Cannabis Weekly Round-Up: MSO Deal Clears Waiting Period

- October 25th, 2019

The Investing News Network rounds up some of the biggest company and market news in the cannabis market for the past trading week.

During the past trading week (October 21 to 25), a critical marijuana deal in the US that had been under federal review cleared its waiting period.

The Investing News Network (INN) also covered the poor performance seen by a Canadian marijuana producer, as well as a variety of critical opinions on the current state of the cannabis investment market.

Here’s a closer look at some of the biggest cannabis news over the last week.

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Zenabis investors face a difficult trading week

Shareholders of Zenabis Global (TSX:ZENA) saw their investment drop throughout the week as the company made a variety of critical announcements to the market.

The company faced its biggest drop for the week after it confirmed a new rights offering for current shareholders. A spokesperson for the company told INN the move has already secured guarantees of participation from insiders representing 30 percent of the entire rights offering.

Despite the commitment, the market reacted negatively to the deal and shares of the company saw a sharp decline of 39.76 percent last Thursday (October 24).

“Zenabis believes this is the least dilutive manner to raise incremental capital given current market conditions,” the company said.

Earlier in the week, the firm indicated that its expansion plan for a facility in Langley, British Columbia, will be split into two phases, with the second phase getting delayed. This decision was made, according to the company, as a way to combat current market conditions and protect its cash flow.

“By early in the first quarter of 2020, we expect to have 111,200 kilograms of capacity licensed and operational with the approval of the Zenabis Langley — Part 2B amendment,” said CEO Andrew Grieve.

The company also announced a new supply deal partnership with privately held British Columbia producer Tantalus Labs.

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Cresco Labs’ deal for Origin House clears waiting period

Last Tuesday (October 22), Cresco Labs (CSE:CL,OTCQX:CRLBF) and Origin House (CSE:OH,OTCQX:ORHOF) confirmed that their much-anticipated acquisition deal has completed its waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

Marc Lustig, CEO of Ontario-based Origin House, called the expiration of the review period an important development for the deal itself and the cannabis industry at large.

The deal was under review as the US Department of Justice has taken an increased interest in recent marijuana deals. Cresco Labs said the two firms are now working on closing the deal with new terms they can both agree on. The deal now holds a deadline of November 15 to be completed.

Expert opinions on the changing landscape for cannabis

In an exclusive interview with INN, the executive team of Cannabis One Holdings (CSE:CBIS) explained the adjustments the firm has taken in order to meet increasing scrutiny from the investment market.

The company, a cannabis brand and asset aggregator, is pursuing more rigorous acquisitions and has seen its list of potential targets reduced due to enforcing stricter standards.

“We’re seeing a number of prior targets for acquisition (that are) no longer our target because the investor desire to invest in a company that is … basically operating (at a loss) is no longer the landscape we’re operating in,” Cannabis One CEO Jeff Mascio said.

Hadley Ford, CEO of iAnthus Capital Holdings (CSE:IAN,OTCQX:ITHUF), spoke with INN after his panel at a recent investor event in Toronto about the struggles for marijuana companies due to the current state of the investment market.

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“The actual values that exist in the market today bear no resemblance to what the values of the actual companies are,” Ford said. In his opinion, there is a disconnect between the true values of companies compared to the current sentiment surrounding these stocks.

The executive also highlighted the change in capital-raising ability seen throughout the space. “We’re all getting painted with the same brush,” Ford told INN. “Six months ago, anyone who smoked a joint could raise US$100 million. Now? It’s tough.”

During a webinar event for investors, Charles Taerk, president and CEO of Faircourt Asset Management, said investors need to be aware of the difficult investment landscape facing the marijuana market.

The expert pointed to a growing trend he expects to see more cannabis players face: a lack of available financing, especially if a company has not yet diversified its approach.

“This is a situation that many Canadian companies that are either pre-revenue, or (have) very small revenue numbers, are going to be facing because the credit facilities and the equity markets have dried up,” said Taerk.

Market updates

This past week, vape pen maker company PAX Labs announced a 25 percent reduction in its staff. The company said the cuts were due to a recent “significant revenue miss” for the firm. PAX Labs holds supply partnerships with five marijuana producers in Canada. The company declined to explain if this workforce reduction will affect its plans in the Canadian market.

A report indicates Aphria (NYSE:APHA,TSX:APHA) is looking to get rid of its stake in Australian company Althea Group Holdings (ASX:AGH).

If it does so, it would the third Canadian firm with a significant investment in the Australian cannabis market to have recently announced a shift in that investment. Previously, Canopy Growth (NYSE:CGC,TSX:WEED) and Cronos Group (NASDAQ:CRON,TSX:CRON) announced changes in their Australian investments.

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

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

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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