Coastal, a California-based retail brand, opened its Concord, Calif., adult-use storefront and delivery service on Aug. 10.
The opening was commemorated with a ribbon cutting ceremony, which was attended by Concord’s Chamber of Commerce, Mayor Dominic Aliano, and other city officials and industry leaders, according to a release. Additional launch events for Coastal’s Concord location will take place in the coming weeks, with an official grand opening planned for Sept. 1.
“We are extremely excited and honored to be one of Concord’s first adult-use retailers and to bring our first-class customer experience to the community,” said Julian Michalowski, co-founder and CEO of Coastal. “As one of the only dispensaries in the region, we take our responsibility seriously. We believe in the importance of working together as an industry and are committed to being a thoughtful, trusted and responsible community partner.”
The Concord location marks Coastal’s 12th dispensary in California and will carry brands including Caliva, Jeeter, Deli, Fun Uncle, Heavy Hitters, and more, according to the release.
Coastal will also honor the life and work of longtime Concord resident and Coastal’s late Managing Partner Keith Burks. The company will recognize March 17, his birthday, as Keith Burks Day, with the yearly celebration including in-store events, educational seminars and community service projects.
“On behalf of the City of Concord, we are excited to welcome Coastal to the community,” Aliano said. “Throughout the licensing process, Coastal demonstrated they are experienced operators and committed to bringing cannabis to our city in a safe and responsible manner. We look forward to Coastal’s continued support to our city through volunteer efforts and capital contributions.”
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What Oregon’s Ban on Synthetic Cannabinoids Means for the Industry
Regulators have banned the sale of all artificially derived cannabinoids outside the state’s regulated cannabis market. Industry stakeholders explain why they think this is problematic.
Grön, a Portland, Ore.-based producer of cannabis-infused edibles, has built its business with a focus on minor cannabinoids and effects-based products, including its popular CBN offerings.
But its product mix may soon have to change.
Regulators in Oregon, concerned about the potential of harmful byproducts in artificially derived cannabinoids—and particularly worried about the unregulated delta-8 products that were appearing on the shelves of grocery stores and gas stations across the state—banned the sale of all synthetic cannabinoids on the open market as of July 1, 2022.
Products containing artificially derived cannabinoids may still be sold by cannabis retailers licensed through the Oregon Liquor and Cannabis Commission (OLCC) until July 1, 2023, at which point the products must be approved by the U.S. Food and Drug Administration (FDA) in order to remain on dispensary shelves.
Christine Smith, Grön’s founder and CEO, says that while the OLCC is likely trying to protect consumers, regulators are actually stifling innovation and hindering Oregon’s cannabis industry from achieving its full potential.
CBN products comprise nearly 30% of Grön’s sales, Smith says, and she and her team are uncertain about the products’ future in Oregon. The company plans for production and packaging up to six months in advance and could end up with products that ultimately cannot be sold in the state.
“In a nutshell, it’s kind of a disaster,” Smith says. “It’s gotten a little out of control.”
Photo courtesy of Grön
Grön sources CBN for its gummies, chocolates and sugar-coated pearls from FloraWorks, an Oregon-based supplier of minor cannabinoids.
Grön, which also operates a cultivation facility in Oregon and has expanded its product lines to Nevada, Arizona, Oklahoma, Missouri and Canada, sources CBN for its gummies, chocolates and sugar-coated pearls from FloraWorks, an Oregon-based supplier of minor cannabinoids including CBN, CBC and CBG. The company has developed an accelerated oxidation process that starts with hemp-derived CBD and speeds up oxidation into CBN.
While the cannabis plant produces CBN naturally in small amounts, the cannabinoid can also be created from CBD through an oxidative process that exposes the CBD to heat, light and oxygen to change its molecular composition to CBN. This is the same process that occurs in nature to produce CBN, according to FloraWorks CEO Alleh Lindquist, but the process is sped up in the lab to produce CBN on a commercially viable scale.
