Newsletter – April 2023
KEY Funding Announcement
KEY Investment Partners has invested in LeafLink, which recently closed a $100M round of fundraising!
Since its founding in 2016, LeafLink has become a significant partner to the wholesale cannabis industry helping thousands of brands and retailers standardize and manage their operations. LeafLink serves approximately 50% of the U.S. wholesale cannabis industry across 30 markets. Earlier this year, LeafLink announced a $100 million Series D round enabling the team to support its customers’ evolving technology and operational needs through enhanced platform functionality.
“LeafLink has established itself as the cannabis industry’s leading B2B technology platform. The Company’s platform processes approximately $5bn annual transactions and continues to innovate to drive value and efficiencies for the industry as a whole. We are excited to join the team in financing this next phase of growth,” said KEY Founding Partner Jordan Youkilis.
KEY Portfolio Company Announcement
Sweet Leaf Madison Capital Secures $100mn Financing Facility
March 30th, 2023 – KEY Fund I Portfolio Company, Sweet Leaf Madison Capital (SLMC) has announced the closing of a new $100mn debt facility, which was provided by a New York-based global institutional special situations asset manager. This infusion of capital will make SLMC one of the best-financed asset-based lenders to small- and medium-sized enterprises in the cannabis industry. Both parties have an option to evaluate progress and increase the debt facility to $200mn.
SLMC has been providing tailored lending solutions to help hundreds of cannabis businesses fund growth opportunities since 2016. The recent funding will enable SLMC to further narrow the gap between cannabis businesses and capital needs. SLMC spreads its asset-based debt financing across a wide range of cannabis businesses in all medical and adult-use states, which allows them to diversify their investments and provide non-dilutive financing to cultivators, processors, retail, and ancillary cannabis businesses.
Bryant Park Capital LLC (BPC), a FINRA-registered investment bank, served as SLMC’s exclusive financial advisor and was integral in this transaction. BPC maintains deep and proprietary relationships across the institutional investor landscape and is very active in compliant cannabis financing. Bryan Gordon, Chairman and CEO of SLMC, expressed that the new capital infusion is a strong show of confidence in cannabis debt financing, as well as in Sweet Leaf Madison’s approach to working in this highly regulated and fragmented industry.
News Around the Industry
March 30th, 2023 – KEY Fund I Portfolio Company, Sweet Leaf Madison Capital (SLMC) has announced the closing of a new $100mn debt facility, which was provided by a New York-based global institutional special situations asset manager. This infusion of capital will make SLMC one of the best-financed asset-based lenders to small- and medium-sized enterprises in the cannabis industry. Both parties have an option to evaluate progress and increase the debt facility to $200mn.
SLMC has been providing tailored lending solutions to help hundreds of cannabis businesses fund growth opportunities since 2016. The recent funding will enable SLMC to further narrow the gap between cannabis businesses and capital needs. SLMC spreads its asset-based debt financing across a wide range of cannabis businesses in all medical and adult-use states, which allows them to diversify their investments and provide non-dilutive financing to cultivators, processors, retail, and ancillary cannabis businesses.
Bryant Park Capital LLC (BPC), a FINRA-registered investment bank, served as SLMC’s exclusive financial advisor and was integral in this transaction. BPC maintains deep and proprietary relationships across the institutional investor landscape and is very active in compliant cannabis financing. Bryan Gordon, Chairman and CEO of SLMC, expressed that the new capital infusion is a strong show of confidence in cannabis debt financing, as well as in Sweet Leaf Madison’s approach to working in this highly regulated and fragmented industry.
February 15th, Twitter announced a policy change, allowing advertising and marketing by state-legal cannabis companies in the US, has been hailed as a positive move for the sector, with industry insiders suggesting it could push other digital advertising platforms to rethink their own prohibitions. The social media giant has further incentivized the cannabis industry by offering a promotional offer. Some US cannabis companies have already taken advantage of the opportunity, but others are being more cautious, taking a “wait-and-see approach”.
Twitter’s rules for US cannabis companies are different from those for Canada, where legal marijuana businesses are already allowed to advertise on the platform. Under the US rules, advertisers “may not promote or offer the sale of cannabis,” but topical hemp-derived CBD products containing less than 0.3% THC are an exception. While this is seen as more symbolic than practical for some, it is seen as an important development for the sector, and one to watch as it continues to evolve.
