Hemp’s Unfulfilled Promise: A Call for Action From the FDA and Congress
November 10, 2023
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John Schroyer, KahliBuds, 420GrowLife
Online cannabis advertising platform Leafly Holdings Inc. (Nasdaq: LFLY) continued suffering downward-trending revenues as it lost hundreds more in clientele during the quarter that ended Sept. 30, the company reported in its latest financials.
Leafly lost $2.2 million in the third quarter, bringing its losses for the year to just over $9 million.
Overall revenues were down to $10.6 million year-over-year from $11.8 million, and were also down slightly but sequentially from the second quarter of the year, when revenues hit $10.7 million.
The company also saw a sharp drop in its overall paying retail clientele with a loss of 795 accounts sequentially, to 4,466 from 5,261 in the second quarter, and down from 5,637 from the same quarter a year prior.
But the company noted that the average paying client’s monthly bill has increased year-over-year, to $644 from $556. It attributed that to “the roll-out of new rate cards and churn of lower ARPA accounts.”
Leafly has not been immune to the “pain points” the wider cannabis industry has been going through this year, CEO Yoko Miyashita said in a press release.
“Our third quarter results reflect our progress toward building a sustainable business in a challenging market,” Miyashita said. “Cannabis markets continue to experience pain points of various types, but the industry continues to evolve. The Leafly platform plays an important role, providing the technology retailers need to drive consumer sales and e-commerce shopping experiences. With a strategic focus on profitability, we are carefully managing expenses which we believe will set us up for growth as the cannabis market matures and recovers.”
The financial hit comes on the heels of several cost-cutting measures Leafly has implemented over the past year, including layoffs and shuttering its marijuana news division. Operating expenses for Q3 this year were down 33% to $10.9 million from $16.3 million a year ago, Leafly reported, and its gross margin improved by 2% in the same timeframe, to 89% from 87%.
“We continue to focus on operating with efficiency and managing costs,” Suresh Krishnaswamy, CFO of Leafly, said in a release. “Our third quarter results are a reflection of the difficult environment our retail and brand customers are facing, driven by lack of access to banking and capital, license delays, and margin compression. We are supporting our customers to provide value aligned with their needs, while also right-sizing their services for maximum impact given their budget constraints.”
Also during the quarter, Leafly implemented even more changes to hopefully get back into the black:
- Regained Nasdaq compliance with the minimum bid price rule in September, ensuring its shares can continue to trade on the exchange.
- Rolled out “new rate cards and price increases in select markets to select clients to better align pricing” with its services.
- Revamped its API for “order integration,” designed to ease online ordering for its retail partners.
- Rolled out “scheduled delivery” for online customers to “drive customer retention and loyalty.”
Leafly also on Thursday issued financial guidance for the remainder of 2023, and said it expects $9.5 million in revenue for the fourth quarter – yet another decrease – and its adjusted EBITDA loss is projected to be “around $1.3 million.”
At the close of the quarter, Leafly had $23 million in total assets, including $14.4 million in cash, and $36.1 million in total liabilities.
The post Leafly Revenues Continue Downward Slide, Loses More Clients appeared first on Green Market Report.
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John Schroyer, KahliBuds, 420GrowLife
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420GrowLife
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John Schroyer, KahliBuds, 420GrowLife
After years of activism tying ongoing marijuana business permitting to reparations for harms wrought by the war on drugs, social equity as a concept has become nearly inextricably interwoven into the marijuana industry. And doesn’t appear to be going anywhere.
But it’s also a concept that has been undergoing near-constant evolution in terms of how exactly it works, in part because of many failed attempts to help a specific class of cannabis entrepreneurs.
Some social equity programs base eligibility on prior criminal convictions, while others focus on residency in heavily impacted ZIP codes or communities that were policed heavily. Some rely on race, while others don’t factor that in at all.
There was even a 2018 court case in Ohio brought by multistate operator PharmaCann that ultimately resulted in the state’s “racial quota” for cannabis licensing being thrown out as unconstitutional.
All of which begs the question: What’s the right formula for social equity programs?
The answer: Nobody really yet knows.
Moving Target
The question of exactly how to go about accomplishing the goals of social equity – namely, attempting to make whole those who were prosecuted and lost years in prison for nonviolent marijuana-related offenses, and giving them a decent shot at the newly legal industry – remains an elusive one for policymakers.
Each approach seems to have had some sort of fatal flaw to date, said Minority Cannabis Business Association President Kaliko Castille, in part because social equity programs have been too often tied directly to licensure itself in markets where licenses themselves are scarce. Even defining who’s eligible can be tricky.
That has created inherent problems for license recipients, who are often underfunded entrepreneurs with no easy way of raising the millions of dollars it can take to get a marijuana company off the ground.