The OLCC initially wanted to outright ban the sale of all artificially derived cannabinoids in the state, Smith says, but the industry clapped back, and regulators ultimately settled on a compromise, mandating that synthetic cannabinoids can only be sold through the regulated cannabis market—and that they must be FDA-approved to remain on the market past July 2023.
In the meantime, Smith says Grön must now provide additional information on its packaging.
“We had to change our packaging, saying that it’s made from an artificially derived cannabinoid, and add a few pieces, but we’re able to maintain our products in the market for another 11 and a half months while our producer/supplier goes through this FDA process, and hopefully we’re all able to get this submitted in time,” she says. “If you back it up three to four months from that July 1 date, that’s when we really have to start turning things around or we’re going to be in a really bad position with a ton of product that we have to destroy—potentially hundreds of thousands of dollars’ worth of products that we can’t do anything with, that is absolutely perfectly good product and would be sellable in any other state.”
The OLCC’s definition of artificially derived cannabinoids is extremely broad, Lindquist says, and covers not only fully synthetic, biosynthetic or unnatural cannabinoids, but also cannabinoids like CBN that are found in nature but also created through a chemical process that allows them to be made in greater quantities.
“We do think that regulations should be thoughtful, and this is not particularly thoughtful regulation,” Lindquist says. “The open market side should not be different for CBD, for example. They shouldn’t be arbitrarily deciding which cannabinoids they want to force through the [regulated cannabis] market.”
Oregon’s rule on synthetic cannabinoids is also unprecedented; while many states have adopted rules to ban or regulate the manufacturing of psychoactive cannabinoids derived from hemp, Oregon is the first state to ban nonintoxicating cannabinoids like CBN.
“The only place we’ve seen them broaden that beyond the intoxicants is Oregon, where they’ve said, ‘Look, we want to cover the entire gamut of chemistries performed and say all of that falls under these rules, under our new definition of artificially derived,” Lindquist says. “Again, it’s somewhat misleading, particularly for consumers, because it implies something that’s unnatural and unsafe in today’s consumer market. They’ve bundled together under this ‘artificially derived’ definition whole synthetic cannabinoids that do not come from the plant, [such as] biosynthesized [cannabinoids], where they would be made from an organism, [and cannabinoids that come] from the plant and [then a lab] used some type of accelerating process like we do to.”
“We’re not seeing any other states taking the stance that Oregon is taking and, really, they just don’t understand,” Smith adds. “There’s really no evidence or scientific potential for the kind of toxic byproducts that they’re concerned with, but they just don’t understand it. They’re not scientists.”
The OLCC did not respond to a request for comment.
CBN Studies Underway
While the FDA approval process is lengthy and costly—Lindquist says it can take more than a year and close to a million dollars to complete —FloraWorks was pursuing FDA dietary and food ingredient toxicology studies prior to the OLCC’s rule change.
“FloraWorks was founded to look at rare, novel cannabinoids that do require some type of additional processing than CBD or THC would to actually make them in viable quantities,” Lindquist says. “We basically discovered patented ways to create those cannabinoids. CBN was the first molecule that had efficacy that we wanted to bring to market. We’re actually going through toxicology research, as well as some efficacy research, and that’s our approach to any new molecule that we’re coming across that we’re interested in.”
“We want to meet traditional standards and mature the industry away from what we see as kind of a broad, snake oil conversation about cannabinoids being good for everything and not a lot of oversight from the manufacturing safety [or] consumer safety side today,” Lindquist says. “This is part of maturing that industry, so it looks just like, in our example, melatonin. We would love to see CBN as an alternative to melatonin, sitting on the shelves of drugstores around the world. So, these are kind of the basic requirements for doing that.”
FloraWorks’ CBN will enter official trials Sept. 1 and will undergo a series of toxicology studies on rats.
“They look at neurobehavioral components to make sure that it’s not intoxicating, that you don’t need to put special labels about operating heavy machinery on it,” Lindquist says. “There’s dose range finding in terms of, will this kill a rat or a human if they consume too much? What are the upper limits? Those are all the questions that need to be answered. … We’re confident that we’re going to come through without any issues on the toxicology side, but the work has really not been done before.”