Delta-8 Brouhaha Creates Marijuana Opportunity In Next Federal Farm Bill
With the 2018 Farm Bill that legalized hemp expiring in September, there is growing pressure in Washington DC for Congress to consider marijuana reform during Farm Bill discussions. Despite federal marijuana prohibition, there are calls to regulate intoxicating hemp-derived cannabinoids, as products containing these substances continue to flood the market and pose regulatory controversies. There are bipartisan concerns about the impacts of hemp-derived delta-8 and delta-9 products, with 14 states having already banned delta-8 products outright. It is thought that the Farm Bill could provide an opportunity to fill the gaps in the regulation of hemp-derived products and to provide a regulatory framework.
Some argue that the Farm Bill could also be a vehicle for the SAFE Banking Act, which failed to gain a hearing in the Senate last year. While crafting the Farm Bill is a lengthy process that generally takes most of a year, initial discussions are already underway. The US hemp producers are also lobbying for an increase in the allowable THC content before a legal hemp plant becomes illegal under federal law, from 0.3% to 1%.
Trulieve Adds Another $5.5 MM To Florida Marijuana Legalization Campaign
Florida-based multistate operator Trulieve Cannabis has donated an additional $5.5 million to the Smart & Safe Florida campaign, which is working to legalize adult-use marijuana in the state. This brings Trulieve’s total contribution to the campaign to $25.5 million. The Smart & Safe Florida campaign has already collected more than 291,000 signatures for its petition, which would allow people aged 21 and over to possess, purchase, or use marijuana for non-medical purposes. To get the constitutional amendment on the ballot, the campaign needs to collect over 891,589 signatures.
The amendment, if passed, would make it legal to use marijuana products and accessories for personal consumption by smoking, ingestion, or other methods. Trulieve previously donated $5 million to the campaign in December 2021.
Delaware Lawmakers Expected to OK Adult-Use Cannabis But…
The Delaware state Senate is expected to vote in favor of two adult-use marijuana legalization bills on Tuesday. These bills would legalize recreational marijuana for adults 21 and older and set up a regulated industry in the state. The first bill would end criminal penalties for possessing an ounce or less of marijuana, while the second bill would set up a regulatory framework similar to those seen in other states. Localities would be allowed to ban commercial cannabis activity.
Governor John Carney, who vetoed similar legislation last year, is an avowed legalization opponent, and the expected veto could pose a challenge. Although the Democratic Party holds a supermajority in both chambers of the state Legislature, there may not be enough support to overcome the veto. The Delaware Cannabis Coalition warns that some of the state’s existing medical marijuana providers are lobbying against the bills. Delaware legalized medical marijuana in 2014 and sales began in 2015.
Minor Cannabinoids Making Major Inroads Targeting Specific Medical Conditions
New research has found that minor cannabinoids, such as CBN and THCV, can help treat various health and wellness conditions, providing cannabis companies with the opportunity to expand their product offerings beyond typical THC and CBD offerings. Cannabigerol (CBG), Cannabichromene (CBC), Cannabinol (CBN), and Tetrahydrocannabivarin (THCV) are the four minor cannabinoids that are most commonly incorporated in new products. The use of minor cannabinoids has increased the U.S. market for them to $4.9 billion in 2020, with a predicted annual growth rate of 20.1% from 2021 to 2028.
Companies are beginning to roll out products incorporating minor cannabinoids, such as Cronos Group’s Day Trip gummy featuring a 3-1 ratio of CBC to THC. Researchers are still studying the precise chemical properties of minor cannabinoids and how they work in the human body, as there are up to 100-200 cannabinoids, which may have different pharmacological effects. A lot of research is still needed to understand if the cannabinoid profile is due to genes or the environment, and if the effects are due to the individual cannabinoid or if the effect is amplified by the combination of multiple cannabinoids.
While Some Cannabis Companies Are Leaving The State, These Marijuana Companies Are Doubling Down On California
California’s highly regulated and challenging marijuana market has prompted several companies to exit, including Curaleaf Holdings and Slang Worldwide. However, some small and big players are focusing on expanding their presence in the state despite facing challenges such as declining sales, high taxes, and eroding margins. Companies aiming to grow include Leef Brands, Jetty Extracts, and Catalyst Cannabis Co. The Long Beach-based retail operator plans to double the number of stores it operates this year. Even with the challenges, Catalyst CEO Elliot Lewis believes the future is bright as California has the world’s largest regulated marijuana market. Cannabis manufacturing company Leef Brands is also expanding by acquiring a brick-and-mortar dispensary in Southern California, among other measures. However, several operators are winding down sales in California as they are running out of money.
