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Weekly Roundup on the Cannabis Sector & Psychedelic Sector week of 6-10-24

Key Takeaways; Cannabis Sector

  • Canopy Growth to fully acquire Acreage Holdings in strategic move

  • AFC Gamma exited its largest portfolio loan, securing 19.9% return.

  • Green Thumb CEO confirmed proposal to Boston Beer.

  • Scotts Miracle-Gro adjusted financial outlook for 2024 but maintained strategic goals.

Key Takeaways; Psychedelic Sector

  • Filament Health received FDA approval for a meth addiction study.

  • Awakn announced the closing of a financing deal.

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.

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Top Marijuana Companies for Week

#1: Canopy Growth

Canadian cannabis giant Canopy Growth Corporation (NASDAQ: CGC) announced its decision to fully acquire Acreage Holdings, Inc. (OTC: ACRHF), a major U.S. marijuana operator, through its U.S. subsidiary, Canopy USA. This acquisition, which is anticipated to be finalized by mid-2025, marked a significant milestone in Canopy’s strategy to expand its footprint in the evolving U.S. cannabis market.

The acquisition will proceed in two stages. Initially, Canopy USA will acquire Acreage’s floating shares as per an October 2022 agreement. Subsequently, it will acquire the fixed shares under the original April 2019 agreement, which was amended in 2020. The combined transactions will result in Canopy USA owning 100% of Acreage.

Canopy Growth’s pursuit of Acreage began in April 2019, initially valuing the deal at $3.4 billion, contingent on the federal legalization of cannabis in the U.S. However, in 2020, the deal was restructured, reducing the valuation to $900 million to provide Canopy more flexibility to explore other U.S. market opportunities.

Despite this strategic acquisition, Acreage faces significant financial hurdles. As of March 31, Acreage reported $7.3 million in cash against $365.2 million in liabilities, along with an accumulated deficit of $775 million. The company has also defaulted on multiple debt payments. Canopy aims to resolve these issues through this acquisition, which includes a debt restructuring deal involving a $99.8 million acquisition of Acreage’s outstanding debt in exchange for $69.8 million in cash and the discharge of $30.1 million held in escrow.

This acquisition is part of Canopy’s broader strategy to capitalize on the growing U.S. cannabis market, which has seen significant regulatory shifts toward legalization.

Analysts have mixed opinions on the acquisition. Some view it as a necessary move to solidify Canopy’s position in the U.S. market, while others, are cautious, suggesting that Canopy may have a difficult task trying to turn around Acreage’s financial struggles. Despite these concerns, Canopy remains confident in its strategy and the potential of the U.S. cannabis market.

#2: AFC Gamma

AFC Gamma, Inc. (NASDAQ: AFCG), a leading provider of institutional loans, with a specialization in lending to state-law compliant cannabis operators, announced the successful exit of its $84.0 million loan to a subsidiary of Public Company H. This loan was the largest in AFC Gamma’s portfolio, and the company had previously reported that the borrower missed its April interest payment in May.

AFC Gamma managed to sell the loan to a third party at par plus accrued interest. This transaction resulted in a 19.9% internal rate of return (IRR) over the life of the loan.

Daniel Neville, AFC Gamma’s Chief Executive Officer, highlighted the significance of this exit: “When I joined AFC, I was focused on reducing exposure to underperforming credits through proactive portfolio management. This exit demonstrates our commitment to working through challenging loans to deliver value for our shareholders. We look forward to redeploying the capital into deals with strong risk-adjusted returns and further diversifying our portfolio.”

He also expressed satisfaction with the results: “Furthermore, we are pleased to exit the largest loan in our portfolio and generate an IRR of 19.9% for our shareholders.”

#3: Green Thumb

Green Thumb Industries Inc. (OTC: GTBIF) CEO, Ben Kovler, officially confirmed that he sent a letter to The Boston Beer Company, Inc. (NYSE: SAM) Chairman, Jim Koch, proposing a merger between the two companies. This news, which surfaced amid industry rumors, was publicly disclosed on X (formerly Twitter) on Wednesday. Kovler outlined a vision for creating a “powerhouse of brands” that would cater to shifting consumer preferences, particularly as younger generations consume less alcohol.

The proposed merger aims to leverage GTI’s position in the cannabis market and Boston Beer’s established presence in the alcohol industry. Kovler highlighted that this combination would enable GTI to trade on a major U.S. stock exchange, moving beyond its current listings on the U.S. Over-the-Counter markets and the Canadian Securities Exchange.

Kovler also suggested that GTI could offer Boston Beer shareholders a more attractive deal than other rumored proposals. Despite GTI’s previous stance of not commenting on market rumors, this public disclosure clarified their strategic intentions.

Following the announcement, GTI’s stock price saw a significant rise, while Boston Beer’s stock initially dropped before stabilizing.

