Category Archives: Public Entrepreneur

Frank Holmes on the Evolution of Cryptocurrency and Macroeconomics

Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors and Chairman of Hive Blockchain, joins Grace Pedota to talk about gold mining and investments (2:47), the reasons why millennials place more trust in cryptocurrency than other generations (7:33), and the importance of macroeconomics when it comes to understanding the economy (16:51). Listen until the end for Frank’s opinion on the significance of cryptocurrency worldwide, his advice to millennials who are just starting out in finance, and to hear about his days in the boxing ring!

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Acreage Holdings: The most transformative deal in cannabis history is worth taking the time to understand

A lot has been written about the game-changing deal between Canopy Growth and Acreage Holdings (CSE:ACRG.U) announced on April 17 of this year. Much of it is complex.

Most observers assume that final consummation of the megadeal is predicated on a single, very specific occurrence: federal legalization of cannabis in the United States. But Acreage Chief Financial Officer Glen Leibowitz and Vice President of Communications Howard Schacter say this actually is not quite the case.

One thing for sure, though, is that once the acquisition of Acreage Holdings by industry giant Canopy Growth Corporation is finalized, it has the potential to cause a sea change in the way companies structure business deals in the cannabis space.

Deal structure

Here are the facts as they stand today.  Canopy and Acreage have entered into an agreement that will grant Canopy the right to acquire 100% of Acreage’s shares at such time that cannabis production and sale becomes federally permissible (remember that term) in the United States.

As part of the transaction, Acreage shareholders will receive an aggregate payment of US$300 million, which works out to approximately US$2.51 – $2.63 per share.  The payment is to be made immediately following the receipt of approval from shareholders of both Acreage and Canopy, plus the Supreme Court of British Columbia.

Later, once the “federally permissible” condition is met, Acreage shareholders would receive 0.5818 of a common share in Canopy for each Acreage share held. Canopy has stated that it intends to waive the requirement when a change in rules policing the New York Stock Exchange and Toronto Stock Exchange would enable the acquisition to occur.

US footprint

To understand how the deal came about, a bit of background is necessary. Acreage’s roots started in 2011 when Chairman and Chief Executive Officer Kevin Murphy, a Wall Street veteran, began making moves in cannabis with a minority investment in Maine. By 2017, the company, at the time called High Street Capital, was rebranded as Acreage Holdings, welcoming former US Speaker of the House John Boehner to its board. There were several rounds of private raises, including a US$119 million financing that represented the largest in the industry at the time, culminating in a reverse takeover on the Canadian Securities Exchange last year.

Today, the multistate operator has a footprint in 20 states, making it one of the largest cannabis companies in the US. Its April 2019 acquisition of Form Factory, a manufacturer and distributor of virtually any type of ingestible cannabis product, propelled Acreage into the big leagues of the mainstream consumer packaged goods industry for cannabis products. With the acquisition under its belt, Acreage hopes to become the first port of call for traditional CPG companies like Kraft and Mars if they decide to enter the cannabis space.

In that context, it’s easy to see why Canopy saw Acreage as an ideal partner in its US expansion plans. Canopy’s $5 billion deal with Constellation Brands, which manufactures spirits such as Corona Extra, Modelo Especial, Robert Mondavi, Kim Crawford and SVEDKA Vodka, is a clear sign that global CPG companies are already making moves into cannabis.

The Canopy-Acreage deal is about creating a multinational cannabis brand, gaining consumer recognition and customer loyalty in the same way as a company like Constellation has with its product portfolio. According to Leibowitz, Acreage’s main focus prior to combining the entities is to be the number one player in every state and every market that Acreage operates in. Canopy’s intellectual property and flush treasury would certainly make it easier to reach those goals.

“We’re seeing the birth of a global cannabis brand, which doesn’t exist,” says Leibowitz. “Long term, that consumer loyalty and brand recognition is the value of the deal.”

Trigger events

There are clear synergies between Canopy and Acreage, but investors are still trying to wrap their heads around how a multibillion-dollar deal can hinge on US federal permissibility of cannabis.

The truth is there are multiple pathways, or “trigger events,” that could see the final combination of the companies take place.

