Vape crisis deepens, Harvest Health senior management changes, Akerna revenue guidance & more

Vape crisis deepens

Fallout from the vape crisis continues as state and federal regulators take more action, some retailers pull product from shelves, and tobacco giant Philip Morris walks away from a merger with Altria.

On Tuesday, the California Department of Health agency recommended that residents stop vaping all substances immediately, saying it’s still unsure what’s caused the recent epidemic that has sickened at least 805 and claimed 13 lives in the United States.

Not to be outdone, the governor of Massachusetts issued a directive to ban the sale of cannabis and tobacco vaping products in the state effective immediately and lasting until Jan. 25, 2020.

Medicine Man, a large dispensary operator in Colorado, issued a statement saying it halted sales of all vape products that contain the chemical additives propylene glycol or vitamin E acetate and discarded its entire inventory of those products.

Those ingredients have been highlighted as potential causes of the lung damage linked to vape products.

On Wednesday, Philip Morris International called off its proposed $200 billion merger with Altria Group. Company CEO  Andre Calantzopoulos denied the deal was squelched because of FDA scrutiny of vape device maker Juul, in which Altria has a 35% ownership stake.

Juul also announced that CEO Kevin Burns will be replaced with K.C. Crosthwaite, who was the chief growth officer of Altria.

Stay tuned for our upcoming report on the key companies with significant revenue or growth exposure to vape products and the impact of the ongoing vape crisis.

Harvest Health management changes and acquisition update

Harvest Health & Recreation announced two high level executive changes on Sept. 20.

Effective immediately, President Steve Gutterman is no longer with the company. A Harvest spokesperson did not comment on reasons for Gutterman’s departure less than one year into his tenure as president overseeing day-to-day operations of the company.

With two significant acquisitions (Verano and CannaPharmacy) targeted to close in the coming months, the company will soon have a large stable of experienced senior management to choose from.

Those deals were delayed by antitrust reviews, but the company announced Tuesday it continues to make progress on those requests. Harvest also noted it certified “substantial compliance” with the U.S. Department of Justice’s request for additional information and documentary materials regarding Harvest’s proposed acquisition of Falcon.

Board of Director member Frank Bedu-Addo also departed the company.

Akerna CEO affirms revenue growth guidance

On Thursday, we hosted an executive webcast with the Akerna Corp. CEO Jessica Billingsley.

Key takeaways from the conversation were:

  • Billingsley confirmed KERN’s revenue guidance of $17 million for fiscal 2020, which ends in June. That guidance was previously provided in the reverse merger but not mentioned in the company’s fiscal 2019 earnings press release, conference call nor 10K. This is a dramatic acceleration to 56% growth for fiscal 2020 after only 4% total revenue growth and 10% revenue growth for the software revenue from MJPlatform in fiscal 2019.
  • Billingsley noted this $17 million revenue target is organic revenue growth; therefore, any acquisition announcements should increase the $17 million target.
  • Utah will be a key driver of revenue growth in fiscal 2020.

It will take solid execution to reaccelerate to the 56% growth rate, and we will look for evidence of that in their coming results.

In KERN’s next earnings release for the quarter-end September, we will be looking for accelerating software revenue growth, billings growth and any impact (such as higher costs and/or reduced revenue) from the most recent outages that spanned three days in July and an hour and a half in September.

Greenlane acquires multiple European companies at 0.7X sales multiple

On Tuesday, Greenlane Holdings agreed to acquire Conscious BV, located in Amsterdam. Conscious distributes vaporizers and cannabis-related products.

Greenland also also entered into an agreement with U.K.-based Access Fulfillment, a logistics services company.

Financial details were provided on a combined basis for the two acquisitions, and Greenlane estimates they will be immediately accretive to annualized net earnings.

Euro $US
Cash ($ million) 3.0 3.3
Stock 1.5 1.6
Earnout 3.0 3.3
TOTAL 7.5 8.2
2018 Concious BV Sales 10.8 11.9
P/Sales Multiple 0.69X 0.69X

The earnout portion of the deal is contingent upon Concious BV meeting certain revenue and gross margin targets.

Craig Behnke can be reached at