Key Takeaways; Cannabis Sector

• Tilray narrowed loss to $46 million in Q2 2024 amid record sales.
• Canopy Growth’s financial struggles prompted a $30 million equity raise through private placement.
• Cannabis MSO 4Front Ventures converted debt to equity and welcomed new CEO.

Key Takeaways; Psychedelic Sector

• PharmaTher is anticipating FDA approval for ketamine treatment in April 2024.
• Awakn’s AWKN-P001 advanced to phase III after promising phase II a/b trial results.

Two weeks into the new year, the cannabis sector is buzzing with anticipation as a recent unredacted exchange among federal authorities revealed a compelling catalyst for a potential rally. The released documents from the Health and Human Services disclosed that federal scientists are recommending the removal of marijuana from the Schedule One drug classification. Their argument contends that cannabis is less risky and has a lower potential for abuse compared to other Schedule One substances like heroin. The letter also highlighted significant changes since the last DEA consideration in 2015, including congressional adjustments to cannabis classification and notable medical advancements. With pressure mounting on the DEA to acknowledge these findings, the sector stands on the brink of a potential resurgence.

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: Tilray

Canadian cannabis producer Tilray Brands, Inc. (NASDAQ: TLRY) reported a reduced loss of $46.2 million in the second quarter of the fiscal year 2024, thanks to a surge in net sales. The company’s Q2 revenue reached $193.8 million, marking a 34.4% year-over-year (YoY) improvement and meeting analyst expectations.

All key operating segments, including cannabis, distribution, wellness, and beverage alcohol, contributed to the revenue growth.

Cannabis sales saw a significant increase, reaching $67.1 million compared to $49.9 million in the same quarter the previous year. The distribution business experienced a 12% YoY revenue jump to $67.2 million. The wellness business saw a modest 2.2% increase to $12.9 million, while net revenue in the beverage alcohol segment more than doubled to $46.5 million; As a result, Tilray is now the fifth-largest craft beer brewer in the U.S., according to the company.

The adjusted EBITDA for Q2 was $10.1 million, slightly lower than the previous year. Tilray said that they are aiming for an adjusted EBITDA target of $68 million to $78 million for the fiscal year ending in May 2024 and expects positive adjusted free cash flow.

However, the company revised its adjusted free cash flow definition, excluding integration costs from the September 2023 acquisition of eight beer and beverage brands. Adjusted free cash flow for the second quarter was negative $18.4 million, while free cash flow without adjustments was negative $36.2 million. As of November 30, Tilray’s cash and cash equivalents amounted to $143.4 million

Tilray’s CEO, Irwin Simon, highlighted the company’s revenue growth, capital structure enhancement, and operational synergies, reaffirming its position as a leading cannabis operation in Canada and Europe; “We grew revenue, enhanced our capital structure, and realized operating synergies while strengthening Tilray Brands’ position as the #1 cannabis operation and brand portfolio in Canada by sales volume and market share, the European market leader in medical cannabis, and the leader in branded hemp products,” Irwin Simon said in the press statement.

#2: Canopy Growth

Canadian cannabis company Canopy Growth Corporation (NASDAQ: CGC), which has been facing financial challenges, decided to raise $30 million through a private placement of shares and warrants. The troubled company sold close to 7 million units at a price of $4.29 each. Each unit was comprised of either one Canopy share and a warrant to buy another share at $4.83, exercisable for five years immediately after the offering closes, or one share with a warrant exercisable starting six months after closing.

According to the company, the funds generated from this equity sale will be utilized to pay down debt as part of Canopy’s overall strategy for debt reduction, working capital, and other general corporate purposes. The private placement involved unspecified institutional investors and was expected to conclude on January 10.

Canopy Growth experienced a decline in share value following this announcement. The company, which is based in Smiths Falls, Ontario, has been navigating financial challenges and restructuring efforts. Notable actions include closing its flagship facility and downsizing in February 2023, divesting its BioSteel subsidiary in November, and selling its This Works skin care unit in December.