“The trigger event would spur Canopy’s obligation to complete the acquisition, but they have said they would do it at their discretion if the exchanges indicate that they will approve the deal,” explains Schacter.

In terms of permissibility, the STATES Act in its current form would not necessarily constitute a trigger event, according to Acreage. The trigger event is about change to federal law, which could include new law that would make it permissible to cultivate and/or distribute cannabis in the US. That’s not necessarily federal legalization but rather a change in law that speaks to permissibility.

That’s not to say that the decision is entirely in Canopy’s hands. If Acreage believes that the trigger event has occurred, it can put the shares to Canopy. “It’s not just an exclusive option for Canopy to pull the trigger,” Leibowitz says.

Valuation

Many investors have also voiced confusion as to the value of the transaction. At the time the deal was signed, it was valued at nearly US$3.4 billion, a 41.7% premium over the 30-day volume weighted average price of Acreage shares.

The figure only illustrated the value of the deal if it were to close on the day the announcement was made, says Schacter. “Admittedly, our news release could have been more explicit in that regard,” he acknowledges. “The true value of the deal won’t be known until it closes.”

A host of factors that affect the share price of either company could change that valuation by the time the deal is finalized, one of the clarifications that Leibowitz wants investors to understand.

“There’s a lot of confusion around the value that the transaction was agreed to,” he says. “I want to be clear that the shares of Canopy and Acreage do not move in tandem. There could be opportunities where Acreage shares will move up in value and don’t necessarily correlate to Canopy’s share price.”

To calculate the implied value, take the Canopy stock price on the closing date and multiply by 0.5818 to reach the ascribed value of the Canopy shares. Add the approximate $2.51 – $2.63 upfront per-share payment to Acreage shareholders, then multiply that by Acreage’s current outstanding fully diluted shares (currently 117 million fully diluted outstanding shares). The resulting amount will be the implied value of the acquisition.

The value has fluctuated since the April announcement in a possible sign that not all investors are keen on the transaction. According to Leibowitz, that is likely a result of the groundbreaking structure of the deal.

“A lot of the conversations that we have on the institutional side are people asking about the models we used,” says Leibowitz. “They can model a lot of these transactions pretty easily. The problem is this doesn’t have any certainty to it, so they can’t calculate the premium and arbitrage. The result is that institutions will say the risk is too great.”

On the retail side, investors have never seen a transaction structured this way before. “It’s a game changing, innovative deal that has taken time to digest in order to effectively understand the value to both companies,” Schacter explains.

Once the deal is agreed to by Acreage and Canopy shareholders, Acreage becomes Canopy’s exclusive pipeline in the US, ascribing value to the shareholders of both companies.

Global cannabis brand

Whether the trigger is federal legalization, or relaxed restrictions on the New York Stock Exchange, or the passage of a new law, it’s clear that Acreage and Canopy are committed to acting together to create a global cannabis brand.

In the meantime, Acreage maintains the flexibility to conduct further acquisitions through the ability to issue 63 million new shares that will be convertible to the more liquid Canopy stock.  That amounts to approximately “$1.4 billion of dry powder for M&A activity,” says Leibowitz.

Leibowitz says the phones are ringing with calls from companies wanting to be a part of the promise of an Acreage-Canopy merger.

“The combination of the number one player globally with the number one player in the US creates a superpower in this industry.”

This story was originally published at www.proactiveinvestors.com on June 14, 2019 and featured in the Public Entrepreneur magazine.

Learn more about Acreage Holdings at https://www.acreageholdings.com/.

Sherry Boodram on Cannabis Regulation and Compliance in an Evolving Market

Dr. Sherry Boodram, CEO and Co-Founder of CannDelta Inc., joined Grace Pedota to talk about her experience as a drug forensic chemist with Health Canada (1:54), why other countries are choosing to use Canada’s cannabis regulations as a template (15:28), and what makes CannDelta different from other cannabis regulatory consulting companies (17:32). Listen until the end for her thoughts on the incoming regulations around edibles and extracts, and her advice to companies who are looking to produce new product types under these regulations.

