A drop in cannabis wholesale prices has caused some friction between the companies behind a joint venture (JV) marijuana production company.
Shares of Village Farms International (NASDAQ:VFF,TSX:VFF) fell on Tuesday (October 15) after the company confirmed its 50 percent owned JV, Pure Sunfarms, will receive a dispute notice from the other JV partner, Emerald Health Therapeutics (TSXV:EMH,OTCQX:EMHTF), whose share price also took a hit.
The discord is centered around a “price deficiency obligation” invoice that Pure Sunfarms sent Emerald for approximately C$7 million, and Emerald Health is arguing that it’s not liable for the bill.
In a release, Village Farms notes that the price for wholesale cannabis in the most recent quarter has dropped in British Columbia (BC), where Pure Sunfarms operates, forcing the company to sell its product at a discounted price after Emerald failed to pick up its right to purchase.
Village Farms adds that it’s not a part of the supply agreement and states that any money that’s owed is payable directly to Pure Sunfarms.
Emerald Health has an agreement in place to purchase 40 percent of Pure Sunfarms’ total cannabis production; however, in instances when Emerald has not wholly exercised that right, Pure Sunfarms has sold the product on the open market.
As part of the deal, Emerald Health is required to pay the JV the difference between the predetermined price of the cannabis and the market price if the market price is lower than the originally agreed-upon price. This agreement allows Pure Sunfarms to cover its operational costs.
In an email statement to the Investing News Network, Bernie Hertel, vice president of finance and communications with Emerald Health Sciences, defended the company’s stance, stating:
We have previously stated that as Emerald’s business evolves we are aiming for each of our assets to perform on a stand-alone basis, and we will work to maximize margin at each operation. Purchasing product from a supplier in the context of wholesale pricing does not leave a lot of margin for Emerald, and that is not an activity we intend to build.
The market hasn’t reacted favorably to the news. Shares of Emerald Health dropped 11 percent over the course of the trading day from C$1 at open on Tuesday to C$0.89 by 11:35 a.m. EDT.
Village Farms shares also saw some fluctuation in Toronto, falling 1.4 percent to C$9.22 by 11:40 a.m. EDT from an opening price of C$9.35.
Emerald Health also issued a statement on the dispute, saying it believes it’s not liable for the cost under the supply agreement “due to the manner in which the JV conducted its recent cannabis sales.”
The release from Emerald Health notes that the company has the right to purchase, or reject, 40 percent of Pure Sunfarms’ production. In the event that it rejects the product, it is obligated to pay the difference “under certain circumstances.”
The disagreement puts the JV and its owner firms in a dispute that is set to be addressed at a later date.
Since Emerald Health doesn’t believe it is liable for the money under the supply agreement, it’s requesting the issue be addressed at an upcoming meeting with the board of directors at Pure Sunfarms.
The drop in cannabis prices is a phenomenon that is not restricted to BC.
Recently, data from Statistics Canada showed that the price of cannabis has fallen since recreational use was legalized. According to GlobalNews, BC Minister of Public Safety Mike Farnworth has said prices will drop even further in the province as supply ramps up.
Retail store owners in BC have also noticed a drop in the price of wholesale cannabis. Spiritleaf Vernon owner Sarah Ballantyne told Global the store passes the savings on to its customers.
Don’t forget to follow us @INN_Cannabis for real-time news updates!
Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.
CanBud Distribution Corporation Closes 2M Second and Final Tranche of its Oversubscribed Private Placement Offering
CanBud Distribution Corporation (CSE: CBDX) (FSE: CD0) (“CanBud” or the “Corporation”) is pleased to announce that it has closed the final tranche of its oversubscribed non-brokered private placement for aggregate gross proceeds of approximately $4,730,000 (the “Offering”).
The Corporation issued a combined total of 39,409,346 units (each a “Unit“) at price of $0.12 per Unit, with each Unit comprised of one common share in the capital of the Corporation (each a “Common Share“) and one common share purchase warrant (each a “Warrant“). Each Warrant entitles the holder to purchase one additional Common Share at an exercise price of $0.22 within 24 months of the closing of the Offering (the “Warrant Term“), provided, however that if the closing price of the Common Shares on the Canadian Securities Exchange (the “CSE“) (or any such other stock exchange in Canada as the Common Shares may trade at the applicable time) is $0.25 or greater per Common Share for a period of five (5) consecutive trading days at any time after the closing date of the Offering, the Corporation may accelerate the Warrant Term such that the Warrants shall expire on the date which is 30 days following the date a press release is issued by the Corporation announcing the reduced warrant terms.
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In connection with termination of the merger transaction with FCC, the Company has agreed to pay FCC $100,000 in cash and to issue FCC 5,000,000 common shares of the Company at a deemed value of $0.05 per share. The common shares will be subject to a four-month-and-one-day statutory hold period in accordance with applicable securities laws.
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Strategic sale of non-core assets by Lobe adds non-dilutive capital and shareholder value
Lobe Sciences Ltd. (CSE: LOBE) (OTC Pink: GTSIF) (“Lobe” or the “Company”) is pleased to announce, further to its press release dated February 23, 2021, that it has completed the sale to Ionic Brands Corp. (“Ionic Brands”) of Lobe’s non-core cannabis assets relating to Washington-based Cowlitz County Cannabis Cultivation Inc. (“Cowlitz”) held by Lobe’s subsidiary vendor, Green Star Biosciences Inc. (the “Transaction”).
Seattle Area Grocery Chain Metropolitan Market to Begin Carrying KOIOS and Fit Soda on March 22, 2021
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