Executive communication errors, Green Growth drops bid for Moxie, Trulieve targeted by short sellers and more

EVIO addresses stock price decrease 

We believe the CEO of Evio Labs (OTC: EVIO) made an unforced error of investor communication when he said he believes the company is undervalued.

Our advice to senior management: Focus on running your business to meet or exceed stated financial or operating goals, and the stock price or valuation will take care of itself.

Based on observations during my more than 20 years of investment experience, there is so little to be gained by commenting about stock prices, and it exposes management to risks that might be completely out of their control.

William Waldrop cited convertible notes putting pressure on the stock as the debt instruments convert into common shares.

He is correct in one aspect: More shares outstanding will lead to a lower stock price because any future earnings are now divided among a larger share count.

With shares outstanding rising, all else equal, we would expect to see the stock react negatively.

Elixinol chief innovation officer resigns

Elixinol Global Limited (ASX: EXL) Chief Innovation Officer and co-founder Paul Benhaim resigned this week for “personal reasons,” effective immediately. Benhaim will continue as a director of the company in a nonexecutive capacity.

High-level executives who resign immediately are a yellow flag for investors. Situations like this typically warrant further investigation to see if it portends something negative about the company’s prospects.

The cautionary signal of this news is somewhat mitigated by the fact Benhaim will remain connected to the company.

Benhaim owns 54.6 million shares of Elixinol (about 39% of total shares outstanding) that he is free to sell after Jan. 8, 2020.

Such a large shareholder leaving the company creates a negative overhang for the stock.

Perhaps to counter that, Benhaim said he “will not sell more than 10% (5.4 million) of my holding for six months following release from escrow, and no more than 10% of my holding in the following six months after that.”

Investors will appreciate the information about the sales timing of 20% of his holdings, but Benhaim owns so many shares, it will likely remain on overhang for the stock.

Green Growth drops bid for Moxie 

In yet another sign of tight capital markets impacting cannabis company growth strategies, Green Growth Brands (CSE: GGB) dropped its bid to acquire Moxie, a California-based cannabis company with distribution in five states.

GGB in July agreed to pay $310 million in stock for the multistate operator.

Green Growth CEO Peter Horvath cited the changing cannabis industry’s macroenvironment for the deal termination.

There is no breakup fee in connection with the deal termination, but GGB agreed to repay a $5 million advance from Moxie by Jan. 31, 2020, and reimburse Moxie $4 million in deal fees by July 1, 2020.

GrowGeneration buys GrowWorld 

Hydroponic supplies provider GrowGeneration (Nasdaq: GRWG) agreed to buy GrowWorld, located in Portland, Oregon. 

“The GrowWorld acquisition is our eighth in 2019, adding an accretive $5.0 million in revenue to our company,” GrowGeneration CEO Darren Lampert said.

“GrowWorld is one of the largest hydroponic stores in Oregon and strengthens our position in the Pacific Northwest region.”

Financial terms of the purchase were not disclosed.

GrowWorld started in 2011 and operates a 15,000-square-foot retail and warehouse garden center, the largest in Oregon by square footage and sales volume.

We are impressed that GrowGeneration has strung together eight acquisition in 2019, posted positive earnings the past several quarters and is one of a small handful of cannabis-related stocks with positive gains in 2019.

Colorado-based GrowGeneration operates 26 retail stores in nine U.S. states.

Trulieve responds to short report, announces share lockup extension

Trulieve (CSE: TRUL) was the target of a very negative research report produced by Grizzlyreports.com.

The report alleged license approval corruption, insider self-dealing and several other improper practices.

There are typically two types of negative or “short” reports:

  • Those that contain substantive financial and operating analyses.
  • Those that contain headline-grabbing accusations that distort or purposefully misrepresent reality.

Time will tell which category Grizzlyreports.com falls into.

The company issued a response the same day, saying that the report contains several false, slanderous and misleading statements and that the company is planning to pursue legal action against the research firm.

Later the same day, Trulieve detailed a share lockup extension. The extended lockup restrictions cover 11.2 million shares that were due to be released Jan. 25, 2020. The new release date is May 15, 2020.

An additional 54 million shares remain subject to the lockup agreement restrictions until July 25, 2020.

We can’t confirm the extension was a direct response to the short report, but it does provide a positive signal that management is willing to restrict selling a portion of their shares for an extended period of time.

The lockup extension removes the uncertainty around potential stock-selling pressure in January 2020, but it makes the potential selling pressure greater in July 2020.

Valens GroWorks issues guidance, announces stock buyback and changes its name

Valens GroWorks (CSE: VGW) is closing out the year with a rash of news.

The firm issued fourth-quarter revenue guidance, announced a 5% stock buyback and changed its name to The Valens Company.

Fourth-quarter 2019 revenue was guided to a range of CA$27 million-CA$30 million, resulting in estimated 2019 annual revenue of CA$55 million-CA$58 million.

The company also indicated the “intention to commence a normal course issuer bid for the purchase and cancellation of up to 6,275,204 of its common shares, or 5% of the nondiluted shares outstanding to be funded from current positive cash flow from operations.”

Craig Behnke can be reached at [email protected]