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Jay Rosenthal on Compelling Storytelling in the Cannabis Industry

Jay Rosenthal, Business of Cannabis Co-Founder and President, joins Barrington Miller to discuss the importance of sharing compelling stories from the cannabis space (1:15), his thoughts on the issues surrounding current cannabis regulations and product offerings, and how these might evolve in the future (7:50), and the persistent Canadian interest in cannabis-infused beverages (21:40). Listen until the end to hear Jay’s thoughts about the ongoing “CBD craze,” and to learn what Business of Cannabis is doing to bring the next wave of cannabis innovators into the spotlight.

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1933 Industries prioritizes Silver State as new era dawns for cannabis

Brayden Sutton is a refreshing change of pace in the cannabis industry.

Sharp. Concise. Thoughtful. And yet, blunt – not in any way that is impolite, but in a way that very simply underscores his bunker of experience in the cannabis industry.

As the founder and Chairman of the Board of 1933 Industries (CSE:TGIF), Sutton is helping steer a small but mighty ship that is looking south – to the Silver State, primarily.

“Nevada is the place to be,” says Sutton. “It’s one of the most attractive cannabis markets in the US, which provides a solid backdrop for growth.”

Nevada is more than a stone’s throw from 1933’s headquarters in Chilliwack, British Columbia, but it is, undoubtedly, a state like no other. The company also has partnerships in California and Colorado, but it is Nevada where 1933 has been at the heart of growth in the cannabis business for years.

Dawn of a new era

As for the name? The “1933” in the company’s moniker is a nod to the year when the prohibition of alcohol ended in the US.

“It was the dawn of a new era,” says Sutton. Today, 1933 Industries aims to capitalize on opportunities that have come as a result of the end of cannabis prohibition in Canada and industry legalization in a collection of US states.

“The US has not even begun yet,” says Sutton. “I compare it to what Canada was like in 2012 so there’s an incredible opportunity there. It has years of accelerated growth ahead.”

“There’s no roadmap right now,” adds Sutton. “The risks are higher in the US than in Canada, but it brings much higher upside potential.”

A diversified mix of assets

1933 Industries certainly seems to have the asset portfolio to make the most of that potential. Licensed medical and adult-use cannabis cultivation and production assets; proprietary hemp-based, CBD-infused products; CBD extraction services and a specialized cannabis advisory firm.

The company has three subsidiaries: Alternative Medicine Association LC (AMA) and Infused MFG – both located in Nevada – and Spire Global Strategy, located in Vancouver.

AMA is a licensed medical and adult-use cannabis cultivation and production facility in Las Vegas that hosts its own line of products, while also manufacturing other companies’ brands. Some of these products include concentrates such as Cake Batter, Crumble and Sugar; a vape pen sold with distillate oil; and several flower strains.

“AMA holds the first cultivation license for cannabis in Las Vegas,” says Sutton. “It has over 100 products in 46 states across 700 retail stores.”

And that’s a number that’s poised to grow, thanks to 1933’s brand new 67,750 square foot cultivation facility in Las Vegas, which represents a 10-fold increase from what it previously held.

Nevada, the place to be

If Nevada is the state to be in, Las Vegas is the city.  With more than 42 million visitors each year, it is poised to become one of the world’s largest adult-use cannabis markets.

The new facility is a key piece of the puzzle, as it will ensure consistent supply of cannabis flower and input material, meaning increased capacity, production efficiencies and economies of scale, all of which the company believes will improve yields and provide higher margins.

The facility is segmented into five different zones, with 15 bloom rooms and four veg rooms. Once at full capacity, it’s anticipated it will produce 700-800 pounds of flower monthly.

But that’s not the only piece of the puzzle for 1933 Industries. Subsidiary Infused MFG is a Las Vegas-based manufacturer of hemp- and cannabidiol-based products with a number of proprietary product lines, which include the well-known Canna Hemp, Canna HempX, Canna Hemp Paws and Canna Fused. The consumer packaged goods division experienced over 8,000% growth during its first year and represents the fastest growing segment of the company’s business. Nationally recognized, the Canna Hemp brand resonates with customers seeking the benefits of CBD and hemp and are available in over 700 retail outlets across the US.