To achieve GRAS certification, FloraWorks must submit a dossier with its toxicology studies and other supporting documentation to third-party experts for review, and once the experts sign off on the dossier, FloraWorks will have met the standard for food-grade ingredients.
The NDI, which is a dietary ingredient standard, has a similar process, but instead of sending the dossier and supporting materials to a third party, FloraWorks must send it to the FDA for final approval.
“There are pathways for bringing these [cannabinoids] to market,” Lindquist says. “There are requirements in terms of filing and the GRAS and NDI requirements. That is all already there, and so this layer that Oregon’s attempted to … add into it is complex and potentially kind of overstepping their authorities in some sense, particularly the open market ban that they’ve made.”
FloraWorks is also undergoing a 1,500-person, placebo-blinded study on the treatment of sleep disorders with CBN. The study, which kicks off this month, will evaluate three different dosages of CBN against a placebo to determine if the cannabinoid is effective as a sleep aid.
“The feedback thus far makes us confident that it’s worth spending the money on [proving anecdotal stories] like this, that consumers are gravitating toward CBN for sleep and most likely we’re going to have some positive results there,” Lindquist says.
Oregon’s rule change has had little impact on FloraWorks’ business, he adds, as the company was already undergoing FDA approval for its cannabinoids and most of the company’s clients are located outside the state. FloraWorks has roughly a year to complete the GRAS and NDI processes, and in the meantime, its CBN can still be sold through Oregon’s licensed cannabis dispensaries.
Smith is hopeful that FloraWorks will achieve FDA approval and that Grön’s products will remain on the market at Oregon’s cannabis retailers.
"The good news is that Flora Works is getting their FDA study, and that is setting the precedent for a fantastic Oregon company to go ahead and do these studies that they were going to do anyway,” Smith says. “And it’s good for all of us with legalization that we can get more sophisticated as the market progresses.”
“This is what we see as the evolution of medical cannabinoids and moving it into a therapeutic market, where consumers can have confidence about where it came from,” Lindquist adds. “Did it go through toxicology work? Can you confirm there are not impurities in it? Is it manufactured under GMP or ISO standards? That’s all part of our approach to the industry."
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Ascend Wellness Calls Off MedMen NY Acquisition After 17 Months
Despite settling an M&A lawsuit in May, Ascend CEO cancels $88-million deal, calling New York a “highly uncertain” regulatory environment.
Although its headquarters are in New York City, cannabis multistate operator Ascend Wellness Holdings (AWH) is no longer going to roll the dice with a market entrance in its home state.
After resolving a monthslong legal battle over a definitive acquisition agreement with MedMen New York (MMNY) in May—with the two companies finally agreeing to an $88-million deal—Ascend founder and CEO Abner Kurtin said this week his company is no longer interested in closing the transaction.
Kurtin told investors during a second quarter 2022 earnings call Aug. 15 that due to concerns about the status of MMNY’s assets, “which have deteriorated materially” since Dec. 31, Ascend is no longer moving forward with the transaction.
“We have been engaged in negotiations with MedMen for 17 months and because of the state of MedMen’s assets, it is time for all of us to move on,” Kurtin said. “Because we will not be moving forward with the MedMen transaction, we have $70 million of unencumbered cash at a time when cash is dear.”
Ascend had already paid $4 million to MMNY as a deposit toward the $74-million closing consideration at the time of the settlement in May. Also in the settlement, Ascend was to make a subsequent payment of $14 million upon the first sale of adult-use cannabis in an MMNY dispensary.
According to Ascend’s financial results, the company ended the second quarter (June 30, 2022) with $140.6 million in cash and cash equivalents—which includes the unspent $70 million from the canceled MMNY deal—enough to fuel its near-term initiatives as business operations are now geared toward generating cash flow, Kurtin said.
Looking Ahead to New Acquisitions
Plans are already in motion for that newly liberated $70 million, Rebecca Koar, the company’s senior vice president of investor relations, told Cannabis Business Times Aug. 16.
