In the first trading week of 2021, two cannabis operators kicked off the new new year with a payment claim dispute.

Meanwhile, another cannabis firm now seems to be on the move with new deals after going through a difficult transitional period.


Keep reading to find out more cannabis highlights from the past five days.

 

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Zenabis and Sundial begin financial dispute

On Wednesday (January 6), Sundial Growers (NASDAQ:SNDL) informed the market that it has delivered a notice of default to Zenabis Global (TSX:ZENA) in regards to a senior loan between the two firms.

This was done in spite of a $7 million payment completed by Zenabis on December 31, 2020. The previous day, Sundial had closed the acquisition of a special purpose vehicle; in doing so, it took over $58.9 million of Zenabis’ senior secured debt.

Sundial claims the terms still apply despite the payment. When it made the purchase, Sundial described Zenabis’ senior secured debt as a plus in its investment decision.

According to Sundial’s statement, Zenabis is disputing the default handed down. The company is claiming wrongdoing from Sundial in an attempt to pursue an acquisition.

“In the Company’ view, the actions taken by Sundial since December 30, 2020 clearly demonstrate that Sundial made such investment in an attempt to coerce Zenabis into being acquired by Sundial,” Zenabis told the market in its own statement on Wednesday.

Zenabis claims it was nearing an extension on its repayment obligation with the original lender before Sundial stepped in with its investment.

Unfortunately for investors, the affair has turned into a disagreement between the two companies. The $7 million payment from Zenabis was completed thanks to a sale of cannabis product to an undisclosed producer in the Canadian market.

“(Zenabis) believes the Senior Lender’s allegations to be spurious and without merit and intends to vigorously defend against what it considers to be an ill-disguised attempt to circumvent a fair and competitive process to acquire the Company by improperly foreclosing the equity of the Company or compelling Zenabis to enter into a transaction with Sundial,” the firm said.

In an attempt to deter a Sundial acquisition, Zenabis also made public the fact that it is currently evaluating a potential merger with a cannabis producer after engaging with Echelon Wealth Partners as a financial advisor to pursue “alternatives to maximize shareholder value.”

 

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Australis Capital starts shifting operations

Investors who were looking for change with Australis Capital (CSE:AUSA,OTCQB:AUSAF) got it this past week, when the firm confirmed the arrival of Terry Booth as it new CEO as part of an acquisition deal.

First off, the cannabis investment operation announced a deal for the purchase of Green Therapeutics, a Nevada-based firm with recreational assets. The company also holds assets in Oklahoma and Missouri.

Then Australis confirmed a deal to acquire a majority stake in 2750176 Ontario, otherwise known as ALPS, a company focused on “design, construction management and post-commissioning services for horticultural facilities.” Australis argues it will be able to leverage ALPS’ business relationships to secure low-cost cultivation and offtake agreements.

Booth said this kind of business combination is hard to emulate and will offer a differentiating factor for his new company. Everything is being done with the intention of making Australis follow in the footsteps of the successful multi-state operator model in the US cannabis market.

“We believe that through ALPS we will be able to secure a supply of reliable and high-quality input material to fuel our multi-state roll-out, while at the same time generating free cash flow to accelerate the growth of our business,” departing interim CEO Duke Fu said in a statement.

This past week, shares of Australis jumped in value by double digits. The company started the week C$0.18 per share and as of Friday (January 8) it held a market value of C$0.44 per share. On Friday alone, shares of the company spiked up by over 15 percent just after 1:00 p.m. EST. The company also now holds a market valuation of C$78.51 million.

Cannabis company news

  • The Valens Company (TSX:VLNS,OTCQX:VLNCF) launched a new set of THC and CBD water-soluble drops in the market thanks to a partnership with Verse Cannabis.
  • The Supreme Cannabis Company (TSX:FIRE,OTCQX:SPRWF) announced that its first shipment of medical cannabis products to Australia has reached its destination and will become available through 10 gram containers.
  • VIVO Cannabis (TSX:VIVO,OTCQX:VVCIF) confirmed its cannabis products will be entering the Quebec market as it also launches “additional solventless concentrates” across Canada.
  • Jushi Holdings (CSE:JUSH,OTCQB:JUSHF) told investors about a new offering of subordinate voting shares in the company to raise approximately C$35.1 million. Jushi also increased its revenue guidance for Q4 2020 to between US$32 million and US$33 million, while for its whole 2021 operating year it now projects US$205 million to US$255 million in revenue and US$40 to US$50 million in adjusted EBITDA.

Don’t forget to follow us @INN_Cannabis for real-time updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

 

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, where he worked on lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now seeing a return to form by way of the excitement for an ongoing opening process in the US.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes for cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

 

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“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro environment pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s current potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business potential, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed to work on the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be at the moment.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance.

In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadians waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent an increase to their already thriving operations.

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All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

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Ayurcann has commenced trading on the Canadian Securities Exchange (” CSE “) on April 8, 2021 and subsequently announced a private placement of up to $500,000 (” Financing “), as per the Company’s press release dated April 12, 2021. The proceeds of the Financing are intended to be used to further pursue Phase 2 of the expansion of the production capacity of the Company’s Pickering facility.

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