Building a hempire

Adjacent to its cultivation facility, 1933 Industries is progressing with plans to launch one of Nevada’s largest hemp extraction facilities, as it focuses its gaze on the booming cannabinoid, or CBD, industry.

The new processing facility will produce extracts for full spectrum oils, distillates and isolates. The lab will also have the flexibility to isolate cannabinoids that are emerging in popularity. 1933 Industries aims to have it up and fully running by the end of the year.

The company has invested heavily in research and development, particularly where it comes to the design of its customized equipment, in order to provide maximum capacity and efficiency.

“We want to utilize the isolates in the manufacturing of our own consumer branded goods and secure the supply of raw materials,” says Sutton, adding that the move will increase margins and benefit from a recurring revenue stream from sales to other manufacturers.

Another subsidiary is Spire Global Strategy, an advisory firm that provides diligence, security, and intelligence services to clients around the world and is headquartered in Vancouver. It gives the company exposure to Canada and addresses the lack of discussion around infiltration of organized crime, diversion of product, internal theft of product, products making it into stores when they should not be, and other issues.

A string of, let’s face it, cool deals

There is a certain coolness factor when it comes to 1933 Industries – from its Instagram page to some of the partnership deals it’s signed to the look and feel of its products.

1933 subsidiary Infused MFG partnered with legendary skateboarder Tony Hawk in April under a two-year licensing agreement with House of Hawk for the launch of several exclusive, co-branded hemp & CBD products. It’s part of a growing trend, aimed to bring awareness of the rise of CBD in the sports world.

The company also inked a two-year agreement with OG DNA Genetics to cultivate, manufacture, distribute and sell OG’s branded cannabis. In the cannabis world, think of OG DNA Genetics as the crème de la crème of the cannabis genetics world. Rooted in Los Angeles and founded in Amsterdam, over the last decade the company has built and curated a seasoned genetic library, with operating procedures for genetic selection, breeding, and cultivation.

Subsidiary AMA also recently inked a licensing deal with hip-hop artist and actor Kurupt to bring his Gotti’s Gold cannabis brand to the Nevada market, the second partnership of its kind. For those unfamiliar, Kurupt is a hip-hop legend and actor who played an instrumental role in the launch of the early careers of some of the most notable names in the genre: 2Pac, Warren G, Dr. Dre and Snoop Dogg.

Bright future

But at the end of the day, on paper, numbers matter, and Sutton is the first to underscore that.

In an industry that can be quick to assign eyebrow-raising valuations to companies that have no earnings, no revenue and sometimes little more than a logo and an investment deck, 1933 Industries appears to be a lean machine poised for an exciting year and beyond as it moves towards profitability.

The next step?

“Block out the noise, build value and continue what we’re doing,” says Sutton. “We have an incredible head start.”

1933 Industries is using a tried and true model for a simple reason: it works. That model is to establish a foothold in several parts of the value chain and replicate it in other jurisdictions. The firm’s strength lies in its diversity of assets, which are focused on some of the most attractive niches of the cannabis industry.

“Many have the strategy to get into as many states as they can,” says Sutton. “But some states are superior to others. We’re not interested in a ‘let’s own the world’ strategy. We’re interested in a ‘best-on-balance’ strategy. At this point, Nevada is the place to be, so we’re going to go big there.”

This story was originally published at www.proactiveinvestors.com on June 17, 2019 and featured in the Public Entrepreneur magazine.

Learn more about 1933 Industries at https://www.1933industries.com/.

Dafina Lovelace and Kellie Sauls on Investing in What You Consume

Dafina Lovelace and Kellie Sauls, Co-Founders of the investment group Get Rich or Die Trying (G.R.O.D.T.), join Barrington Miller to discuss the origins and structure of their group (2:22), how looking at personal consumer habits can affect investment choices (9:00), and the societal shifts around the cannabis space that influenced their decision to enter that market (16:45). Listen until the end to hear Kellie and Dafina’s thoughts on increasing financial literacy for young women of colour, some strategies for saving, and an impromptu song!