Ascend announced Aug. 15 the signing of a definitive agreement providing the option to acquire 100% of the stock of Ohio Patient Access LLC. That transaction will add three medical dispensaries to Ascend’s current portfolio of two retail stores and one cultivation/processing facility in the state, bringing it to the imposed five-dispensary cap in Ohio.
That transaction “will require $11 million of capital at sign, $11.3 million at close, and then $7.3 million for the start of adult use,” Koar said. “Theoretically, that would already be called for from that $140.6 million, which includes the $70 million [from the canceled MMNY deal.]”
The $140.6
million would also cover agreements to acquire two dispensaries (from two
separate sellers) in Illinois.
“And then, also, [Kurtin] alluded to on the call that we’re in late-stage negotiations in Maryland,” Koar said. “That would also come out of there.”
Kurtin told attendees on the earnings call that Ascend is “actively pursuing multiple opportunities” to enter Maryland, where voters will have a say in legalizing adult-use cannabis through a ballot measure sponsored by state lawmakers this November. Commercial sales could begin by the end of 2023 if the measure is passed.
Setting Goals
Kurtin also told attendees that Ascend remains “laser-focused” on limiting nonessential capital expenditures to help work toward becoming a cash flow-generating company in 2023. The company ended Q2 2022 with $153 million in net debt but does not have material debt maturities for the next three years on its balance sheet.
At the end of Q2, Ascend’s footprint included 22 operating dispensaries and five cultivation facilities in six states: Illinois, Massachusetts, Michigan, New Jersey, Ohio and Pennsylvania. Maryland could be a seventh.
While Kurtin said the company is well on its way to becoming a premier multistate operator in its target markets east of the Mississippi River, New York’s medical market and forthcoming adult-use market are no longer in the company’s short-term vision.
“As many of you know, the regulatory environment in New York remains highly uncertain, given the unknown timing of the commencement of adult-use sales, unclear licensing process, and the lack of policing of the illicit market,” he said. “As a result, the New York market is not a priority for AWH, but we will continue to monitor it closely.”
A Market Emerges
New York regulators from the state’s Office of Cannabis Management and its decision-making body—the Cannabis Control Board (CCB)—have provided a tentative timeline to launch commercial adult-use sales by the end of 2022.
This spring and early summer, CCB members approved more than 200 adult-use conditional cultivator licenses for existing hemp farmers in the state to be the first growers for the new market.
In their most recent meeting Aug. 15, CCB members approved 15 adult-use cannabis processor licenses and additional grower licenses.
Much of New York lawmakers and regulators’ focus has been on creating a program around inclusive licensing. That focus includes a $200-million Social Equity Cannabis Investment Program that is a key component of the state’s Seeding Opportunity Initiative—an effort to promote social equity through positioning individuals with prior cannabis-related criminal offenses to make the first adult-use cannabis sales in New York.
Those efforts have led to many investors shying away from the state’s forthcoming adult-use market because “there’s no money for them,” Wei Hu, Esq., a founding partner of MRTA Law, PC, a New York cannabis law practice, told CBT Aug. 16. Hu also teaches Social and Economic Equity in Cannabis at LIM College in New York City.
“[New York] is heavily focused on social justice and economic equity, and hasn’t let either the medical players or MSOs in yet,” Hu said. “Big Canna is pissed at NYS, especially as they can’t really make money until late 2023 [or] early 2024. So, you have players in this industry with MSO clients that are just on the sidelines.”
A Bumpy Road to Calling Off the MedMen Deal
While MMNY attempted to back out and terminate its definitive agreement with Ascend on Jan. 3, 2022, Ascend officials went to court in an effort to force MMNY to honor the original agreement.
The deal was back on—after more negotiating—through the May settlement.
But now the transaction is off again at Ascend’s discretion.
During the Aug. 15 earnings call, Ascend Chief Financial Officer Daniel Neville told listeners that the company had the authority to call off the settled agreement without MMNY agreeing to the decision.
