Business
Cannabis MSO earnings resilient through third quarter of 2022
U.S. cannabis multistate operators weathered a storm of challenging economic factors through the third quarter of 2022, with most reporting modest to significant year-over-year revenue gains.
But only Chicago-based Green Thumb Industries reported a profit for that quarter, at $131 million.
That’s a 506% increase from a year ago, when Green Thumb reported a $21.6 million profit for the same period.
In a Nov. 14 newsletter, Frank Colombo, director of data analytics at New York-based Viridian Capital Advisors, attributed the industry’s challenges to:
- Price compression, which is affecting wholesale prices for flower and other products in more mature state markets.
- Inflation, which is eroding consumers’ buying power and increasing the cost of doing business.
- Delays to New York’s long-awaited adult-use cannabis market launch, which could be worth as much as $1 billion in its first year, according to the 2022 MJBiz Factbook.
- Ongoing difficulties in California’s regulated market, where legal operators are struggling with high taxes and a robust illicit market.
“Moreover, a true test of the recession/inflation resistance of the industry is at hand,” Colombo wrote.
“Already, basket sizes have been coming down in multiple markets as pressured consumers trade down to lower priced products.”
Still, Colombo noted, there’s a lot to look forward to in 2023.
“New Jersey has been a resounding success, and two big markets, Maryland and Missouri, legalized in the midterm election,” he wrote.
“Illinois sales are up 16% year-over-year ahead of new licenses coming online, and New York may yet get its act together.”
New Jersey reaps rewards
Indeed, the seven cannabis multistate operators that gained access to New Jersey’s new adult-use market, which launched in April, experienced revenue boosts.
They include Acreage Holdings, Ascend Wellness Holdings, Columbia Care, Curaleaf Holdings, Green Thumb, TerrAscend Corp. and Verano Holdings.
Massachusetts-based Curaleaf ranked highest in revenue for the quarter, at $339.7 million – a 7% year-over-year gain and a 1% sequential increase from the previous quarter – as it closed its acquisition of Tryke and its majority stake acquisition of Four20 Pharma.
New York-based Ascend Wellness reported strong results, despite an executive shuffle that sent one of co-founders and former CEO Abner Kurtin to the executive chair role after he was charged with battery last fall. The charge was later dropped.
In a Nov. 11 note to clients, Matt Bottomley, an analyst for Toronto-based Canacord Genuity, attributed the company’s 14% sequential revenue increase and 19.9% year-over-year increase to third-party wholesale sales, transitioning medical marijuana dispensaries to adult-use stores and new retail locations.
“Retail sales increased 9.6% quarter over quarter to $82.8 million, while net wholesale revenue grew 29.6% sequentially to $28.4 million, primarily driven by higher third-party sales in Illinois, New Jersey and Massachusetts,” he wrote.
New Jersey’s adult-use sales are expected to total about $2 billion by 2025, according to the 2022 MJBiz Factbook.
Hurricane Ian, other headwinds
Florida-based Trulieve Cannabis lost $114 million in the third quarter of 2022 but still had 34% year-over-year growth, reporting more than $300 million in revenue.
Th company’s retail revenue decreased 5% sequentially, which the company attributed to the impacts of Hurricane Ian and lower net patient growth in its Florida medical marijuana market.
Arizona revenue declined because of increased pressure on retail prices and lower traffic coming into stores, according to Trulieve’s third-quarter investor presentation. But Pennsylvania revenue increased.
“As the company’s 750,000 square-foot Jefferson Park facility continues to ramp in mid-2023, we believe this will provide Trulieve with a meaningful cost and margin advantage versus its competitors,” Bottomley wrote, referring to Trulieve’s new indoor cultivation facility.
“Trulieve commented that given the macroeconomic headwinds, challenging consumer spending environment, increased promotional activity expected around the holiday season, and the impact from Hurricane Ian and Tropical Storm Nicole, it now believes it will achieve the low end of its full-year 2022 guidance of $1.25 (billion) to $1.3 billion in revenue and $415 (million) to $450 million in adjusted EBITDA.”
Chicago-headquartered Cresco Labs reported mixed results with $210 million in revenue for the quarter, a 2% decrease year-over-year and a 3.8% decline from the previous quarter.
“The decline was primarily attributable to ongoing price compression and increased competition on the wholesale front, which resulted in wholesale revenues declining approximately 2% sequentially from Q2/2022 to $93 million,” Canaccord Genuity analyst Derek Dley wrote in a Nov. 15 note to clients.
Analysts remain confident that Cresco’s acquisition of New York-based Columbia Care, which requires the divestiture of assets in Maryland and Ohio as well as a Florida license, is on track.
The deal also rests on approval from New York regulators of Sean ‘Diddy’ Combs’ acquisition of the companies’ retail and marijuana production assets in a deal valued up to $185 million.
“We think this meaningfully increases the probability that Cresco’s deal to acquire Columbia Care will close with no modifications,” Pablo Zuanic, managing director of New York-based equity analysis firm Cantor Fitzgerald, wrote in a Nov. 28 email to clients.
For its part, Columbia Care reported $132.7 million in revenue, a 2.4% sequential increase and a .3% increase year-over-year.
“Although the company continues to anticipate a challenging operating environment over the next 12-18 months, management is encouraged by the ongoing resilience it has seen throughout its markets.”
Source: https://420-reports.com/wp-admin/post.php?post=5634&action=edit
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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