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Paul Duffy on Evolving the Retail Experience Using Augmented Reality

Paul Duffy, President of NexTech AR Solutions Corp. (CSE:NTAR), joins Barrington Miller to discuss the practical applications of “ARitizing” products into the augmented reality space using the NexTech platform (1:01), the differences between augmented reality and virtual reality (4:44), and how augmented reality is fundamentally changing the way people shop (12:51). Listen until the end to learn about Paul’s personal experiences with augmented reality, what’s next for AR in entertainment, and his opinions on how AR may impact social interaction within the next five years.

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Curaleaf Holdings: Vertical integration, national retail reach position this early cannabis entrant as industry leader

Joe Lusardi is a self-styled “reluctant pioneer” in cannabis.

At the helm of Curaleaf Holdings (CSE:CURA), the largest multistate operator in the United States, Chief Executive Officer Lusardi has overseen the company’s expansion into 15 states and driven blockbuster acquisitions, all while remaining at the forefront of advocacy work toward federal legalization.

But when he opened the first vertically integrated cannabis shop in Maine in 2010, the landscape was much less certain. “We were out on the risk curve, I’ll just say that,” he jokes during an interview with Public Entrepreneur in early May.

Things are much different in 2019. Cannabis is a multibillion-dollar industry and savvy early investors are seeing exponential returns. Canada has legalized cannabis at the federal level and, with two milestone bills being debated in the House of Representatives, signs point to the US eventually following suit. What’s more, public sentiment toward the plant and the substances derived from it is drifting positively.

“Every day the public sentiment around cannabis continues to improve,” says Lusardi. “It’s beyond a tipping point.”

In an industry where winners and losers are starting to emerge, Massachusetts-based Curaleaf clearly belongs in the former group. Over the last three years, Lusardi and his team have established not only the largest US cannabis company by market capitalization, but also a national brand. Now with two game-changing acquisitions under its belt, Curaleaf is a driving force in the cannabis space.

For Lusardi, the goal is to be the biggest cannabis brand in the country. Curaleaf-branded products are currently available in 47 states representing over 600 SKUs. Its product line is comprised of oils, flower, lotions, tinctures and edibles. Last year, the company launched Curaleaf Hemp, offering a range of premium, natural hemp-based products.

Execution Matters

Curaleaf has a vertically integrated model, meaning it controls the cultivation, manufacturing, processing, distribution and retailing of its products. That model can be challenging for a company no matter its size, but for Curaleaf it means control of product consistency throughout the value chain.

“Execution really matters,” says Lusardi. “We have to be a good grower, manufacturer, distributor and retailer, which all contribute to brand identity.”

If running a vertically integrated business is challenging, expanding it can be even more so. It should be no surprise that acquisitions are a cornerstone of Curaleaf’s growth strategy. The challenge for one of the biggest cannabis companies in North America is finding those opportunities that make the most strategic sense and creating incremental value for shareholders.

Funding the acquisitions is not a problem. In 2018, when Curaleaf went public on the Canadian Securities Exchange, the company raised US$400 million from investors around the world. Private equity firm Blackrock recently took an US$11 million stake in the company.

Revenues during 2018 were approximately US$88 million. The company has nearly doubled its share price since the beginning of the year, giving it added currency to grow the business.

Acquisition Trail

When Curaleaf set out to look for acquisitions, they knew that they needed to be in California, the largest market for cannabis in the US. The acquisition of Monterey County-based Eureka Investment Partners fit that requirement immediately. Although small in value – the total deal is worth just under US$31 million – the acquisition of Eureka’s 110,000 square foot greenhouse facility allowed for seamless integration with Curaleaf’s manufacturing facility in the state.

Calling the acquisition the “first step in a multistep California strategy,” Lusardi says the deal gives Curaleaf a platform to build more manufacturing and dispensaries on the West Coast.

The company plans to launch three dispensaries as part of its retail expansion strategy to eventually cover the state.

According to Lusardi, Curaleaf has a full acquisition pipeline and will continue to make deals that strengthen its position as a market leader.

The next acquisition came hot on the heels of Eureka and represented a sea change for the company. At the beginning of May, Curaleaf announced it had acquired Cura Partners, makers of the Select oil and CBD brands, in a CDN$1.3 billion deal.

