WHAT WE’RE READING — 12/12/20

Here’s what caught our eye this week:

SPACs KEEP ROLLING WITH WEEDMAPS DEAL

With an IPO filing that values the company at $1.5B, the parent company of Weedmaps is the latest major cannabis player to wade into the world of Special Purpose Acquisition Companies, or SPACs, the investment structure that’s all the rage in cannabis and the broader economy. 
Reuters, Barron’s

  • WM Holdings expects to receive proceeds of $575M from the deal to go public on the NASDAQ by merging with Silver Spike Acquisition Corp.
  • Weedmaps is best known as the “Yelp of cannabis,” but it also offers a software suite for dispensaries and delivery services, which includes facilitating online orders.
  • Between 2015 and 2020 it saw revenue nearly quadruple from $43M to $160M(estimated) as EBITDA surged from $13M to $35M (estimated). 
  • Owing to the pandemic, the company has seen monthly active users soar from 6M in January to more than 10M now. Of them, 70% consume daily.

Weedmaps courted controversy and resentment from licensed retailers in February 2018 when it rebuffed a cease and desist letter from California regulators ordering it to stop accepting advertising from unlicensed dispensaries.

  • In August 2019, Weedmaps said it would stop accepting their business. However, documents tied to the IPO filing reveal the company is the target of an “unresolved” federal investigation by the Justice Department, which requested Weedmaps records involving nearly 100 entities. No criminal charges have been filed.    
  •  In documents the company says they believe the “primary focus of the investigation is advertisers in California “who may not have been properly licensed.” CEO Chris Beals has declined to comment further.
  • Observers said “the disclosure was likely to trigger additional questions from investors,” MJBiz reports.

In an in-depth write-up, Dai Truong of (recent SPAC target) Left Coast Ventures suggests proceeds from the IPO could help the company compete on several fronts as cannatech has become a venture capital magnet.

  • Weedmaps faces competitors in “retail management (Flowhub, Meadow), consumer marketplace (Dutchie, Jane, Leafly), B2B platform (Leaflink), and Routing (Onfleet).”
  • Truong called the deal “packaged for a pop.” In recent days, tech firms like AirBnB and DoorDash have seen their stocks soar on their first day of trading.
  • In an interview, Weedmaps CEO Chris Beals explained why he’s not afraid (paywall) of competition from Google and Amazon.
    Business Insider

In other SPAC news, the newly formed The Parent Company released its first product, a $50 joint from Jay-Z’s Monogram brand that contains 1.5g of small batch flower and is supposed to smoke like a high-end cigar. 
Forbes

  • Related: Business Insider found investors have put nearly $3B (paywall) into cannabis companies since the beginning of 2019.

In the week’s other big deal, B2B marketplace Leaflink raised a $40M Series C from investors including Peter Thiel’s Founders Fund.
TechCrunch

  • Leaflink, which doesn’t touch the plant, says its platform handles product worth $3B wholesale annually, about a third of the total U.S. market.

CHANGING OF THE GUARD IN SACRAMENTO

The new California legislature convened for the first time this week, bringing together the lawmakers who’ll be enacting the state’s pot laws for the next two years.

On Saturday, we’ll introduce you to key lawmakers and lobbyists in Sac-town.

NEW FROM WEEDWEEK — 12/10/20

Harborside fires back at IRS

SCOOP: In a 35-page court filing, dispensary chain Harborside previewed arguments for its federal tax case against the IRS. The closely watched lawsuit, which goes before the Ninth Circuit Court of Appeals in February, challenges the constitutionality of industry hated tax rule 280E.  

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Cannabiz warily eyes SCOTUS texting case

The U.S. Supreme Court heard arguments in Facebook vs. Duguid, a case with major implications for text-message marketers, including many cannabis companies. Eaze and Curaleaf are among the potco’s enmeshed in similar litigation, where damages can reach well into the hundreds of millions. 

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The joy of SPACs

Special purpose acquisition companies, the investment vehicle known as SPACs, are all the rage in the cannabiz, following that big deal by Subversive Capital. I talked to Ceres Acquisition Corp. CEO Joe Crouthers, a Goldman Sachs alum, who offered a quick, useful lesson on how SPACs work and discussed plans for the rival SPAC his firm is sponsoring.  

WHAT WE’RE READING — 12/10/20

What caught our eye:

NEW FROM WEEDWEEK: 12/7/20

Here’s what’s happening in California:

“We’re going to dominate”: Following Subversive Capital‘s blockbuster deal to acquire Caliva and Left Coast Ventures, WeedWeek talked to Subversive CEO Michael Auerbach about the deal, the role of Chief Visionary Officer Jay-Z and Auerbach’s plans for the $575M on his balance sheet:

  • Auerbach: “None of the traditional MSOs [multi-state operators] have a large footprint in the state, so it’s ripe for consolidation. $575M in cash is five times the amount of cash as the top MSOs [in California] combined. It’s going to be very difficult to catch us.”

