Weed Wednesday roundup: how Tilray (TLRY.Q), High Tide (HITI.C) and 48North Cannabis (NRTH.V) are finding ways to grow

grow
05/27/2020

You will grow through what you go through. It sounds like one of those motivational platitudes spouted at high speed on whatever social networking platform you choose to frequent, but it has the odd and dubious honour of being true.

COVID-19 has been making life harder for everyone during these trying times, and nobody is getting away unscathed.

Sometimes, though, a company has to retract in order to grow. Easing your household overhead is sometimes as simple as cutting an extraneous cost. Lose your daily latte and save $5 a day, $25 a week, and $200 a month.

The same is true in business.

Here’s your Weed Wednesday roundup.

Late last week, 48North Cannabis (NRTH.V) announced two strategic divestments in a bid to simplify their portfolio and narrow their focus on the Canadian cannabis market.

The two divestments were from Rare Industries (Quill), a multi-state vape tech brand, and Sackville & Co. Merchandising, which handles cannabis accessories. Control will revert back to their former ownership.

That’s what happens when the company takes a $17.9 million dollar loss over a quarter. Some weaker limbs need to be trimmed so the whole tree can grow, and that’s basically what this is.

From the press release:

“During the quarter, the Company reviewed its assumptions regarding the licence, goodwill and intangibles amounts, specifically, whether there was any impairment to the balance sheet values. As such, the Company determined that the goodwill and intangible assets relating to the Rare Industries, Inc. (“Rare”) and Sackville & Co. Merchandising Ltd. (“Sackville”) acquisitions were impaired and have been written off at quarter end. This has resulted in an impairment of goodwill and intangible charge of $4.1 million during the quarter.”

Two limbs go so others may thrive and grow. Here’s what else they’ve done this year.

  • The launch of Ontario’s first cannabis topical brand, Apothecanna (March 5);
  • The launch of 48North’s first vaporizer products, Avitas, in Ontario retail stores across the province (March 26);
  • The signing of a supply agreement with PAX Labs (Canada) Inc. (“PAX Labs) to develop two brands of 48North cannabis vape products to meet different design and price needs (April 1);
  • The launch of 48North’s first accessible dried flower brand in Quebec, Fleur du Jour (April 22) and;
  • The signing of a key supply agreement with Medical Cannabis by Shoppers Drug Mart (May 7).

Then there’s the companies that grow despite the downtown. The question remains unanswered, though, as to how much a company should expand. The math would suggest that as long as the marginal benefit of expansion exceeds the cost, but given the way the cannabis industry has expanded far beyond this simple maxim since legalization in 2017, we have to wonder whether companies are going to learn from the mistakes of the past.

Despite the hits the rest of the industry, and if we’re being honest the rest of the world, has taken during COVID-19, High Tide (HITI.C) keeps putting out store after store in what has been an aggressive M&A campaign.

The notion behind it seems to be to make hay while the sun shines, or if you’d prefer, take advantage of your limited opportunities. Cannabis has been deemed essential by the grand poobahs in various legislative offices across the land, which hasn’t put a crimp in High Tide’s style because they’ve since opened 35 new retail Canna Cabana locations across Canada, with six of them in Ontario alone. Their latest store is in Burlington, Ontario.

“Conveniently located in a shopping centre between the QEW and 407 highways, we are excited to open the Burlington Store and bring our signature Canna Cabana experience to new customers in the densely populated, west end of the Greater Toronto Area,” said Raj Grover, president and chief executive officer of High Tide.

If you’re not down on your geography – the City of Burlington, together with Oakville, Milton, and Halton Hills, make up the Regional Municipality of Halton, and sports a population of more than 500,000 people. Oakville has Sheridan College, one of McMaster’s satellite campuses is in Burlington, and close by are the University of Guelph and the University of Toronto’s Mississauga campus. Depending on how well High Tide does their marketing, they could draw stressed-out students from any or all of these markets.

The Burlington store passed its pre-opening inspection on May 15, after getting their retail store authorization (RSA) from the Alcohol and Gaming Commission of Ontario on may 12.

Shifting from a small, but growing company to a shrinking giant, we have Tilray (TLRY.Q), which announced that its subsidiary High Park Gardens will close its doors over the next six weeks. The company expects to realize annualized net savings of $7.5 million, which is the current production costs of net of future 3rd party purchases and ongoing depreciation, and avoid significant ongoing capital expenditures.

Slash and burn.

“We are continuously evaluating the evolving needs of our business, against a challenging industry backdrop, to ensure we’re in the best position to produce world-class products and deliver positive results for our stakeholders. The decision to close a facility is never easy but we are confident that this will immediately put Tilray in a better position to achieve our goals of driving revenues across our core businesses and working towards positive adjusted EBITDA by the end of 2020,” says Brendan Kennedy, Tilray CEO.

Tilray acquired Natura Naturals and renamed it High Park Gardens in 2019. The facility had 406,000 square feet of Health Canada licensed space for cannabis cultivation and manufacturing, dedicated to the adult-use market in Canada.

Here’s why they’re shutting the doors today.

Net loss was $184.1 million, or $1.73 per share, compared to a loss of $29.4 million, or $0.31 per share, for the first quarter of 2019. The increase in net loss was primarily due to the change in the fair value of the warrant liability of $72.0 million related to the Company’s registered offering of common stock and warrants, impairment of assets of $29.8 million, weakening of the Canadian dollar resulting in a foreign currency translation loss of $28.1 million, increased operating expenses related to growth initiatives in the Company’s cannabis sector and severance costs of $1.9 million related to headcount reductions.

Three companies with three disparate positions facing the same problem.

—Joseph Morton

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