Based in Oregon, Select is one of the most well-known cannabis wholesale brands in the US with its products on the shelves of around 900 retailers. For Curaleaf, the deal gives it a stronger foothold on the West Coast as a complement to the company’s dominance in the eastern part of the country.

Lusardi calls the acquisition a “perfect fit” for the cannabis leader. “We intend to meaningfully accelerate our topline growth trajectory with the addition of the Select Oil product range,” he stated in a press release about the deal. “In addition, we intend to create significant operational synergies from the integration of Select’s wholesale business with our vertically integrated cultivating, processing and retail platform.”

Bay Street analysts love the transaction, with Cormark Securities calling it a good fit with nice synergy potential. “We see particular potential in Curaleaf’s ability to introduce the Select brand on the East Coast, while the integration of Select’s wholesale and distribution platform with Curaleaf’s cultivation and processing capacity should drive material cost reductions in Western markets,” Cormark analysts Jesse Pytlak and Sam Fraser noted in a May 2 report.

Cormark also raised its price target to CDN$18 a share, from $15, calling Curaleaf a “must-own” US cannabis name.

Advocacy Leaders

With Curaleaf an established cannabis leader, Lusardi and his team are doubling down on the advocacy and policy work that is a pillar of the company’s ethos. On the policy front, Curaleaf is front and centre advocating for federal legalization of cannabis in the US. Lusardi notes that the majority of Americans are in favour of legalization, citing statistics showing that over 90% of the population supports medical cannabis use and nearly 66% supports recreational use.

“Elected leaders can’t avoid the will of the people,” says Lusardi. “It’s a question of when, not if, legalization will occur. Every elected official is trying to formulate a thoughtful position on cannabis because they’re hearing from their constituency that they want legal access to cannabis. The ‘when’ is not clear, but I think you’ll see the House of Representatives take significant initiative this year, which will put pressure on the Senate and the White House to move forward the cannabis agenda.”

A key feature of Curaleaf’s corporate strategy is creating opportunities for underrepresented communities to participate in the industry. “Minority groups need to have a seat at the table,” Lusardi says. “We want to make sure that the industry is as diverse as its customer base. It’s something that we think about a lot, and we plan to be a part of that solution.”  Curaleaf also launched an initiative this year called the Veterans Cannabis Project, dedicated to improving US military veterans’ quality of life through access to cannabis.

These initiatives are part of Curaleaf’s long-term strategy to build a trusted, recognizable brand that consumers can interact with legally. At the moment, the company is comfortable remaining US-focused. Lusardi is optimistic on federal legalization but is building the company and creating value for shareholders regardless of the outcome.

“The long-term value in this industry will rest in the brand value and the relationship with your customer,” he says. “We feel we have all the makings of a national brand and we’re going to work hard to nurture that relationship.”

This story was originally published at www.proactiveinvestors.com on June 19, 2019 and featured in the Public Entrepreneur magazine.

Learn more about Curaleaf Holdings at https://www.curaleaf.com/.

Fabrice Taylor on the Value of Promotion and Messaging in the Public Markets

In his podcasting debut, Fabrice Taylor, Founder and Publisher of The President’s Club Investment Letter, joined James Black to discuss the origin of The President’s Club (2:56), the evolution of journalism and media (4:22), and some telltale signs that an investment may (or may not) be worth considering (12:28). Listen until the end to learn why he feels surprises are a good thing, the importance of having a strong network, and his recommendation on where to have lunch in Edmonton!

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Emma Andrews on Bringing a Cannabis Beverage Brand to Life

Emma Andrews, Chief Commercial Officer at BevCanna Enterprises Inc. (CSE:BEV), sat down with Grace Pedota to share her thoughts on the type of beverages we should expect when infused cannabis beverages go legal in Canada this October (2:13), how she applies her background as a nutritionist into the cannabis industry (6:26), her experience with cannabis as an endurance runner (8:14), and her perspective on plant-based food in the fast food industry (10:44). Listen until the end to hear her thoughts on cannabis consumption as an expecting mother, and her outlook for cannabis in health and wellness products over the next 20 to 30 years.

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