LOWLF - Cannabis Consolidation Continues

Summary

• A prolonged downturn and liquidity crunch have led to more consolidation across the sector.
• Some are strong, some are surviving. The Parent Company, MedMen, MariMed, Schwazze.
• Twitter goes green.
• Promising cannabis sales.

BofA equity strategist Savita Subramanian wrote earlier this month in a note that 'layoffs have been prominent at a number of large firms, primarily Big Tech.' Indeed, layoffs have hit the marketplace like a punch in the face and the cannabis industry has taken jabs left and right as we wrote about last week.

A bear market and liquidity crunch lasting many more months than nearly everyone was prepared for - coupled with a deflating cycle of political promises and backtracking has led to what so many saw coming - more industry consolidation.

The Parent Company ( GRAMF ) made news this week as it agreed to combine with privately held Gold Flora in an all-share transaction expected to close at the end of Q3 2023. Readers and listeners may recall my excitement over this stock when it first hit the market. I have been #humbled on this one. Jay-Z, whose partnership with the company never really amounted to much, took his toys and left last month.

Along with Lowell ( LOWLF ) Chairman George Allen (one of TPCO's 10 largest shareholders), we'll be following along closely.

MedMen ( MMNFF ), a known brand but depressing investment, will be restructuring its assets in Arizona, Illinois and Nevada.

ATB will assist MedMen in evaluating opportunities to divest certain retail and cultivation assets in order to bolster liquidity and maximize shareholder value with an asset-light model.

Assets under strategic review include:

• Arizona: vertically integrated operations comprising of one dispensary located in Scottsdale and a 20,000 sq. ft. cultivation and production facility located in Mesa
• Illinois: two dispensaries located in Oak Park and Morton Grove
• Nevada: two dispensaries located in Las Vegas

Wise investors know that for (almost) every distressed asset there is a stronger, better-capitalized suitor that may then become even more than the sum of its parts. Case in point: two not-so-little cannabis engines that could and that many analysts on this podcast have highlighted in the past: Schwazze ( SHWZ ) and MariMed ( MRMD ).

MariMed announced its intention to acquire the operating assets of Ermont, Inc. (“Ermont”), a medical licensed vertical cannabis operator, located in Quincy, MA. Ermont who is presently in receivership with a court appointed receiver Opus Consulting Partners LLC. Opus and MariMed negotiated this transaction with court approval. The acquisition, which is subject to approval by the Massachusetts Cannabis Control Commission (“CCC”), will provide the Company with its third dispensary in Massachusetts, substantially completing its buildout to the maximum allowable by state regulations... MariMed is applying with the CCC for approval of adult sales and plans to expand the existing medical dispensary to accommodate the increased traffic.

Schwazze, following its recent expansion into New Mexico, announced this week

that it has signed definitive documents to acquire certain assets of Cannabis Care Wellness Centers, LLC and Green Medicals Wellness Center #5, LLC (d/b/a "Smokey's"). The proposed transaction includes the adult use Smokey's dispensaries located at 2515 7 ^th Avenue in Garden City as well as 5740 S. College Ave. in Fort Collins. These two vibrant cannabis markets have limited licenses and present Schwazze with more opportunities to serve customers in northern Colorado. This acquisition continues Schwazze's deliberate expansion in Colorado and, upon close, will bring the Company's total number of Colorado dispensaries to 27.

Despite so many headline shenanigans and broken political promises, the industry is growing.

Canadian cannabis sales surged in December.

An increase in the number of stores as well as falling flower prices that bring consumers from the illicit market have been boosting sales. In Ontario, the largest province in population, sales were up 15.1% from November and up 35% from a year ago. Alberta, which is the second-largest province, was up 11.1% from November and up 12% from a year ago. Quebec was up 12.7% from November and down 2% from a year ago, while British Columbia was up 13.3% from November as it advanced 21% from a year ago.

Global sales are increasing and US sales are expected to grow, according to BDSA :

Global legal cannabis spending grew 4.8% to $32 billion in 2022 and forecasts a compound annual growth rate (CAGR) of 13.2% from 2022 to 2027, resulting in a market size of $59.6 billion by 2027. Despite economic uncertainty and rising inflation, BDSA expects legal U.S. cannabis sales to grow 14% by the end of 2023.“Legal cannabis spending slowed significantly in 2022 due to rapid price declines across all markets,” said Roy Bingham , Co-Founder and CEO of BDSA. “Despite this, our updated forecast predicts strong growth in the U.S. driven by developing markets, particularly the adult-use markets of Missouri, New Jersey and New York. Additionally, four of the top five U.S. markets—Florida, Illinois, Massachusetts and Michigan—will increase by a combined 9.5% in 2023, adding nearly $770 million in new spending.”

And while many social media platforms are outrageously antagonistic towards cannabis content, Elon Musk finally made a lot of people happy this week when Twitter announced it would allow cannabis companies to advertise. Trailblazer Trulieve ( TCNNF ) was the first to take advantage.

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