“It’s hard to say that one person got it all right,” Castille said when asked for examples of states or cities that have the gold standard of social equity.
“It’s hard having this conversation in the middle of this New York fiasco,” she added.
Castille said that although New York had been held up at first over the past two years as a possible model for other states to follow, the legal and operational circus that has played out this year has made obvious the flaws in that approach.
While thousands of illicit cannabis shops have been operating with near-impunity, state cannabis regulators have managed to get only a few dozen legal dispensaries open. Those are are owned by “justice-involved” individuals, people who had criminal cannabis records and applied to be retailers.
That’s despite the fact that New York has issued 463 of the retail permits and is still pursuing new “social equity” permits in the now-open universal licensing window. Most of the initial licensees remain stymied by litigation.
“In an ideal world, in a vacuum, we don’t need social equity programs. We need low barriers to entry, making it as easy as possible for legacy operators to get into the industry,” Castille said. “The next thing we need is money, through low interest loans and grants … because they don’t have access to capital.”
Systemic Flaws
Former MCBA President Amber Littlejohn, now a private practice attorney, agreed and said one of the most pervasive issues for social equity licensees has been fundraising.
“The number of licenses issued versus the number active and the number that are still held by social equity applicants are going to be quite different. If you use Illinois (as an example), the number of social equity licenses versus issued versus operational, there’s a giant disparity there,” Littlejohn said. “That’s consistent across the country, and even more so as the market starts to deteriorate. It leads not only to greater challenges in funding, but also a more tumultuous legal environment.”
That’s something that more lawmakers and regulators have been taking into account. Again in New York, Gov. Kathy Hochul last May promised a $200 million state fund to help social equity retailers secure real estate.
Although that fund has had mixed success to date, it’s an important acknowledgement that money is a key component to social equity programs, Littlejohn said. That’s a fundamental lesson for future programs.
“The overarching theme is resources,” Littlejohn said. “The top issues we hear are funding. Next would be real estate. Those two are probably the biggest factors at play when it comes to getting businesses up and running.”
Predators Galore
The lack of funding is tied directly to one of the other common flaws: predatory financing agreements that change the social equity licensee into essentially a straw man, a face for the license application, while the actual business decisions are made by the partner who brings capital to the table.
That was a trend that emerged quickly in the early days of Los Angeles’ social equity program in 2018 and 2019, which one insider said was a “goddamn calamity.” Some social equity retailers in L.A. never opened, while others took several years.
Actor-turned-cannabis entrepreneur Madison Shockley, who just recently opened his social equity L.A. shop after partnering with financier Off the Charts, estimated to Green Market Report that only about 30% of his social equity peers had been able to open for business.
Shockley recalled there was a sense of excitement among many in the community who were eligible when the L.A. program launched, but that the excitement quickly “got corrupted with a lot of greed and fragmentation.”
“Behind the scenes, there were all these lobbyists and special interests having their way on what those laws were going to be. So it became very fragmented, with a lot of desperation in the social equity community, and that was driven by this tremendous money and land grab that took place,” Shockley recalled.
“A lot of applicants got caught up in deals that were predatory,” he said. “In the midst of the delays of that licensing process, a lot of those partnerships went through upheaval, as the equity partners started to realize how they were being boxed out of their own rights and interests in their businesses. There’s been a lot of lawsuits, equity applicants suing their investors and vice versa.”
The L.A. City Council also failed to provide adequate funding to staff the program properly, which made the rollout even more difficult.
“If any city can take a lesson from L.A., the two biggest lessons are maintaining trust with the community for one, but also properly funding the program,” Shockley said.
Similar predatory stories have played out in plenty of other states, Littlejohn said, and have even caused opposite problems, where regulators became “paternalistic” and proposed policies such as not allowing social equity licensees to sell their permits or even equity shares in order to raise operating capital.
“In trying to make sure that people weren’t just using these individuals as figureheads and divesting them of any meaningful benefits … in an effort to do that, they’ve gotten really prescriptive,” Littlejohn said. “When your criteria … starts pushing against the success of the business, then you’re going to have businesses that can’t even get open.”
Endgame
The bottom line is that social equity programs and licenses thus far have not truly lived up to the initial idea of creating new generational wealth for those who were imprisoned for nonviolent cannabis crimes, said Amber Senter, a longtime social equity proponent as well as the founder of Supernova Women and cannabis brand Makr House in California.
“The golden ticket comes with a lot of pitfalls and no guarantees and tons and tons of risk, and I don’t think that was properly communicated to people either,” said Senter, speaking broadly about social equity programs nationally.
Senter said there have been some success stories in social equity, particularly with brands that have simply survived and are still holding onto market share. But it’s taken collaboration with other social equity companies, she said.
“We’ve had to get very creative to figure out ways to pool our resources,” Senter said.
