Weekly Roundup on the Cannabis Sector & Psychedelic Sector week of 6/2/24

Key Takeaways; Cannabis Sector

• Cansortium and RIV Capital announced a merger to form a new four-state cannabis MSO.

• Canopy Growth reported mixed financial results amid revenue decline and strategic restructuring.

• Trulieve settled litigation with Harvest of Ohio, as the company aims to expand its footprint in Ohio.

• Goodness Growth is seeking $860 million from Verano over the failed acquisition deal.

Key Takeaways; Psychedelic Sector

• FSD Pharma emerged victorious in legal battle against former CEO.

• Awakn recently concluded a feasibility study with Catalent Pharma.

Below is a weekly roundup of what happened this week in the cannabis and psychedelic sectors. In this ever-evolving landscape, we explore the major developments and groundbreaking initiatives happening among companies operating in these industries; from advancements in medical research, therapeutic applications to shifts in legal frameworks and current market trends.

Top Marijuana Companies for Week

#1: Cansortium

Cansortium Inc. (OTC: CNTMF), a vertically integrated cannabis operator based in Florida, is set to merge with RIV Capital Inc. (CSE: RIV) (OTC: CNPOF), which operates the Etain Health marijuana brand in New York. This strategic merger aims to create a robust multistate operator (MSO) with a significant presence in four key markets: Florida, New York, Pennsylvania, and Texas.

Under the terms of the merger agreement, Cansortium will acquire all issued and outstanding Class A common shares of RIV Capital in exchange for Cansortium shares. Shareholders of Toronto-based RIV will receive 1.245 Cansortium shares for each RIV share. Once the merger is complete, Cansortium shareholders will own approximately 51.25% of the combined entity, while RIV shareholders and The Hawthorne Collective, a subsidiary of The Scotts Miracle-Gro Company (NYSE: SMG), will hold the remaining 48.75%.

The combined company will operate under the Cansortium name and maintain its headquarters in Tampa, Florida. It will feature eight cultivation and processing facilities and 42 dispensaries across the four states. The merger is projected to yield annual cost savings of $5 million to $10 million through efficiencies in cultivation, processing, and administration.

The new entity will also have a pro forma cash balance of approximately $74 million, which will support accretive growth initiatives. Additionally, the merger will alleviate $175 million of debt for The Hawthorne Collective by exchanging its existing convertible notes in RIV for a new class of nonvoting exchangeable shares of Cansortium.

Cansortium CEO Robert Beasley will continue as CEO of the merged company. Beasley emphasized the focus on growth and profitability, leveraging core principles in cultivation, operating efficiencies, and inventory optimization to deliver strong cash flows for shareholders.

“The merger brings together two companies with core strengths in key growth states, positioning us to drive near-term synergies and capitalize on long-term value creation opportunities,” Beasley said. The combined company’s 2023 pro forma revenue is estimated at $105 million, with a net debt of just $5 million.

The merger, which is expected to close by the fourth quarter of this year, still requires shareholder and court approvals. If the deal falls through under certain specified circumstances, Cansortium will receive a $3 million termination fee, while RIV Capital will get a $5 million fee if the merger does not proceed.

#2: Canopy Growth

Canopy Growth Corporation (NASDAQ: CGC) reported its financial results for the fourth quarter and fiscal year ending March 31, 2024, revealing a mixed performance. The company’s fourth-quarter revenue increased by 7% year-over-year to $72.8 million, surpassing Yahoo Finance analyst estimate of $52.99 million. However, the net loss for the quarter grew by 84% to $94.7 million. For the full fiscal year, total revenue declined to $343 million from $381 million in 2023 and $537 million in 2022. Additionally, net revenue for 2024 was $297.1 million, down from $333.3 million in 2023.

The decline in annual revenue was largely attributed to the divestiture of Canopy’s retail business in Canada, alongside reduced business-to-business sales in Canada. Despite these setbacks, the company saw growth in the Canadian medical market and international cannabis sales, particularly through Storz & Bickel, whose net revenue increased by 43% due to strong sales of the new Venty portable vaporizer.

Moreover, Canopy Growth managed to significantly reduce its net loss for the fiscal year to $657 million, a substantial improvement from the $3.2 billion loss in the previous year. The loss per share also improved to ($8.79) from ($70.69) last year. The company’s cash reserves fell from $667 million in 2023 to $170 million by the end of 2024. However, it addressed financial pressures through measures such as a $35 million private placement, proceeds from asset sales, and debt restructuring.

Canopy’s CEO, David Klein, emphasized the company’s strategic focus on cannabis and its readiness to capitalize on regulatory developments in Germany; Furthermore, Canopy U.S. CFO, Judy Hong, highlighted significant progress in reducing expenses, cash burn, and debt, positioning Canopy Growth for future opportunities.

#3: Trulieve

Trulieve Cannabis Corp. (CSE: TRUL) (OTC: TCNNF) recently resolved its litigation with Harvest of Ohio, LLC, marking a significant expansion in Ohio’s evolving cannabis market. This settlement paves the way for Trulieve to acquire key assets while facilitating the continued growth of Harvest of Ohio’s operations under new ownership.

