Another busy week in cannabis, with more executive changes and new financings as the cannabis industry continues to deal with unfunded cash burn.
Aurora CEO steps down, new plan and big miss
As we analyzed in much more detail here:
- Aurora Cannabis announced CEO Terry Booth is stepping down.
- Two new board members were appointed.
- The company will post an enormous miss.
- A new cost structure was implemented.
- There are new debt covenants.
That’s a lot of news for one day.
The key takeaway is that the debt covenants are for at least CA$51 million of EBITDA for fiscal 2021 (ending June 30), but our math implies that the revenue needed for this is only about CA$387 million, down from consensus expectations of CA$676 million.
Supposedly, the company will achieve these results with their existing cash and CA$200 million funded by the at-the-money equity offering (more dilution) included in the announcement, but this still requires about a 50% increase in sales from current levels.
Acreage debt and equity financing
Acreage announced a big equity and credit line financing. Most notably, CEO Kevin Murphy seems to be personally lending $21 million of the $50 million loan to an Acreage subsidiary that ultimately facilitates the institutional credit line of $100 million.
Acreage will also issue $30 million to $50 million of equity and warrants at $5.80 in a private placement.
The investment by the CEO and institutional investors are a positive vote of confidence, though the details are complex.
We will delve into these complexities in a separate update.
Curaleaf closes on Cura Partners, taps new CFO
Curaleaf hired a new chief financial officer, closed its acquisition of Cura Partners (which owns the Select brand) and integrated many members of the Cura Partners management team.
Curaleaf hired Mike Carlotti as its new CFO and promoted current CFO Neil Davidson to chief operating officer. Carlotti previously served as CFO of Australis Capital Management, holding that position from September 2018 until Jan. 16.
However, we are more impressed with Carlotti’s background in treasury and investor relations in the gaming industry (MGM, Scientific Games and Bally) as well as his background in investment banking.
His skills at capital raising and investor relations in a similarly capital-intensive, branded-consumer business should bode well for Curaleaf’s cost of capital and is another sign of the industry maturing into more CPG-like companies.
Harvest execs reprice options
Three key executives at Harvest Health & Recreation will surrender 2.4 million stock options back to the company – without compensation – so the options can be redistributed to employees throughout the business.
This should align employee incentives and get them to stay amid big changes and a stock price that is down 74% from its high in April 2019, while resulting in less dilution than issuing 3.0 million new options.
For common shareholders, this results in a repricing of options from about $6.79 to the current price of about $2.85, though the value will transfer from the executives to the employees.
For our comp table, the options striking at $6.55 were never included since they were out of the money, but now 3.0 million will hit the share count whenever the stock rises above $2.89.
The main source of dilution for Harvest are three pending deals involving Verano, Falcon, and Interburban.
Since it seems that Harvest is abandoning Falcon and replacing it with Interurban, we include only Interurban and Verano in our pro forma share count.
The acquisition of Verano, which has cleared all the regulatory hurdles, adds 129.6 million shares to our pro forma share count.
Falcon would have added 34 million shares, but that deal seems to be off the table because of a lawsuit. Interurban would add about 51 million shares based on what has been disclosed, but it has not officially been confirmed.
Trulieve CBD share in Florida plummets by 73%
Our Florida data highlights the first interesting share shift in the state, with Trulieve losing 22 percentage points of market share for CBD sales.
Nearly all of this share is offset by gains at:
- Curaleaf (+11 percentage points).
- Parallel, aka Surterra (+7 percentage points).
- Fluent (+3 percentage points).
However, there was no significant change in share in any other metric, such as THC.
A representative from Parallel said the company was not aware of the share shift. Calls to Trulieve and Curaleaf have not been returned.
A quick perusal of Curaleaf and Trulieve’s websites did not show much price difference, but it did show a lot of out-of-stock CBD products on the Curaleaf website.
We will be watching to see if this share shift impacts Trulieve’s and Curaleaf’s quarterly results.
CBD accounts for only about 2% of the cannabis sold in Florida, so the share shift might be too small to move the needle on revenue.
Planet 13 reports January sales up 39% y/y
Planet 13 reported sales in January 2020 that they termed “up ~10%” from November and December 2019.
Using an average of $4.9 million in November and $5.5 million in December, this implies about $5.7 million in sales in January 2020, up 39% from $4.08 million in January 2019.
This week, we started publishing charts of the monthly Nevada state revenue data, which has about a three-month lag. It is not as timely as Headset estimates, which likely will soon include results for January.
Pricing articles at MJBizDaily
Our sister publication, Marijuana Business Daily, is in the middle of a series reporting on wholesale price changes in different markets.
We view pricing as the single most important driver of revenue growth and margin expansion, as we detailed here.
We detailed the oversupply in Canada at the Investor Intelligence Conference in December, and this week Aurora Cannabis had to write down about 20% of its revenue because of pricing pressure and returned product.
Aurora also cited sales pressure from a lack of having a “value” brand – in other words, prices are coming down.
Mike Regan can be reached at [email protected].