Despite these measures, Canopy Growth reported a significant annual loss of 3.3 billion Canadian dollars ($2.5 billion) for its preceding fiscal year. The company, which is eager to enter the U.S. marijuana market, previously engaged in a private placement of shares and warrants in September. Additionally, Canopy recently consolidated its shares to maintain its Nasdaq listing. The capital raised from the current private placement is no doubt crucial for the company’s ongoing efforts to stabilize its financial position and pursue strategic objectives.

#3: 4Front Ventures

In a strategic financial move, 4Front Ventures Corp. (OTC: FFNTF), a multistate cannabis operator headquartered in Phoenix, Arizona, successfully converted $23 million of its senior secured debt into equity. This transformation saw approximately 44% of the debt being changed into subordinate voting shares at a rate of 0.125 Canadian dollars ($0.094) per share.

The company also introduced 15% warrant coverage with an exercise price of CA$0.144, allowing each warrant to be exercisable for one subordinate voting share over a three-year period. The remaining $28.7 million of the loan remained unaltered, carrying a 12% interest rate. The approval process for this amendment is currently underway.

In conjunction with this financial restructuring, 4Front Ventures announced the appointment of Andrew Thut as its new CEO, effective January 8. Andrew Thut, who previously served as the company’s CFO and chief investment officer, succeeds Leo Gontmakher, the former CEO who served since May 30, 2020. While Gontmakher steps down from the CEO role, 4Front said he would continue to contribute to the company as a member of the board of directors.

The decision to convert a significant portion of the debt into equity and the leadership change signify 4Front’s commitment to optimizing its balance sheet, ensuring the financial stability of the company, and aligning its focus on long-term growth opportunities.

Top Psychedelic Companies for Week

#1: PharmaTher

Toronto-based PharmaTher Holdings Ltd. (OTC: PHRRF) announced that they are anticipating full approval from the U.S. Food and Drug Administration (FDA) in April for its ketamine-based treatment, KETARX. Initially developed for Parkinson’s Disease, the drug is poised to address a broader range of conditions, including pain, mental health, and neurological disorders.

The FDA had set an approval goal date of April 29, 2024, which PharmaTher confirmed remains on track. In the event of FDA approval, the company plans to resume a comprehensive portfolio targeting various ailments, aiming to alleviate a national ketamine shortage, seek international approvals, and continue research and development.

PharmaTher is confident in the approval and is reallocating funds for U.S. commercial scale-up and global regulatory approvals. Post-approval, KETARX production will begin in the U.S. and extend to Canada, addressing a ketamine shortage since February 2023. PharmaTher anticipates a transformative 2024, with potential restarts of paused clinical programs in the latter half of the year. The company is optimistic about ketamine’s therapeutic potential, citing positive results in mental health disorders based on recent studies.

#2: Awakn

Awakn Life Sciences Corp. (OTC: AWKNF) successfully completed a Phase II a/b clinical trial for AWKN-P001, a groundbreaking therapeutic aimed at treating Severe Alcohol Use Disorder (SAUD). AWKN-P001 combines the use of racemic ketamine, administered intravenously, with carefully designed psycho-social support to address the challenges of SAUD.

When coupled with therapy, Awakn’s innovative approach has demonstrated a significant reduction in the likelihood of relapse in Alcohol Use Disorder patients. The Phase II a/b trial results revealed remarkable success, with participants in the active arm achieving an 86% abstinence rate at 6 months post-treatment. This marked a stark contrast to the 2% abstinence rate observed pre-trial and the 25% rate seen with the current standard of care for SAUD.

AWKN-P001’s development aims to establish a licensed therapeutic for SAUD and set a regulatory precedent for combining drugs with psycho-social support to treat addiction. The therapy has already progressed to Phase III, having received regulatory and ethical approval in the second half of 2023. Awakn has secured a grant from the UK Department for most of the the Phase III trial’s costs, with the company’s expenses capped at approximately US$1 million.