Business
Aurora Cannabis buys profitable vegetable firm for CA$45M, sells Sky greenhouse
Aurora Cannabis is diversifying into the vegetable propagation and ornamental flowers business amid a massive marijuana glut in Canada by acquiring a controlling interest in Bevo Agtech, one of the largest suppliers of flowers and vegetable seedlings in North America.
Edmonton, Alberta-based Aurora paid 45 million Canadian dollars ($35 million) in cash for 50.1% of Bevo, according to a news release.
Another $12 million in Aurora stock could be paid, conditional on Bevo achieving certain financial targets.
Carey Squires, Aurora’s head of corporate development and strategy, said Bevo’s expanding business and profitability was key to getting the deal done.
“The ability to get access to cash flow today is going to be really important for a competitive position going forward to be sustainable long term,” Squires told MJBizDaily in an interview.
“The idea that we can do that with these guys, and have that incremental boost, is core to (the deal).”
The executive said Aurora plans to “accelerate the plant propagation and ornamental business.”
The Langley, British Columbia, agricultural producer operates 63 acres of greenhouses in B.C., where it propagates vegetable plants including tomatoes, peppers and cucumbers as well as other plants such as flowers and grasses.
Bevo also agreed to buy Aurora’s sprawling greenhouse complex at Edmonton International Airport for up to CA$25 million. The closing price will be based on Bevo successfully reaching financial milestones at the Sky facility.
In its release, Aurora said Bevo will continue to be run by the existing management team. Aurora will take a controlling position on Bevo’s board.
“Bevo’s track record in generating not only positive adjusted EBITDA but free cash flow, world class propagation expertise, and established distribution networks in Canada and the United States makes them an ideal strategic partner,” Aurora CEO Miguel Martin said in a statement.
“We are also excited about Bevo repurposing Aurora Sky and the potential to expand the scale and scope of their business and saving significant costs previously expected in connection with the wind down and sale of the facility.”
Sky repurposed for veggie propagation
Aurora said Bevo plans to repurpose the Sky greenhouse for vegetable plant propagation and orchid cultivation.
Squires said the company is optimistic about Bevo’s veggie propagation business and doesn’t foresee the company growing cannabis.
“For that business, we believe it has a lot of tailwinds, including (such factors as) food scarcity, the cost of transportation going up and up, so the closer you are to your growing client the better,” he said.
“Food prices and the desire to eat more locally, all of that … has a ton of tailwind behind it, and they (Bevo) believe that, and we buy into the philosophy.”
Squires said Bevo will use Sky to significantly expand capacity in Alberta, “which just happens to be next to a lot of the largest venerable growers (and) has better access to the U.S.”
The marijuana greenhouse was once touted as the largest in the world, but Aurora had to scale back production because of falling sales in the ultra-competitive recreational market.
Aurora finally pulled the plug on cannabis at the facility in May and put the greenhouse up for sale.
The CA$25 million sale price for Sky is substantially lower than the company poured into it, which was as much as CA$150 million.
It’s the latest example of a broad selloff of mass-scale cannabis greenhouses in Canada by the nation’s largest producers, which wildly overspent on cultivation space from 2017 to 2020.
Mounting losses
Aurora said the pivot to vegetable propagation doesn’t change its core strategy of being a cannabis company long term.
However, Aurora’s losses in the cannabis space total roughly CA$5.4 billion so far, and the company has yet to turn an annual profit.
“If we could do everything in cannabis today, we would, but there’s limited opportunities of where we can go to expand,” Aurora’s Squires said.
“So I think it is diversification in an ability to get bigger,” he continued.
“We thought a lot about the idea of adjacency and the ability to get bigger, and these guys (have a) history of the ability to make money. There’s tailwinds.”
This is the second time Bevo has been involved in a cannabis M&A.
In 2019, Bevo and Sun Pharm Investments completed a reverse takeover to become Zenabis Global.
Zenabis, which was acquired by Hexo Corp. last year, unloaded Bevo in 2021.
Zenabis filed for creditor protection in June.
Aurora said Bevo recorded sales of CA$39 million and adjusted EBITDA of CA$9 million for the 12 months ended June 30, 2022.
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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