Key Takeaways; Cannabis Sector

• Trulieve is challenging 280E cannabis taxation, seeking $143 million federal tax refund.
• TerrAscend raised its full year 2023 guidance, triggering a surge in stock price.
• Red White & Bloom won the race to acquire Aleafia Health after an earlier stumble.

Key Takeaways; Psychedelic Sector

• Atai strengthened investment in IntelGenx technologies.
• Awakn’s Prof. David Nutt is the world’s top psychopharmacologist according to ScholarGPS.

Below is a weekly roundup on the cannabis and psychedelic sectors. In this ever-evolving landscape, we explore the major developments and groundbreaking initiatives happening among companies operating in these industries; from advancements in medical research, therapeutic applications to shifts in legal frameworks and current market trends.

Top Marijuana Companies for Week

#1: Trulieve

Trulieve Cannabis Corp. (OTC: TCNNF), a major player in the U.S. cannabis industry, is embroiled in a significant tax dispute with the federal government. The company is seeking a massive $143 million tax refund for payments made in the years 2019, 2020, and 2021. Trulieve contends that, based on its interpretation of Section 280E of the Internal Revenue Code, it should not have been required to pay these taxes.

Section 280E is a federal tax provision that prohibits state-legal marijuana companies from deducting standard business expenses, resulting in significantly higher tax liabilities. Trulieve filed amended federal tax returns for the mentioned years and is seeking a refund of the $143 million it believes it does not owe.

While the company’s determination is based on specific legal interpretations, it acknowledged that receiving a tax refund is not guaranteed. The company did not provide detailed information about its legal interpretations, but it stated that it will continue to evaluate its tax position and promised to share additional information as appropriate.

It’s worth noting that despite some states easing their 280E tax burdens on regulated marijuana companies, the federal rule remains in effect and is enforced by the IRS. A report by cannabis-sector analysts estimated that the cannabis industry overpaid its taxes by $1.8 billion in 2022 due to 280E taxes.

The burden imposed by Section 280E could potentially be eliminated if the U.S. Drug Enforcement Administration reclassifies marijuana from Schedule 1 to Schedule 3, as the rule currently applies only to businesses involved in Schedule 1 and 2 controlled substances.

#2: TerrAscend

TerrAscend Corp. (OTC: TSNDF) made waves in the cannabis industry by raising its revenue guidance for 2023 during its recent investor day at the Toronto Stock Exchange. The company’s decision to boost its financial expectations for the year resulted in a 4% surge in its stock price, with shares reaching $1.91.

The updated guidance for 2023 includes a projection of at least $317 million in net revenue and $63 million in adjusted EBITDA from continuing operations. This represents an impressive year-over-year growth of 28% in net revenue and 62% in adjusted EBITDA from continuing operations. TerrAscend’s previous guidance had set these figures at a minimum of $305 million and $58 million, respectively.

Jason Wild, the executive chairman of TerrAscend, expressed confidence in the company’s outlook, stating, “We have good visibility and confidence in the remainder of the year as evidenced by the increase in our full-year guidance. We expect to drive industry-leading revenue growth, continued improvement across all P&L metrics, and positive free cash flow in the second half of the year.”

In addition to the revenue adjustments, the company also anticipates that its gross margin will exceed 50%, and it expects to achieve positive free cash flow from continuing operations in the latter half of the year.

#3: Red White & Bloom

In a significant development in the cannabis industry, Red White & Bloom Brands Inc. (OTC: RWBYF), a prominent multistate operator, succeeded in its bid to acquire Aleafia Health, a Canadian cannabis producer facing insolvency. This move followed a previous attempt by Red White & Bloom to acquire Aleafia, which had encountered obstacles earlier in the year.

After the failed acquisition attempt, RWB has now been selected as the successful bidder for Aleafia and some of its subsidiaries, in line with Canada’s Companies’ Creditors Arrangement Act (CCAA) proceedings. The purchase price for Aleafia, initially presented in a stalking-horse bid, was estimated to be between 25 and 29 million Canadian.

As part of this acquisition deal, the subsidiaries of Aleafia, along with specific intellectual property rights owned, licensed, or leased by Aleafia Health, will be transferred to RWB through a reverse vesting transaction. However, certain assets and liabilities of Aleafia will be excluded from the agreement. Notably, Aleafia will be selling its facility in Grimsby, Ontario, to an unspecified third party.

A court approval hearing for this transaction is scheduled for October 27, with both Aleafia and RWB expecting to finalize the deal in November. RWB is currently active in various U.S. cannabis markets, including Arizona, California, Florida, Illinois, Massachusetts, and Michigan.

Aleafia Health initially initiated a strategic review in response to a loan agreement breach, eventually leading to the failed acquisition by RWB. The cancellation of the earlier deal was influenced by opposition from certain Aleafia debtholders, which consequently led to Aleafia’s entrance into creditor protection proceedings.

Top Psychedelic Companies for Week

#1: Atai

Atai Life Sciences N.V. (NASDAQ: ATAI) took a significant step to bolster its partnership with IntelGenx Technologies Corp. (OTC: IGXT). The medical technology firm, Atai, now owns a substantial 63% stake in IntelGenx after investing $3 million in a private placement in August, with the possibility of increasing this investment in the future.

On October 6, 2023, Atai and IntelGenx signed the Second Amendment and Subscription Agreement Amendments, which became effective on September 30, 2023. According to a joint statement by both companies, this agreement encompassed a second amended and restated loan agreement introducing a Conversion Feature. Additionally, the Subscription Agreement Amendment grants Atai the option to purchase up to an additional 7,401 US Units before August 31, 2026.

IntelGenx specializes in drug delivery and the development and production of pharmaceutical films, offering services ranging from lab-scale to pilot- and commercial-scale production. Atai is keen on utilizing these pharmaceutical films for its psychedelic drug delivery endeavors, thus potentially entering into an exclusive arrangement with IntelGenx for this purpose. Atai’s collaboration with IntelGenx extends to the development of a DMT oral film product.

IntelGenX had previously engaged in a collaboration with Tilray Brands, Inc. (NASDAQ: TLRY) in 2018 to develop a cannabis oral strip. However, in 2021, IntelGenX reported initiating arbitration proceedings against Tilray due to an alleged breach of their 2018 license, development, and supply agreement. As of their latest earnings call, the arbitration hearings with Tilray were ongoing.

#2: Awakn

In a groundbreaking achievement, Prof. David Nutt, a renowned figure in the field of psychopharmacology, was ranked as the world’s leading psychopharmacologist by ScholarGPS. This prestigious acknowledgment is not only a testament to Professor Nutt’s remarkable career but also a reflection of his current role as a vital part of Awakn Life Sciences Corp. (OTC: AWKNF), a company committed to developing innovative treatment options for individuals struggling with addiction.

The recognition of Prof. Nutt as the world’s top psychopharmacologist is not just an accolade; it is a reflection of his profound dedication to improving the lives of those affected by addiction. As the leader of Awakn’s distinguished team, Prof. David Nutt plays a pivotal role in developing groundbreaking treatments for addiction. This milestone serves as a testament to the dedication and commitment of Awakn Life Sciences in their mission to address addiction-related challenges with innovative, science-based solutions.

The partnership between Awakn Life Sciences and Prof. David Nutt stands as a beacon of hope for those who have struggled with addiction, as well as a testament to the power of science and innovation in addressing one of society’s most pressing health crises. This collaboration marks a significant step forward in the ongoing battle against addiction,