto Stock Exchange.

#4: Waitr Holdings

Waitr Holdings Inc. (NASDAQ: WTRH), an online food ordering and delivery service has expressed interest in buying cannabis point-of-sale vendor Cova Software for $90 million in cash and stock.

Waitr, which is based in Louisiana and traded on the NASDAQ under the symbol WTRH, announced on Friday, December 17, 2021, that it had signed a nonbinding letter of intent (LOI) to purchase Retail Innovation Labs, often known as Cova.

Cova has headquarters in Denver, in Colorado and Vancouver, and British Columbia, in Canada, and the Company offers services to companies throughout North America.

In a news release, the Company said there’s “no assurance that entry into the LOI will result in a definitive agreement or, if a definitive agreement is reached, the acquisition will close on the terms.” The Company also outlined that “Legal, regulatory, business and financial diligence will need to be satisfactorily completed by both the company and Cova, as well as other customary conditions and approvals.”

In the news release, Cova CEO Gary Cohen indicated his Company is open to a deal. “Combining our industry-leading retail cannabis technology with Waitr’s on-demand delivery logistics network and expertise in payments are a perfect match,” Cohen said. “This should further enable the dispensary retailers utilizing Cova software to grow and thrive.”

The planned acquisition comes at a time when the POS market is becoming increasingly competitive. More vendors have introduced point-of-sale systems in 2021 than in previous years, laying the stage for downward price pressures in the sector and consolidation among enterprises that sell the software to shops.

Additionally, Waitr announced in the news release that its plan to rebrand the Company as ASAP is moving ahead. The Company acquired the ASAP.com domain name and reserved the NASDAQ trading symbol ASAP.

Waitr Holdings Inc., together with its subsidiaries, operates an online ordering technology platform in the United States. Its Waitr and Bite Squad mobile applications (the platforms) provide delivery, carryout, and dine-in options, connecting restaurants, drivers, and diners.

#5: Curaleaf

On Monday, December 13, Curaleaf Holdings, Inc. (OTC: CURLF), a marijuana multistate operator, announced it had obtained commitments for a $425 million privately arranged debt raise. This is the largest debt raise for a U.S. cannabis company to date. In addition, the Company also secured one of the industry’s lowest interest rates.

According to the news release released Monday by the Massachusetts-based Corporation, the five-year senior secured notes carry an annual interest rate of 8%. The agreement also allows for up to $200 million in additional senior bank funding.

Due to stronger balance sheets and increasing marijuana markets, the deal is the largest illustration yet of a transition from equity to debt financing, with significant MSOs enjoying some of the lowest interest rates in U.S. cannabis sector history. St. Louis-based investment firm Stifel GMP wrote that Curaleaf’s debt cost “is equivalent to the lowest the industry has seen to date.”

Trulieve Cannabis, based in Florida, raised $350 million in October through a debt raise with an annual interest rate of 8%. Large MSOs, on the other hand, paid annual interest rates on loans ranging from 11 percent to as high as 20 percent in 2019, according to Stifel.

Curaleaf and Trulieve – the latter acquired Arizona-based Harvest Health & Recreation earlier this year – are the two biggest cannabis companies in the U.S. based on revenue. Eleven cannabis debt financings exceeding $100 million each have closed since December 2020, New York-based Viridian Capital Advisors noted in a research report this week. “Larger transactions are becoming more popular because they cater to the institutional investors entering the market looking for more liquidity,” Viridian wrote. But Viridian noted a wide debt cost spread between large MSOs and smaller plant-touching operators.

Curaleaf Holdings, Inc. operates as an integrated medical and wellness cannabis operator in the United States. It operates in two segments, Cannabis Operations, and Non-Cannabis Operations. The Cannabis Operations segment engages in the production and sale of Cannabis through retail and wholesale channels. The Company trades as CURA on the Canadian Securities Exchange and as CURLF on U.S. over-the-counter markets.

#6: Glass House Brands

Glass House Brands Inc. (OTC: GLASF), a vertically integrated California cannabis company, is borrowing up to $100 million to upgrade its recently acquired California greenhouse and other projects.

According to a news release issued Monday, December 13, Glass House will borrow $50 million under the senior secured term loan from an unnamed “US-based private credit investment fund.” Under the terms of the deal, additional loans of $25 million will be available under certain conditions.

The loans, repayable beginning in December 2023, will carry a variable interest rate of 10%-12% annually. Also, Glass House will offer the lender 2 million additional warrants, each of which can be used to purchase a Glass House share until June 2026.

The capital “will be used to fund the phased retrofit of (Glass House’s) approximately 5.5 million square feet cultivation facility currently under renovation in Camarillo, California” as well as for general corporate purposes, the Company said. Glass House acquired the property for $93 million in September.

To support Glass House’s biomass business, the Long Beach-based company stated that its initial facility upgrade would comprise “changing two greenhouses, as well as establishing a packhouse and a distribution center.

“We have a planned total footprint of 6 million square feet and projected total biomass production of approximately 1.7 million pounds, which we believe would make Glass House Brands the largest and most efficient cannabis supplier in the U.S., by a wide margin,” Glass House CEO Kyle Kazan said in a statement.

Glass House Brands was created after special purpose acquisition company Mercer Park Brand Acquisition Corp. acquired Glass House Group in April. The Company’s shares trade as GLAS on the NEO Exchange in Canada and as GLASF on the U.S. over-the-counter markets.

Top Psychedelic Companies for Week

#1: Awakn

Awakn Life Sciences Corp. (NEO: AWKN) (OTC: AWKNF), a biotechnology company developing and delivering psychedelic therapeutics (medicines and therapies) to treat addiction. On Tuesday, December 14, the Company announced the appointment of Paul Carter, former Chief Commercial Officer of Gilead Sciences Inc., as an independent member of its Board of Directors. This move subsequently increased the independent majority on the board. Awakn announced that Mr. Carter would be replacing Dr. Benjamin Sessa, who had resigned from the Board of Directors. Despite this resignation, the Company reported that Dr. Sessa would continue in his day-to-day Co-Founder and Chief Medical Officer role.

Just a day after announcing the appointment of Paul Carter, Awakn reported its financial results and business highlights for the three and nine months ended October 31, 2021. The key financial highlights included announcements that: As of October 31, 2021, the Company had approximately $5.7 million in cash and no debt. As of December 14, 2021, there were 24,887,307 million common shares outstanding. The Company also announced that it had achieved its first revenue of $31,737 via Awakn Oslo AS, compared to $Nil in the prior year.

This great financial report indicates Awakn’s significant progress in developing and delivering effective psychedelic-based therapeutics to treat addiction better.