TRST gets non-compliant letter from Canadian regulator
Yet more bad news for CannTrust – the latest in a monthlong string. On Monday, the company received a report from Health Canada that their Vaughan, Ontario, facility is not fully compliant with regulations.
The negative events included discovery of unlicensed grow operations in other facilities, the CEO resigning, product being pulled from a retailers shelves and an independent auditor withdrawing its report on the company’s financials.
Newly appointed interim CEO Robert Marcovitch will have his work cut out for him to regain the trust of regulators and investors.
The past several weeks have been a strong reminder of the importance of investor due diligence in such a highly regulated industry.
Companies that don’t build a robust regulatory compliance program and develop strong internal controls are at higher risk of destructive shareholder value outcomes.
Charlotte’s Web continues industry trend of hiring from CPG
On its second quarter analyst call, Charlotte’s Web’s management team announced the hiring of several senior executives with decades of consumer packaged goods experience. The new hires are in sales, marketing, finance, data and operations.
Charlotte’s Web is just the latest in a string of companies focused on tapping executives with deep CPG experience – and it will be interesting to see how successfully the strategy will play out in the cannabis industry.
The Boulder, Colorado-based CBD company also announced plans to double the food, drug and mass merchant (FDM) stores in which they sell their products (already more than 8,000). To support growing product demand, it increased acres planted to 862 from 300 in 2018.
“We believe they (FDM) will command a majority of the revenue growth in the CBD category within the next four years was about two-thirds of the total CBD sales likely flowing through these channels when fully developed,” said CEO Deanie Elsner.
“This means that to succeed in the space you must build a CPG organization – one that has the capability to become global in scope and you will need to build a leadership team with the experience and know how to navigate it.”
Harvest Health reduces 2019 EBITDA margin target
Tempe, Arizona-based Harvest Health & Recreation reduced its 2019 EBITDA margin target – the direct result of delayed store openings in Florida and closings on previously announced acquisitions.
On their second quarter earnings call, management noted, “We now believe that we will achieve approximately 10% adjusted EBITDA for 2019 on a pro forma basis, compared to our prior forecast of 20%.”
EBITDA margin guidance of 30-35% for 2020 was unchanged.
The company also maintained its pro-forma revenue projections for 2019 ($350 million-$400 million) and 2020 ($900 million-$1 billion).
When lowering current year guidance, it can be prudent to adjust next year’s guidance as well. It’s interesting that management did not use the occasion to lower the EBITDA margin bar and reset investor expectations.
By lowering current year guidance and maintaining next year’s, the company is raising next year’s implied growth rate.
Acreage delays grow facility openings
Acreage Holdings‘ management announced they will delay opening several cultivation facilities, a decision related to their recently announced plans to merge with Canopy Growth.
With access to Canopy’s industry leading intellectual property for manufacturing and operations, management said they can make “some design changes to our grow facilities currently under construction.”
These changes include such things as upgrading HVAC, lighting, processing and extraction systems, they said, providing a significant cost advantage over U.S. peers.
If the changes pay off, the delay makes sense to get the most out of the Canopy Growth partnership. But time will tell if the strategy is successful.
MedMen credit facility terms changed significantly
On Monday, MedMen announced it completed the repriced terms of their $250 million senior secured credit facility arranged by Green Gotham Partners.
The conversion price per share of each tranche of the facility was reduced by 22% and 11%, respectively.
The changed terms are a result of the monthslong deep stock price selloff in the cannabis sector.
We would not be surprised if we see more of this activity in the cannabis industry if valuations remain at significantly lower levels compared to when the financing were arranged.
