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Cannabis M&A ramps up as Schedule III looks real

Plus, Trulieve settles litigation, and more

Friday, May 31, 2024

Good morning.

Within all the news about the Trump guilty verdicts yesterday afternoon, we found a small cannabis angle. Sort of. It turns out the verdicts got to the judge at 4:20, which allowed CNN’s Jake Tapper to say “4:20” live on CNN, twice. Have a look.

Enjoy the weekend.

Let’s get to it.

-JB & JR

This newsletter is 1,107 words or about a 6-minute read.

💡What’s the big deal?

Cansortium and RIV Capital are merging

What happened: Houston, we have a deal! 

Multistate cannabis company Cansortium announced yesterday it will acquire RIV Capital. Cansortium operates the Fluent cannabis brand, and RIV Capital in 2022 acquired New York’s Etain brand.

The combined company will operate under the Cansortium name, and its headquarters will be moved to the company’s current location Tampa, Florida. 

The deal terms: Shareholders of the Toronto-based RIV Capital will each receive 1.245 common shares of Cansortium, and Cansortium shareholders will own 51.25% of the combined business. 

RIV Capital shareholders will own 48.75% of the company. Cansortium CEO Robert Beasley will remain in the top job, and the company says it plans to bring the Fluent brand to New York through RIV. 

The deal will also eliminate $175 million worth of debt on RIV’s balance sheet. 

The combined company will continue to trade over-the-counter in the US under the ticker CNTMF and on the Canadian Securities Exchange. 

Cansortium on Thursday reported a $4 million net loss on $25 million of revenue, up 14% sequentially. 

Back up: RIV Capital, formerly called Canopy Rivers and spun out of Canadian cannabis firm Canopy Growth, is backed by ScottsMiracle-Gro through the company’s cannabis subsidiary, The Hawthorne Collective

It’s a big signal that an established company like Scott’s is backing cannabis M&A. The company will exchange its shares in RIV Capital for non-voting shares in Cansortium when the deal closes. 

What they’re saying: “The combination of these two companies is a transformative step in the strategy we initiated in 2021 when we first invested in RIV Capital,” ScottsMiracle-Gro CEO Jim Hagedorn said in a statement. 

And: “The plan to bring together these two companies with core strengths in key growth states is expected to position us to drive near-term synergies, capitalize on opportunities for long-term value creation while continuing to provide high-quality service to customers who call Florida and New York home,” Cansortium CEO Robert Beasley said. 

Why it matters: First and second-mover advantage. 

The deal gives the company a footprint in large, populous Eastern states that have either recently legalized cannabis or are expected to do so soon. Cansortium and RIV operate in Florida, Pennsylvania, New York, and Texas.

Florida’s set to vote on legalization in November, while Pennsylvania lawmakers are debating legalization with the full support of Gov. Josh Shapiro, while New York’s market — despite fits and starts — is set to be one of the biggest in the US. 

So far, many big consumer companies and long-term asset managers have remained on the sidelines of the cannabis industry, given regulatory hurdles stemming from the federal government’s prohibitionist stance and all the risk that entails.

But that’s now changing with President Joe Biden’s push to reclassify cannabis, and they’re looking for their in.

Expect cannabis M&A to ramp up as executives look to position themselves for institutional investor-backing or exits to bigger consumer companies, if or when rescheduling happens. 

For Cansortium, combining assets in New York and a potentially newly legal Florida is an enticing prospect for investors. That’s especially true for big institutional investors, who will be looking for the best mix of assets and operations as they evaluate how to enter the cannabis market as the proposed Schedule III change eases regulatory hurdles. 


Quick hits

Baltimore police are investigating a string of robberies on shops selling CBD and cannabis in the city, after three stores reported break-ins over the past few months. Maryland legalized cannabis for adults over the age of 21 in July of last year, though the stores in this case don’t appear to be licensed sellers.

📊 Earnings round-up

Canopy Growth reported its full year 2024 and fourth-quarter results on Thursday. The company reported a $92.3 million (CAD) loss on $72.8 million revenue for the fourth-quarter. For the full year, the company reported a $658 million net loss on $297 million of revenue. The company’s Canadian medical cannabis business sales increased 16% quarter-over-quarter, while Canadian cannabis sales as a whole made up just under half of the company’s revenue. Importantly, the company’s cost-of-goods sold, a fancy word for how expensive it is to produce goods, dropped 54% year-over-year. 

Grown Rogue reported its first-quarter results: The company reported a $4.2 million net loss on $6.7 million of revenue.

🚀 Deals, launches, partnerships

Florida cannabis firm Trulieve settled its litigation with Harvest Health & Recreation, paving the way for Trulieve to take over Harvest’s assets in Ohio. Voters in Ohio recently legalized cannabis, so this comes at an opportune time. 

Canadian cannabis company Village Farms International is upping its stake in Rose Life Sciences, a Quebec cannabis company, to 80%. Village Farms first acquired 70% of Rose Life Sciences in 2021.

📈 Chart of the day

Headset CEO Cy Scott analyzed the public comments on the DEA’s proposed Schedule III rule, and found that of 7,000 comments so far — 97% were in support of the measure.

🤓 What we’re reading

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