Bright Green Corp. made history last month as the first plant-touching marijuana business to trade on a major U.S. stock exchange, and its market value soared as a result – to $9 billion at one point.
But the Florida-based company’s shares have since plunged on the Nasdaq, from nearly $60 to the low single digits.
What happened – beyond the stock market’s current swoon?
Investors were clearly swept up by the idea of a federally legal marijuana business that appears on the verge of winning approval from the U.S. Drug Enforcement Administration to grow and process cannabis for medical research.
Also, Bright Green hopes to sell cannabis products on the commercial markets, provided the federal government legalizes marijuana.
However, what many investors appear to have missed were warnings in Bright Green’s regulatory and financial filings.
Those warnings underscore that the fledgling company still has significant hurdles to clear, including:
- Final DEA approval to cultivate cannabis for scientific researchers.
- The challenge of raising hundreds of millions of dollars of capital to construct a state-of-the-art medical cannabis research, cultivation and production facility in a small New Mexico town.
- The viability of a business hinging on medical cannabis research. Bright Green has yet to make a sale. Also, it spent less than $1 million in the first three months of 2022 on developing its planned $300 million facility in Grants, about 80 miles west of Albuquerque.
“We can provide no assurance that we will generate sufficient revenues from our intended business operations to sustain a viable business operation,” Bright Green warned in its filings.
“In order to generate revenues, we must first receive receipt of final registration from the DEA.”
The federal agency has previously declined to discuss Bright Green’s bid to win approval, noting it is “unable to comment on the status of an entity’s application.”
Bright Green also said its planned operations are contingent on “raising significant additional funding for the construction of certain facilities in Grants, New Mexico.”
Bright Green debuted May 17 on the Nasdaq national market under the ticker symbol BGXX.
At one point, investors bid the company’s stock up from an initial “reference price” of $8 a share to $58 – or a market value of more than $9 billion, based on roughly 158 million outstanding shares.
By comparison, the country’s largest marijuana multistate operators – Massachusetts-based Curaleaf Holdings and Florida-based Trulieve Cannabis – had market values of $3.8 billion and $2.5 billion, respectively, as of Tuesday.
Each MSO expects to generate at least $1.3 billion in revenue this year.
In the case of Bright Green, the company’s high-flying performance has proved to be temporary, at least for now.
After the initial surge, the stock ultimately plunged to less than $3 a share. It closed at $2.67 on Tuesday.
But that’s still equivalent to a market value of $425 million for a company that says it has conditional approval – in the form of a “memorandum of understanding” – from the DEA to grow, store, package and distribute federally legal cannabis across state lines for medical research.
"Maybe there is a business there, but it’s not a consumer-driven cannabis business," said Mike Regan, founder of Denver-based cannabis investment research company MJResearchCo.
Regan noted that it’s a very different business model than an MSO that is generating hundreds of millions of dollars in sales annually to consumers.
And he questioned the current $400 million market value.
"That’s a significant valuation for a pre-revenue investment that needs to raise a lot more capital to serve an unproven market," Regan said.
Bright Green did not respond to MJBizDaily requests for an interview.
Viable business model?
Sue Sisley, head of the Scottsdale Research Institute - which is among the six current DEA cannabis cultivation registrants - asserted that business models based on a DEA registration face steep barriers to success.
"The entities who are trying to build a business model around these few research registrations may never be successful. The demand for research cannabis is minimal, and you will never be able to retail this cannabis out the door like a state-licensed dispensary," Sisley told MJBizDaily via email.
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"This is not a lucrative business model and never will be. It takes eight to 10 years to develop drugs that eventually get FDA approval (assuming all the trials have positive outcomes which is very difficult given high placebo response rates in studies on pain, anxiety, PTSD etc.) - and is massively more complicated when it comes to agricultural products that have complex chemical composition with tons of different bioactive molecules."
Direct listing versus IPO
Bright Green employed what is called a direct listing to become publicly traded.
With a direct listing, a company doesn’t issue new shares or raise fresh capital, as in an initial public offering. Instead, it sells its existing, private shares.
The process is less expensive. The company doesn’t need to hire an investment bank to promote or underwrite the deal.
Becoming publicly traded this way also involves fewer regulatory hurdles.
But investors must rely on their own due diligence to determine the value of the company, and, largely because of that, the stock price can be subject to more volatility than a traditional IPO.
Direct listings remain relatively rare and generally rely on a company being well known to attract investors.
For example, Swedish music streaming service Spotify went public with a direct listing in April 2018.
Regan said Bright Green’s initial reference price of $8 a share, which translated to a market value of about $1.25 billion, and the subsequent rise to $58 a share, or $9 billion in market value, were "very speculative."
The prices were likely based, he said, on speculators attracted by the idea of “the one federally legal cannabis company in the United States” - even though the only similarity to MSOs is the cannabis plant itself.
"It’s like comparing the markets for popcorn and industrial ethanol because they both come from corn," Regan said.
In the case of a direct listing, the existing private shareholders can sell their shares at the time the business goes public, but the company doesn't raise cash.
According to regulatory filings with the U.S. Securities and Exchange Commission a few days before Bright Green went public, the largest shareholder was co-founder Lynn Stockwell with 69.6 million shares, followed by Chair Terry Rafih with 20 million shares and Bright Green CEO Edward Robinson with 5 million shares.
Stockwell is the wife of the company’s former CEO, John Stockwell, who first announced plans for a medical cannabis research facility in New Mexico in 2017.
$300 million plan
Bright Green announced plans in October 2021 to break ground on a $300 million medical cannabis research complex in Grants.
According to regulatory filings, Bright Green expected to incur $13.5 million of expenses in 2022 to renovate an existing greenhouse, which it expected to be completed this month. It is unclear whether that's on schedule.
The company said it planned to spend a total of $76.5 million this year for all its renovation and construction projects.
But in the first three months of this year, Bright Green incurred only $726,346 in operating expenses, compared with $509,541 in the same period of 2021, according to the company's first-quarter financial report.
In regulatory filings, Bright Green said the existing greenhouse renovation project will include a 2-acre “University Greenhouse” that will house its cannabis research, development, cultivation and manufacturing operations.
The idea also is to pursue potential partnerships with “leading U.S. universities,” according to the filings.
Bright Green said the “memorandum of understanding” with the DEA also anticipates that the company will grow cannabis for its own research and product-development efforts, which might include the bulk production of marijuana extracts and highly purified cannabinoids and derivatives.
The facility will have the capacity to house 50,000 plants at one time of various maturities.
In addition, Bright Green estimates it will harvest about 300,000 mature plants a year, with multiple harvests per year.
Bright Green said it will equip the greenhouses with such automated growing technologies as the Visser transplanter robot.
Matt Karnes, founder of New York-based cannabis financial consultancy GreenWave Advisors, expressed concern about the potential fallout from Bright Green's roller-coaster ride.
"Given the speculative nature of this business," he said, "it seems that the approval to direct list on the Nasdaq was premature."
Karnes said that the Bright Green situation underscores the need for a more rigorous vetting process on the part of regulators with respect to approving businesses for listing on a major exchange that have or claim to have a license to cultivate cannabis under federal jurisdiction.
Jeff Smith can be reached at email@example.com.