The post Dysfunction in Social Equity Programs Indicates Concept Still Evolving appeared first on Green Market Report.
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John Schroyer, KahliBuds, 420GrowLife
Trulieve Sees Positive Signs in Florida’s Push for Adult-Use Cannabis
November 10, 2023
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Adam Jackson, KahliBuds, 420GrowLife
Florida’s Supreme Court justices this week heard the state’s argument against a proposed ballot amendment for legalizing recreational cannabis, and the overall tone of the hearing left its largest supporters – including multistate operator Trulieve Cannabis Corp. – optimistic about the ultimate outcome.
Florida Attorney General Ashley Moody filed the challenge earlier this year, claiming that the ballot language was misleading by not making clear the plant’s federal illegality.
Several justices, including Gov. Ron DeSantis’ appointees Charles G. Canady and Carlos G. Muñiz, appeared skeptical of the state’s stance regarding the voter’s understanding of federal constraints. With more than a million signatures already, advocates insist the amendment’s language is clear and complies with previous court decisions on such matters.
“We believe that after today’s oral arguments, it is clear that the language was drafted to conform to the road map that the court itself has provided in prior cases,” a Smart & Safe Florida spokesperson told Green Market Report. “We hope that the court agrees that the language strictly adheres to the law and will allow the citizens of Florida to exercise their sovereign right to decide whether to amend their constitution.”
Trulieve CEO Kim Rivers addressed the hearing in a Thursday earnings call, expressing optimism about the court’s disposition and the company’s readiness for an adult-use market.
“The posture of that court definitely leaned positive,” Rivers opined.
She said there were no surprises during the hearing and noted that the justices seemed to recognize the weight of their decision.
“It was really encouraging to see that several of the justices saw that and appeared to understand that this wasn’t something that just affects a particular policy … but it has potential broad sweeping impact,” she said.
Rivers dismissed the notion of immediate competitive landscape changes if the amendment passes, citing the time required to build and scale operations. However, she sees Trulieve as having a distinct advantage thanks to its existing investments in the state.
“Florida, as I said, and I’ll say it again, will be the best cannabis market in the world,” Rivers said.
“We believe that the legislature, when they go to implement the amendment, will certainly continue to be focused on ensuring safety and traceability. I don’t know that I see a situation, where there’s a complete decoupling away from vertical, at least from a holistic approach.”
The court’s decision, which must be made by April, will determine if the amendment can be placed on 2024 election ballots. If passed, Florida will join the expanding ranks of states where adult-use cannabis is legal.
A Trulieve spokesperson told Green Market Report: “We believe that the campaign’s lawyer properly conveyed their case to the court and remain hopeful that the justices will ignore the political rhetoric, stick to the law and give Floridians the opportunity to vote on this important initiative.”
The post Trulieve Sees Positive Signs in Florida’s Push for Adult-Use Cannabis appeared first on Green Market Report.
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Adam Jackson, KahliBuds, 420GrowLife
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420GrowLife
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Jenel Stelton-Holtmeier, KahliBuds, 420GrowLife
Aurora Cannabis Inc. (NASDAQ: ACB) (TSX: ACB) is experiencing its “strongest fiscal year to date,” according to its chief executive officer. The company reported results on Thursday for its second quarter ended Sept. 30.
The Canadian cannabis operator changed its fiscal year dates, so year-over-year results for fiscal year 2024 are compared to the first quarter of fiscal year 2022, which ended Sept. 30, 2022.
Total net revenue for the quarter was C$63.4 million, topping the average analyst revenue estimate of C$62.74 million. That represents an increase of 30.5% over the prior-year period, which came in at C$48.6 million.
The increase is mainly due to growth in Aurora’s global medical cannabis business and quarterly revenue in its plant propagation business.
“We are experiencing the benefits of diversification across our cannabis and non-cannabis platforms characterized by stability in Canada, record revenue in Europe and Australia, and early success with our most recent acquisition, Bevo Farms,” CEO Miguel Martin said.
Medical cannabis sales grew 42% from the previous year to C$43.8 million, accounting for 69% of the company’s net revenue in the quarter. Revenue from the consumer cannabis segment, however, fell 12.4% to C$12 million.
The plant propagation business, which is wholly derived from the Bevo operations, contributed C$7.2 million in net revenue for the quarter.
Consolidated adjusted gross margin before fair value adjustments was 51%, flat with the same period a year ago, while adjusted gross profit before fair value adjustments was C$32.1 million, up 32% year-over-year.
Net income from continuing operations for the three months ended Sept. 30 was C$300,000, a significant improvement over the previous year’s net loss of C$45.5 million.
The post Aurora Cannabis’ Diversification Strategy Pays off in Q2 appeared first on Green Market Report.
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Jenel Stelton-Holtmeier, KahliBuds, 420GrowLife
