?? Some breakups don't last long...
This article was published 5/20/2020 on Cannablurbs, a weekly newsletter covering the business, strategy, and policy of legal cannabis.
Cannablurbs
Doubling Back: Canadian cannabis producer Aurora Cannabis announced it will acquire U.S. CBD product manufacturer Reliva for $40 million (~3x revenue) in an all-stock transaction. The deal will also include up to $45 million in earnouts based on performance over the next two years and is expected to be accretive to Aurora on an Adjusted EBITDA basis. Notably, Reliva has strong retail distribution, reaching over 20,000 locations through partnerships with the three largest wholesale distributors.
Why It Matters: Well, Aurora’s breakup with hemp didn’t last long. But the differences between their divested assets and this acquisition couldn’t be more significant. Aurora is trading from heavy cultivation assets in Canada to Reliva’s asset-light model, where it doesn’t own farms and outsources its manufacturing. Strategically, the big prizes are a U.S. presence, as well as Reliva’s killer distribution network. In a space as competitive as branded CBD products, product differentiation is tough, making distribution even more critical. But, despite investors’ initial enthusiasm, the deal might not be a home run - it’s difficult to see the synergies with Aurora’s traditional cannabis business, COVID may make that in-person footprint less meaningful, and Reliva’s brand proposition seems to be “we’re cheap”. But, hey, at the very least, buying a U.S. presence for 3x revenue was probably a better deal than Lord Jones was…
Boom Goes The Black Market: A massive explosion rocked a downtown Los Angeles warehouse last week, damaging multiple buildings and injuring 12 firefighters. Smoke Tokes, an unlicensed wholesale supplier of vape oil, did business in the warehouse, and previously faced a similar fire in 2016 at a different address. While the cause of the explosion remains to be determined via an ongoing criminal investigation, it’s likely that Smoke Tokes was supplying local ‘hash blasters,’ who buy volatile gases like butane found at the warehouse.
Why It Matters: We’ve noted it before: the biggest competitor to canna-businesses is the black market. For those accustomed to buying mids from their local dealer, this might seem like an easy hurdle but, make no mistake, the illegal market is an incredibly sophisticated animal that can continually adjust to benefit from changing conditions. This is especially true in California, where a long-established black market has players that can both stand up highly competitive operations at a fraction of regulated businesses’ costs and also act as the customer of last resort for legal companies struggling to get by. It’s sometimes easy to forget that black market operators are optimizing for cost and legal evasion, not the consumer’s or general public’s safety. And, when they’re filling a gap in the supply chain that’s pretty dangerous even when regulated, it’s sadly not surprising that disasters will occur. But, absent increased enforcement or a regulatory environment that better supports legal businesses, it’s not clear how to stop them.
Silver Lining Playbook: COVID-19 is wreaking havoc across the world, as communities still face full-fledged lockdowns and the U.S. reports unprecedented job losses. But there might be a potential silver lining for cannabis. Farhaj Mayan is the CEO of Kanna, a fully integrated training and hiring platform for the cannabis industry. He shared his recent thoughts on how COVID-19 is catalyzing changes across all aspects of cannabis business operations.
Quick Hits
- MedMen Goes Up In Smoke: Great read. Lot to unpack here, but personal favorite tidbit has to be Bierman stiffing the Black Eyed Peas as a teenager.
- Harvest Announces Layoffs In $24M of Cost Cuttings: The Harvest show continues…
- Canadian Oil & Gas Company Expands Into Hemp Extraction: Yeah, hemp is a tough game right now, but... have you seen how oil’s been doing recently?
- Ethos Accelerates With Acquisition: Was wondering what the deal with Ethos was since the 4Front deal. Predicting $40M in EBITDA next year, looks like they could be a real player in Northeast.
- Scientists Believe Cannabis Could Help Prevent COVID-19: Man, Pelosi focusing on cannabis in the latest COVID bill would look ridiculously smart if this pans out, right?
- Coronavirus Victory Gardens Include Cannabis Too: Worth noting that this can be pretty illegal even in a legal state - check your local laws before greening up your garden.
- Uruguay Exports Largest Ever Flower Shipment To Mystery Buyer: Mysterious… maybe we should get the Scooby Gang on it? Everyone knows Shaggy would be down...
Research Rips
?? There Isn’t Sufficient Evidence For Claims Of Increased Occupational Injury Risk
?? Cannabis Is An Effective Treatment For Fibromyalgia
?? Cannabis Does Have Mental Health Risks To Be Aware Of
?? Cannabis Use Increases Risks Around Psychosis
? Cannabis Consumption Among Therapeutic Users May Alter Driving Behavior
? Different Genders Have Different Subjective Levels Of Cannabis Cravings
State-by-State
- Push To Legalize In NY Reignites During COVID-19
- Virginia Governor Signs Marijuana Decriminalization Bill Into Law
- Judge Allows Electronic Signature Collection In Ohio
- Oklahoma Lawmakers Fail To Override Gubernatorial Veto
- Illinois Legislators Make Fixes to Cannabis Laws
- Breaking Down Colorado Marijuana and Hemp Bills
- Michigan Expands Parameters Of Social Equity Program
ICYMI
Recapping some of our best and most recent long reads
- Building A Modern Brain For Canna-Businesses: Canix CEO Stacey Hronowski wants to help compress canna-costs while conquering compliance with a modern ERP
- At The Heart Of The Green Rush: Can Humboldt translate its hippie heritage in a craft cannabis future? Very Scarce founder Steve Weiner weighs in.
- W*ndering What’s Next: Tanisha Robinson is leveraging her unique background in entrepreneurship, beer and more to craft a W*nder of a CBD beverage.
- Seeking Success In A Crowded Cannatech Landscape: Leaf Trade’s strategy: stay focused and follow their customers’ lead.
- ?? What’s Coming For Cannabis In 2020?: In January, we pulled out our crystal ball and made our biggest predictions for the year. Stay tuned to see how we do!
This article was published 5/20/2020 on Cannablurbs, a weekly newsletter covering the business, strategy, and policy of legal cannabis.