This settlement resolved a year-long legal dispute centered on an alleged $24 million debt. As part of the agreement: Trulieve will acquire licenses for medical cannabis dispensaries in Columbus and Beavercreek; Ariane Kirkpatrick, the current majority owner of Harvest of Ohio, will assume full ownership of the Athens dispensary, which will be rebranded as Mavuno, making her the first Black woman to fully own a vertically integrated cannabis company in Ohio; Additionally, the production facility in Ironton will be sold to unrelated third parties.

The dispute originated from a partnership between Harvest of Ohio, a Black woman-owned and family-operated business led by Ariane Kirkpatrick, and Harvest Health and Recreation, an Arizona-based multi-state operator, which was later acquired by Trulieve in a $2.1 billion mega-deal. The conflict escalated when Trulieve sued Harvest of Ohio over a $24 million debt. Harvest of Ohio accused Trulieve of attempting to undermine its operations and exploit Ohio’s social equity provisions to dominate the market. Trulieve, in turn, claimed that Harvest of Ohio misused the funds for personal gains while seeking additional capital.

Trulieve’s entry into the Ohio market is timely, as the state prepares for the launch of adult-use cannabis sales. Having legalized recreational cannabis in November 2023, Ohio is poised for significant market growth. The state’s medical marijuana dispensaries, which reported $484 million in sales last year, are expected to be the first venues to offer adult-use sales. Business applications for new licenses are set to be available from June 7, signaling the beginning of a new era for Ohio’s cannabis industry.

#4: Goodness Growth

Goodness Growth Holdings, Inc. (OTC: GDNSF) is seeking $860.9 million in damages from Verano Holdings Corp. (OTC: VRNOF), claiming breach of contract after Verano terminated its acquisition agreement back in 2022. Goodness Growth, which is headquartered in Minneapolis, filed an expedited summary trial request on May 2 with the Supreme Court of British Columbia. Both companies are incorporated in British Columbia and listed on Canadian stock exchanges.

The 2022 acquisition deal, initially valued at $413 million, was terminated by Verano, which led to significant financial strain for Goodness Growth. The termination, according to Goodness Growth, denied them essential capital, exacerbating their debt challenges and operational vulnerabilities. Verano, however, filled a counterclaim stating that Goodness Growth breached the agreement by withholding crucial information and misleading shareholders.

Goodness Growth’s CEO, Josh Rosen, attributed Verano’s actions to “buyer’s remorse” as cannabis stock prices fell. Goodness claim outlined the severe impact of the failed deal, including debt maturities, workforce reductions, asset sales, and high-interest debt capital raises. Despite these challenges, Rosen remains determined to fight, stating the company has navigated through the worst part of the crisis.

Verano, which faces over $1 billion in liabilities, in its quarterly report acknowledged the potential adverse effects of the litigation on its operations. And many financial analysts estimate that even a settlement significantly lower than $860 million would impact Verano severely.

Top Psychedelic Companies for Week

#1: FSD Pharma

FSD Pharma Inc. (NASDAQ: HUGE) emerged victorious in its prolonged legal battle against its former CEO, Dr. Raza Bokhari. Following years of litigation and an extensive eight-day evidentiary hearing, FSD Pharma announced a favorable ruling from the Arbitrator, who issued three awards in favor of the company. These awards included damages and reimbursements for FSD’s incurred fees and costs.

On May 29, 2024, the United States District Court for the Eastern District of Pennsylvania confirmed FSD Pharma’s petition to uphold the arbitration awards against Dr. Raza Bokhari, issued by a Canadian arbitrator in 2022. The company now intends to seek a final judgment against Bokhari.

The roots of the conflict trace back to a proxy battle instigated by Bokhari, stemming from disagreements over company acquisitions between him and FSD’s founders. Despite Bokhari’s claims of wrongful termination and demands for a $30 million payout, the legal outcome has shifted dramatically in FSD’s favor. Contrary to Bokhari’s demand for a multimillion-dollar payout for alleged wrongful dismissal, FSD Pharma will instead receive payments from him, including various sums with accrued interest.

#2: Awakn

Awakn Life Sciences Corp. (CSE: AWKN) (OTC: AWKNF) in collaboration with Catalent Pharma, recently successfully completed a feasibility study confirming the stability of MDMA when applied to Catalent’s advanced Zydis® (ODT) technology. This development is significant as it affirms the compatibility of MDMA with pre-gastric absorption, addressing key pharmacokinetic challenges associated with the drug.

MDMA, which is an Investigational Medicinal Product (IMP), that is known for its role as a serotonin, norepinephrine (NE), and dopamine releaser and reuptake inhibitor, has shown promising efficacy in clinical trials for treating Alcohol Use Disorder (AUD) and Post Traumatic Stress Disorder (PTSD), both conditions are often linked to trauma. The drug also holds potential for treating other trauma-related addictions and mental health conditions.

Awakn entered into an exclusive development agreement with Catalent to create and test a proprietary MDMA formulation utilizing Catalent’s Zydis® ODT technology. This collaboration aims to deliver a market-ready product with optimized delivery mechanisms.

Catalent’s Zydis® ODT technology features a unique, patent-protected freeze-dried oral solid dosage form that disperses almost instantly in the mouth, typically within three seconds, without the need for water.

The successful completion of the feasibility study marked a crucial step forward in the development of MDMA as a viable therapeutic option. Awakn Life Sciences, through its collaboration with Catalent, is poised to advance MDMA treatment by leveraging the innovative Zydis® ODT technology, potentially transforming the landscape of trauma-related mental health and addiction treatments.