SearchCore – one of the few publicly traded companies involved in the medical marijuana industry – has signed an agreement to sell MMJ heavyweight WeedMaps Media Inc. to an undisclosed buyer. The price tag: $3.75 million and the assumption of more than $8 million in obligations.
It’s unclear if the sale will lead to any immediate changes to WeedMaps, an online listing and review site that hundreds of dispensaries across the country use to connect with patients.
The development is interesting for several reasons:
#1. With the sale, SearchCore says it will effectively exit the medical marijuana business.
The company, which provides Internet marketing services, plans to focus on other areas including the recreational sports, manufactured homes and tattoo industries. However, its website still shows that it owns two other MMJ companies – SafeAccessMD and MMJMenu. Officials did not return emails and calls for comment, so it’s unclear what the company’s plans are for those firms. SearchCore spent the last two years acquiring and consolidating MMJ companies to, as it says, “quickly become the largest publicly traded company in the medicinal cannabis industry.” Its decision to exit the industry, therefore, is somewhat puzzling.
#2. The timing of the sale is notable.
WeedMaps is one of the most well-known companies in the medical marijuana space, as it has become the premier dispensary listing service/directory. On one hand, it’s understandable why SearchCore would want to sell the company now: The MMJ industry has been reeling from a federal crackdown, and hundreds of dispensaries have closed this year. Several industry insiders have privately questioned the health of WeedMaps, given that it lost a sizable chunk of its client base in the turmoil. So perhaps SearchCore wants to move into industries that are more stable.
On the other hand, there’s a huge amount of optimism surrounding the cannabis industry in general now that Colorado and Washington have legalized marijuana. Many observers and investors are banking on rapid growth, and it seems WeedMaps is poised to capitalize on the market for recreational users.
#3. SearchCore is downsizing as a result of the sale, saying in a press release that it has “moved to a smaller headquarters facility with a smaller workforce in order to more closely align our expense structure with our near term revenue opportunity.”
The company’s abrupt about-face is all the more interesting because it seemed to be making progress financially. It reported a 21% spike in revenues during the third quarter and a solid increase in net income (which hit $1 million for the three-month period) as well as improved operating performance. However, its cash position dwindled to $800,000 from $1.5 million at the end of last year , while its debt rose to $8.6 million from $7.1 million. Its stock price has also suffered. It is now trading at about 45 cents a share, down significantly from its 52-week high of $1.59
#4. SearchCore does not reveal the buyer in its press release.
As part of the deal, the company will receive a $3 million secured promissory note, a reduction of over $8 million in liabilities “related to its obligations to previous SearchCore principals” and $750,000 in cash. The buyers will also take over SearchCore’s office lease in Newport Beach, California. The wording indicates that the sale could in fact be to those previous SearchCore principals, although an outside company or investors might have agreed to assume that debt.
Expect to hear more about these types of deals in general as more investors and companies look to enter the marijuana industry.