Newsletter May 2023 – KEY is Leading Series B Funding for this Exciting Brand
KEY Funding Announcement
KEY Investment Partners Leads Botanica’s Series B Round!
Founded in 2014, Botanica is a house of cannabis brands including Mr. Moxey, Journey Man, and Spot. Botanica is primarily based on the west coast with licensed operations in Washington and Oregon. The company leverages an asset light licensing model in three other states and is expanding their footprint through a partnership with the MSO Acreage.
Read Acreage’s announcement here.
“Botanica’s management has established several leading edible brands in some of the most competitive markets. Their Mr. Moxey mints are the #1 mint product in WA, OR, CO, and MA with an average market share of 65%, and their new Journeyman drink has rapidly gained market share. We are excited to join the team in financing this next phase of growth,” said KEY Founding Partner Tiby Erdely.
KEY Portfolio Company Raises Series Seed Round!
Katalys Secures Series Seed Funding
Q2, 2023 – KEY Fund I Portfolio Company, Katalys (formerly RevOffers) held the first close of their $5mn Series Seed financing round resulting in a 3x+ writeup for KEY Fund I. KEY along with GreenAXS Capital Partners and WDG Opportunity Fund led the Series Seed financing round. This financing round will allow Katalys to continue their growth plans and allow the company to expand their team.
Katalys is a market-leading affiliate network for the CBD industry and is expanding into other highly regulated verticals. Katalys has continued to successfully attract leading brands and top affiliate marketers in their verticals and is expanding into tangential industries by leveraging their existing traffic. Katalys has experienced 70% YoY growth and continues to validate the KEY thesis that marketing dollars flow toward low-risk performance-based channels.
Day Three Labs Secures $3mn Financing Round
Q2, 2023 – KEY Fund I Portfolio Company, Day Three Labs has announced the closing of a new $3mn financing round. This financing round will allow Day Three Labs to continue their growth plans and replace nano-emulsions with a pharma-grade delivery system to unlock a safer, more efficient edibles experience. Day Three Labs’ Unlokt technology enables drug delivery via proteins and protects the cannabinoids and terpenes allowing the body to receive the intended medicinal effects in the intended amount.
Day Three Labs continues to have a robust pipeline and the KEY team remains excited about the potential to replace nano-emulsions with Day Three Labs Unlokt technology.
KEY Investment Partners Tops Up LeafLink Investment
Investment is part of $100M round of funding by the market leading B2B platform.
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, and the KEY team continues to be excited about LeafLink’s progress and the outlook for the B2B wholesale market generally. 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.
News Around the Industry
Record Breaking 4/20 Sales
Akerna, a cannabis data company, announced that this year’s 4/20 holiday broke all previous cannabis retail records, with a total of $154.4 million in adult-use and medicinal sales. This is a 38.1% increase compared to last year’s sales, which were previously the largest in the industry’s history. In total, US shoppers spent $485.3 million on cannabis products around the 4/20 period. The increase in sales is attributed to more markets legalizing cannabis and more Americans becoming comfortable with the industry. Akerna data also shows an increase in the market share of women shoppers in the cannabis industry, with women’s market share of sales breaking the 40% mark for the first time ever.
The top-selling product categories were flower (48.11%), cartridge/pens (31.66%), and concentrates (11.63%). Men accounted for 59.93% of sales, while women accounted for 40.07%, and the age group with the highest sales was those between 30-40 years old. The cannabis industry is expected to continue seeing year-over-year increases as more markets legalize cannabis and the industry gains broader appeal.
New Jersey Governor Murphy Signs Law Relieving Cannabis Companies Of Punitive IRS Tax Code
New Jersey Governor Phil Murphy has signed a law that decouples marijuana businesses in the state from the federal IRS Code Section 280E. The law was written by the New Jersey Society of CPAs Cannabis Interest Group and relieves the cannabis industry from the IRS code that penalizes those who sell Schedule I or II controlled substances, which includes cannabis. The law will apply to tax years beginning on or after January 1, 2023, and removes the $15 million cap on revenue to qualify for deductions and credits for ordinary and business expenses.
The 280E code has caused cannabis operators to pay over $1.8 billion in additional taxes compared to other businesses. The move was met with praise by cannabis businesses in the state, Curealeaf CEO thanked Governor Murphy and stated that the much-needed state tax reform will allow businesses to focus on growth and job creation.
Senate Holds 1st SAFE Banking Bill Hearing And Senator Warren Pushes For Cannabis Descheduling
The U.S. Senate Banking Committee held a hearing to discuss the Secure and Fair Enforcement (SAFE) Banking Act, which would allow the cannabis industry to access traditional banking services. The bipartisan bill, reintroduced by Sens. Jeff Merkley, D-Ore., and Steve Daines, R-Mont., aims to provide legal protection for banks that serve cannabis-related businesses in states where it is legal.
Banks have been hesitant to work with cannabis companies due to the drug’s federal status as a Schedule I substance, leaving many cannabis businesses unable to access basic financial services such as checking accounts and loans. The bill has been tweaked since last session and now includes provisions to extend safe harbor to organizations that assist underserved communities.
However, industry detractors, including the president of Smart Approaches to Marijuana (SAM), Kevin Sabet, argued against the ratification of any SAFE Banking Bill. Massachusetts Senator Elizabeth Warren expressed support not only for SAFE Banking but also outright cannabis descheduling. In October 2022, President Biden asked the attorney general and Department of Health and Human Services to review cannabis’s classification under federal law as a Schedule I drug. The Department of Health is currently reviewing cannabis’s classification and it is believed that a recommendation from the Department will be delivered at the end of its review.
