The Bengal Bite 🐯 | Cannabis Momentum | January 22, 2021

Home to one of public cannabis’ best performers, ~$5b market cap Trulieve, the Florida medical cannabis market was again in the news recently as companies announced their moves into the Sunshine State, already a >$1 billion market: 

• Cresco, having previously cancelled a $120m all-stock acquisition of Florida licensee VidaCann in 2019, announced its intention to purchase Bluma Wellness for $213m (all-stock), 

• A couple of weeks ago, Ayr Strategies announced it would acquire Liberty Health Sciences for $290m (all-stock), and 

• Several weeks ago, the large private player Verano Holdings announced that it would go public through an RTO while also merging with Florida licensee AltMed (23% of the combined entity before giving effect to the proceeds of the RTO, and $35m cash in installments to certain former AltMed owners).

Valuation is a dark art in the best of times, but especially when it comes to strategic mergers and acquisitions. What’s a good comp for the right to sell medical cannabis in Florida? Maybe the price of Florida itself - all of it, the land, trees, beaches, Keys, oranges, and swamps. In 1819 the U.S. agreed to purchase Florida from Spain for $5m in a hard bargain driven by then-Secretary of State, and future President, John Quincy Adams. The deal ultimately “closed” in 1822 with the Florida Territory becoming part of America. Adjusted for inflation, $5m is about $115m in 2021 dollars. A true value investor, John Quincy Adams presciently saw 199 years ago how attractive a cannabis market Florida would be today.

This week's Bite:

• 2nd time's a charm: Cresco announces intent to acquire Bluma Wellness for $213m (all stock), expanding the MSO’s footprint into Florida. This is their 2nd attempt to enter the market via acquisition following their terminated acquisition of VidaCann. (BizJournal)

• Move over 4/20: Unexpectedly, although maybe not in a year like 2020, 4/20, national day of cannabis enthusiasts everywhere, did not make it into the top ten cannabis sales days of the year (although some of this could be due to pre-lockdown stockups in March). (Akerna) 

• SPAC-mania continues into 2021: The favored financial vehicle has enough momentum to continue the relevancy of SPACs into 2021. (Yahoo Finance)

• UFCannabis: Now stepping into the octagon are guys who used cannabis yesterday (not today though). (ESPN)

Read more below:

Cresco Labs to enter Florida with Bluma Wellness acquisition

21.5 million residents, >$1b in medical cannabis sales, and a limited number of licenses make Florida an attractive state for any MSO not already in the market. After a $120m all-stock false start with Florida company VidaCann in 2019, Cresco is back in a $213m all-stock acquisition of its competitor Bluma Wellness.

Akerna reveals top 5 cannabis sales days of 2020

2020 was a year like no other, especially for the cannabis industry. Unexpectedly, cannabis’ main traditional “holiday” 4/20 did not even come out in the top 10 highest grossing days for cannabis sales in the year. Instead, national holidays and extended weekends were the blockbuster sales days, potentially because cannabis is a much more potent performance enhancer in dealing with holiday lockdowns than in mixed martial arts (see UFC note below).

Cannabis SPACs will remain popular in 2021 despite several challenges

SPACs are unique public vehicles that are effectively publicly traded cash looking to buy something within 24 months, and usually some sweeteners thrown in for the management team that put the SPAC together. A currently favored vehicle in public markets generally, cannabis SPACs are poised to be a potentially significant player in 2021 with a collective $2.5b in capital that must be deployed before the end of next year. Most cannabis SPACs intend to trade on NASDAQ, and so therefore can’t “touch the plant.”

USADA 'essentially' eliminating marijuana use as UFC violation

A testament to the momentum that cannabis has gained in the sports arena (where NFL, NBA, MLB, NHL have decreased or removed marijuana usage penalties), popular mixed martial arts promotion the Ultimate Fighting Championship (UFC) is no longer testing for cannabis outside of day-of screenings to determine whether or not the substance is being used as a performance enhancing drug during the bout itself. In fairness, based on our extensive research, we at Bengal were always skeptical of the performance enhancing benefits of cannabis in the pummeling of others.