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“Product category of the future:” Olo and Kin Slips, California’s two leading sublingual strips companies recently merged to create a dominant player in this niche.

  • Sublinguals currently have 2%-3% market share.
  • I spoke to Andrew Lobo, CEO of the combined venture, who argued that sublingual strips are “a form factor superior to any other for cannabis consumption.” 
  • As a zero-calorie option that doesn’t affect the respiratory system, he anticipates “high double-digit to triple digit annual growth is highly achievable in the near term.”

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SCOOP: CannaSafe, the testing company which told WeedWeek it tests 30% of the legal product in California, has had its license suspended. 

  • A spokesperson for CannaSafe said the suspension came after a client test led to questions from the Bureau of Cannabis Control(BCC). The spokesperson declined to provide further details on the query or the product involved.  
  • BCC declined to comment on an ongoing investigation.
  • In May, CannaSafe said its revenue had grown a staggering 12,000% in the last three years. It operates one testing facility, in Van Nuys and aspires to open in additional states.
  • There are about 30 other licensed testing labs in California.
  • Reporting credit: Donnell Alexander.

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Surging sales boosted California’s pot tax revenue to $307M for Q3. The total doesn’t include city and county taxes.

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Is cannabis a thirsty plant?  A forthcoming report aims to dispel some of the misconceptions about cultivators’ water needs.

  • While cannabis doesn’t use as much water as other major crops, in part because so much less plant matter is needed, the issue requires close attention as California and other western states cope with the “enduring problem” of water scarcity.
  • Illegal growers typically consume far more water than their licensed counterparts.

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Get to Know: KushCo For a new feature, we asked diversified ancillary player KushCo about its businesses and key people. Want to see your company featured in a future edition of Get to Know? Drop us a line hello@weedweek.net

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Funded by pot taxes, California is awarding $30M for 34 cannabis related studies in fields like public health, criminal justice and the cannabis industry.

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The consumers suing CBD company CV Sciences have asked a federal judge to end an indefinite stay on the suit. They argue that the FDA is unlikely to clarify CBD’s legal status as a dietary supplement anytime soon.

  • They filed the lawsuit on grounds that CV’s CBD products were illegally labeled as dietary supplements and/or illegally contained CBD as a dietary ingredient.

WHERE ARE THE MSOs?

Until now, many of the large, public multi-state operators have kept their distance from the country’s largest REC market. California is an expensive place to operate, and it hasn’t offered major operators the same kind of return on investment as smaller and more stable markets.

That’s no longer the case any more. Willis Jacobson writes:

“When REC sales became legal in 2018, many newly licensed operators saw razor-thin profit margins and had to contend with high taxes and a hypercompetitive climate still dominated by illegal operators. But now, the industry’s biggest MSOs have begun to arrive.”

Separately, Forbes reports on MSO Curaleaf‘s plan to become the “Frito-Lay” of weed.

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The new California legislature meets for the first time this week. Coming soon: We’ll preview of the next two years of cannabis legislation, and introduce you to key players in Sacramento.

STATUS UPDATE: THE MORE ACT

In a historic vote, on Friday the U.S. House of Representatives passed the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, which would de-schedule cannabis federally, expunge federal cannabis convictions (not just low level ones) and allow states to legalize at their own pace.

The vote is widely considered symbolic since it faces long odds in the Senate. Sen. Majority Leader Mitch McConnell (R-Ky), a hemp industry ally, remains opposed to cannabis legalization.

Even if  Democrats win both Georgia Senate run-offs and take control of the chamber,  it’s not clear whether it would pass. While MORE Act sponsor and vice president-elect Kamala Harris (D) would cast the tie-breaking vote, some of the bill’s progressive aspects could sink it with fence-sitting legalization supporters in both parties.    

Among the bill’s provisions, it would:

  1. Allow VA physicians to recommend MED in legal states.
  2. Create a 5% national pot sales tax, climbing to 8% within three years, to benefit equity causes. The tax has attracted criticism from some legalization supporters.

If passed, the bill would likely also accelerate MED research and normalized cannabis banking.

WHAT WE’RE READING — 12/7/20

Here’s what caught our eye this week:

MIKE TYSON: I SMOKED BEFORE JONES BOUT

Mike Tyson, 54, said he smoked before his Saturday exhibition match with Roy Jones Jr.
USAToday

“Listen, I can’t stop smoking,” he said during the post-fight press conference. “I smoked during fights. I just have to smoke, I’m sorry. I’m a smoker. … I smoke everyday. I never stopped smoking.”

…“It’s just who I am,’’ he said. “It has no effect on me from a negative standpoint. It’s just what I do and how I am and how I’m going to die. There’s no explanation. There’s no beginning, there’s no end.”

Did the marijuana help numb the pain Saturday night?

“No, it just numbs me,” he said. “It doesn’t numb the pain”

It was Tyson’s first fight in 15 years. The eight round exhibition match ended in a draw.