GTI, which has a market capitalization of approximately $2.89 billion, reported $1.05 billion in revenue for 2023 and operates in 15 U.S. markets. Boston Beer, which is valued at around $3.52 billion, already has a foothold in the cannabis sector with its THC-infused brand TeaPot.

The merger would face significant regulatory challenges due to the complex landscape of state and federal laws governing both industries. However, Kovler remains optimistic, suggesting that federal legalization of cannabis is inevitable and comparing the current situation to the end of alcohol prohibition, which spurred the growth of major alcohol brands.

#4: Scotts Miracle-Gro

The Scotts Miracle-Gro Company (NYSE: SMG), a leading lawn and garden company, revised its financial expectations for fiscal year 2024, projecting lower sales growth and earnings but affirming its key strategic targets.

The company, which is based in Marysville, Ohio, now forecasts adjusted EBITDA earnings between $530 million and $540 million, about 20% higher than the previous year yet below its earlier estimate of $575 million. Additionally, Scotts adjusted its U.S. consumer segment sales growth outlook to 5%-7%, down from a high-single-digit estimate

Despite these adjustments, Chairman and CEO Jim Hagedorn expressed confidence in the company’s overall performance and its strategy to drive long-term shareholder value. A central component of this strategy is generating $1 billion in free cash flow over two years, with $560 million expected in the current fiscal year. The company also aims to reduce its debt by at least $350 million and increase its full-year gross margin by a minimum of 250 basis points.

CFO Matt Garth also highlighted that the company’s decisive actions are leading to sales growth, strong free cash flow, and improved adjusted EBITDA; “Our decisive actions are contributing to sales growth, strong free cash flow generation and significantly improved year-over-year adjusted EBITDA, putting us in position to exit 2024 with leverage below 5 times,” said Matt Garth.

The company is facing challenges from oversupply and a downturn in its Hawthorne unit, which serves the cannabis industry. However, Hawthorne exceeded internal profit forecasts in April, driven by higher-margin proprietary brands. Furthermore, Scotts stands to benefit from a potential merger between RIV Capital Inc. (OTC: CNPOF) and Cansortium Inc. (OTC: CNTMF), which will enhance its stake in a new, larger multistate operator.

Top Psychedelic Companies for Week

#1: Filament Health

Filament Health Corp. (OTC: FLHLF) received authorization from both Health Canada and the United States Food and Drug Administration (FDA) to conduct a Phase 2 clinical trial of PEX010, its botanical psilocybin drug candidate, for the treatment of methamphetamine use disorder (MAUD).

This marked a significant milestone as it will be the first-ever clinical trial to investigate the safety and efficacy of botanical psilocybin in a MAUD patient population.

The randomized, double-blinded, placebo-controlled clinical trial will involve approximately 90 patients with amphetamine-type stimulant use disorder. The primary efficacy endpoint will be the change in the overall response rate based on clinically assessed criteria over the 3-month treatment period.

Filament Health also announced a financing deal, securing C$1 million through agreements with existing investor Negev Capital Fund One and Lightburn. Under the terms of the agreement, Negev will exercise its outstanding warrants to purchase 17,284,443 common shares in the company and convert its outstanding C$1.25 million convertible note into 25,000,000 common shares. In return for the immediate exercise of the warrants for cash, Filament agreed to reduce the exercise price of such warrants to C$0.05 per share. Moreover, Lightburn agreed to purchase 2,700,000 common shares for C$0.05 per share, providing the company with gross proceeds of C$0.1 million.

This financing deal comes at a crucial time for Filament Health, as the company’s cash was reported to be running low, with $872,048 in cash and equivalents as of March 31. Additionally, the total revenues for the quarter were $297,932, while working capital stood at $359,664.

#2: Awakn

Awakn Life Sciences Corp. (CSE: AWKN) (OTC: AWKNF) a clinical-stage biotechnology company specializing in developing medication-assisted treatments for addiction, particularly focusing on Alcohol Use Disorder (AUD), announced the closing of the second tranche of its non-brokered private placement.

The Second Tranche, as per the Company’s press releases, saw the issuance of an additional 857,142 units at a price of $0.46 per unit, resulting in additional gross proceeds of $394,285. Each unit comprised one common share in Awakn and three quarters of one whole Common Share purchase warrant. Furthermore, holders of the Warrants are entitled to acquire one Common Share at a price of $0.63 per share for a period of five years from the date of issuance.

According to the company, the gross proceeds from the private placement will be allocated towards funding the company’s general working capital needs. Additionally, all securities issued as part of the offering will be subject to a hold period of four months plus one day from the date of issuance, in accordance with applicable securities legislation.

Awakn is dedicated to developing therapeutics targeting addiction, with a near-term focus on AUD. According to statistical data, this disorder affects approximately 40 million people in the US and key international markets, and around 285 million people globally. Unfortunately, the current standard of care for AUD is deemed inadequate, and Awakn aims to provide breakthrough therapeutics to those in need. The company’s strategy is centered on commercializing its R&D pipeline across multiple channels.