In 2022, the value of M&A deals in California also declined significantly, prompting many marijuana operators to look to the eastern US for expansion opportunities. Despite difficulties in raising capital, Lewis believes that remaining in California while larger, well-funded cannabis companies exit is an opportunity for his company. Catalyst aims to expand its footprint from 15 stores to 30 this year by taking a lean approach to expanding and staffing partner stores with Catalyst employees.
California Report Shows Ramped-Up Crackdown on Illicit Operators
The California Department of Cannabis Control (DCC) has increased its efforts to combat illicit cannabis operations in the state, resulting in increased enforcement actions such as search warrants, plant seizures, and arrests. The DCC’s enforcement statistics show that search warrant operations increased by 150% in 2022, and illegal cannabis seizures surged by 246% to 144,254 pounds, while arrests tripled to 56. The combined efforts of the DCC and other California agencies resulted in the seizure of 439,800 pounds of cannabis worth nearly $737 million and eradication of 960,212 plants. Firearms seizures also rose by 130% from the previous year. Interestingly, cash seizures fell to $1.8 million from $7.7 million in 2022.
Despite these efforts, experts believe that the illicit market in California is still double the size of the regulated one, with local, county, and federal agencies facing challenges to curb it. Law enforcement officials in San Bernardino County reported seizing over $1 billion in cannabis plants and processed marijuana since 2020, with Chinese nationals running most indoor marijuana cultivations. While cannabis sales in California declined in 2022 for the first time since the state launched its adult-use market five years ago, the illicit market remains a significant challenge, with most lawbreakers receiving only a ticket.
More Than A Dozen Congressional Lawmakers Demand Transparency In Marijuana Scheduling Review By Biden Administration
More than a dozen bipartisan congressional lawmakers sent a letter to top Biden administration officials on Thursday, demanding transparency in the ongoing marijuana scheduling review that the president directed last year.
Rep. Earl Blumenauer (D-OR) recently circulated a draft of the letter among colleagues, seeking signatories before sending the final version to U.S. Attorney General Merrick Garland and Health and Human Services (HHS) Secretary Xavier Becerra.
The letter states that Biden’s scheduling directive represents “an opportunity to make honest assessment of the origins and implications of federal policy,” adding that “marijuana was scheduled based on stigma not science,” and it’s “time to address marijuana’s existing reality as a state-regulated substance.”
“The administrative review of marijuana’s scheduling should place the burden of evidence on maintaining marijuana’s status as a scheduled substance. To correct the failed war on drugs and cannabis prohibition, the assumption must be that, unless evidence undeniably indicates that marijuana is more prone to drug abuse than unscheduled substances already regulated at the state level, marijuana should be fully descheduled from the Controlled Substances Act.”
Mexico Grants First License for Cannabis Cultivation
Mexico has granted its first-ever license for cannabis cultivation to Xebra Brands, allowing the company to import and acquire cannabis seeds, cultivate and harvest cannabis, process and produce cannabis, and sell cannabis products domestically and through export. This comes two years after the Mexico Supreme Court ruled cannabis prohibition unconstitutional, leading to the passage of cannabis reforms by federal lawmakers. Xebra Brands’ CEO, Jay Garnett, said the license is the first-ever grant for full cultivation, harvesting, processing, and commercial activities to a corporate entity in Mexico, and is an important moment for cannabis globally.
The authorizations received by Xebra include standard conditions concerning safety protocols, security measures, phyto-sanitation processes, pest management procedures, and customary inspection and reporting provisions, and initially allow the commercialization of products containing less than 1% THC. In 2021, Mexico’s Supreme Court granted Xebra Mexico an irrevocable injunction to commercialize cannabis products, which required formal authorizations from regulators. This grant represents years of hard work by a devoted team and is only the beginning of Xebra’s plans for growth, said Garnett.
DISCLAIMERS: This site is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing on this site should be construed as a recommendation by Key Investment Partners LLC, its affiliates, or any third party, to acquire or dispose of any investment or security, or to engage in any investment strategy or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. Nothing in this site may be considered as an offer or solicitation to purchase or sell securities or other services.
Leave a Reply
Want to join the discussion?Feel free to contribute!