Washington Becomes The Third State to Create Cannabis Interstate Commerce Law
Washington Governor Jay Inslee has approved a new law that permits the transportation of legally sold marijuana from the state to other legal marijuana markets. However, this law is subject to two conditions: federal legalization of marijuana or the allowance of interstate commerce for marijuana products by the U.S. government. Oregon and California have already enacted similar laws, with Oregon doing so in 2019 and California in 2022.
The Washington law requires regulators to officially announce the change in policy for interstate commerce once either federal authorities legalize marijuana, or the U.S. Department of Justice issues an opinion permitting interstate commerce with certain conditions. Additionally, the law mandates that state marijuana laws be amended to allow for the sale, delivery, and receipt of cannabis from outside the state.
Renewed Adult-Use Cannabis Legalization Drive Launches In Ohio
Cannabis advocates in Ohio are launching a new campaign to legalize recreational marijuana after a previous citizen-initiated initiative failed to pass through state legislators by the May 3 deadline. The Coalition to Regulate Marijuana Like Alcohol has until July 5 to gather approximately 124,000 signatures in order to include a marijuana legalization question on Ohio’s November election ballot. The campaign aims to build upon the success of the existing medical marijuana program in Ohio, which has shown popularity and effectiveness in providing safe and tested products to medical patients.
The proposed legalization would grant licensing priority to current medical marijuana license holders, impose a 10% tax on adult-use cannabis sales, and allow individuals to cultivate cannabis at home. A previous attempt to legalize adult-use marijuana in Ohio was withdrawn from the ballot in 2022, but this new campaign represents a renewed effort. Ohio’s medical marijuana program is projected to generate sales of around $575 million in 2023, according to the 2023 MJBiz Factbook.
New Hampshire Governor Offers Path To Legalize Cannabis A Day After Senate Rejects Bill
Governor Chris Sununu of New Hampshire, a potential Republican presidential candidate, proposed a plan similar to the state’s control over liquor sales as a way forward after the latest attempt to legalize recreational marijuana was rejected by legislators. While previously opposing marijuana legalization, Sununu acknowledged the majority support for it and stated that change is inevitable. He emphasized harm reduction over profits and suggested regulating recreational marijuana in a manner similar to wine and spirits sales, allowing the state to retain control of marketing, sales, and distribution without the need for additional taxes.
Sununu recommended amending a current bill in the legislative session to achieve this goal. He also emphasized the importance of avoiding concentrated marijuana shops in a single city or town and allowing local jurisdictions to ban shops if desired. Sununu highlighted the risks associated with the black market, where marijuana and other drugs are sometimes laced with fentanyl, and argued that regulating marijuana sales would contribute to citizen safety.
Despite bipartisan support for legalization in the House, the Senate has consistently blocked such bills, citing the ongoing drug addiction and overdose crisis. House Democratic Leader Matt Wilhelm expressed strong support for marijuana legalization, emphasizing its potential to protect public health.
Kentucky Passes Bill Legalizing Use Of Medical Cannabis
The Kentucky legislature passed Senate Bill 47, legalizing medical marijuana use in the state. Kentucky now joins 37 other states in allowing the use of medical or recreational cannabis. The bill permits medical cannabis prescription for various conditions, including cancer, multiple sclerosis, chronic pain, epilepsy, chronic nausea, and post-traumatic stress disorder. Patients under 18 require assistance from a designated caregiver to possess or acquire medical cannabis.
After receiving approval in the Senate and passing committee with only two “No” votes, SB 47 obtained a final vote of 66-33 on the House floor. Governor Andy Beshear expressed gratitude for the progress and indicated his intention to sign the bill. Senate Majority Floor Leader Damon Thayer, who previously opposed marijuana-related legislation, voted in favor, emphasizing support for those suffering. The bill’s passage was celebrated by advocates who have fought for its approval over the past decade.
Critics, however, argue that marijuana is a gateway drug that will harm Kentuckians. The bill allows for the dispensation of medical cannabis in various forms, including topicals, edibles, and vaporized cannabis for those over 21. Opponents raised concerns about the allowance of raw plant material, suggesting it will likely be smoked. Proponents clarified that smoking is not permitted and emphasized the importance of proper enforcement.
The bill’s effective date is set for the beginning of 2025 to allow time for the development of regulations. Previously, Governor Beshear took executive action to relax restrictions on medical cannabis, but legislative approval was required for full legalization. The passage of SB 47 marks a historic day for Kentucky and reflects the voices of constituents who shared their stories with lawmakers.
Minnesota Legislature Reaches Deal On Legalized Adult-Use Cannabis, Vote Likely In Final Days Of Session
Key negotiators in Minnesota have reached a final agreement on legislation to legalize recreational cannabis for adults aged 21 and older. The deal paves the way for a vote in both the House and Senate during the final days of the session.
The bill, which has undergone significant revisions throughout the legislative session, will legalize the recreational use of marijuana and establish state-licensed businesses for cultivation, manufacturing, and retail sale of cannabis products. The final agreement includes a 10% gross receipts tax on marijuana products, with 80% of the revenue allocated to the state and 20% to cities and counties.
The newly established Office of Cannabis Management will receive a significant portion of the funding to oversee regulatory framework and provide research and training on cannabis effects and law enforcement. Opponents have expressed concerns about public safety, including the potential impact on emergency rooms, youth, and increased fatalities on highways. The bill also includes provisions for testing oral fluid roadside tests as part of a pilot program within the Department of Public Safety. The regular session work of the state legislature must be completed by Monday.
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