“In terms of New York, there’s really no agreement because we had signed a term sheet for a settlement that ended up not going forward; the remaining litigation is by us to close the original transaction that they failed to close last December,” Neville said. “So, we anticipate this being the end of the matter, though, we can’t control what others do. As we move forward here, we’re looking per the termination agreement to the refund of certain monies that we paid from at the outset of the transaction.”
That refund could include Ascend’s $4-million deposit toward the closing consideration.
Senior Editor Zach Mentz contributed to this report.
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New York Regulators Issue Additional Adult-Use Cannabis Licenses, Approve Testing Regulations
Officials also appointed John Kagia, who has served as the Chief Knowledge Officer for New Frontier Data, as the director of policy for the Office of Cannabis Management.
New York’s Cannabis Control Board (CCB) brought the state a few steps closer to launching adult-use sales Aug. 15 when regulators issued additional business licenses, approved testing regulations and appointed a director of policy to the Office of Cannabis Management (OCM).
Officials issued 15 adult-use cannabis processor licenses Monday, according to a WROC report, as well as 19 new conditional cultivation licenses, bringing the total number of licensed growers to 242.
To qualify for a processor license, applicants must have a Cannabinoid Hemp Processor license, the news outlet reported, and once awarded a license, businesses must participate in a mentorship program that aims to provide entrepreneurship opportunities, establish environmentally sustainable practices in the industry and ensure those with cannabis-related convictions can participate in the market.
“New York is launching our cannabis industry the right way, and our cannabis processors are an integral part of that,” OCM Executive Director Chris Alexander said in a statement, according to WROC. “These processors aren’t just expanding their own businesses, they are committed to also mentoring the next generation of cannabis processors. They’ll be teaching vital manufacturing skills to those with a passion for cannabis who will take our state’s industry to the next level. New York’s entire cannabis ecosystem will create opportunities for those who have been shut out of jobs and industry, and will bring those skills to communities across the state.”
“Processors aren’t just an important part of the cannabis supply chain, they are creators, who take a raw plant and transform it into tested, consistent, high-quality products that consumers can trust,” CCB Chair Tremaine Wright said in a statement, according to the news outlet. “When we open New York’s first stores, owned and operated by New Yorkers harmed by the misguided criminalization of cannabis, the shelves will be lined with infused edibles, topical creams and concentrated oils. None of those products would be possible without these first processors launching New York’s cannabis industry.”
Regulators will begin accepting adult-use cannabis dispensary license applications Aug. 25, and applicants with prior cannabis-related convictions will be first in line to receive licenses as part of New York’s previously announced Seeding Opportunity Initiative, which aims to prioritize those most impacted by the war on drugs in the state’s adult-use cannabis licensing process.
In addition to awarding the licenses, the CCB approved interim regulations Monday for New York’s cannabis testing labs, which will ensure adult-use cannabis products are not contaminated with pesticides, heavy metals or other “adulterations,” WROC reported.
The rules will allow medical cannabis testing labs to expand their operations to serve the adult-use market, as well, according to the news outlet, and labs interested in testing cannabis products are now able to apply for licenses.
State officials have also appointed John Kagia, who has served as the Chief Knowledge Officer for New Frontier Data, as the director of policy for the OCM, according to a Spectrum News report.
Adult-use cannabis sales are expected to launch in New York later this year.
Delta 9 Announces Agreement to Acquire Three Retail Cannabis Stores in Manitoba
Delta 9 has entered into an asset purchase agreement with 10552763 Canada Corp. to acquire all or substantially all of the vendor’s assets relating to the operation of three Garden Variety branded retail cannabis stores located in Manitoba, two in Winnipeg and one in Brandon.
WINNIPEG, Manitoba, Aug. 15, 2022 (GLOBE NEWSWIRE) -- PRESS RELEASE -- Delta 9 Cannabis Inc. has announced that today it has entered into an asset purchase agreement with 10552763 Canada Corp. to acquire all or substantially all of the vendor’s assets relating to the operation of three Garden Variety branded retail cannabis stores located in Manitoba, two in Winnipeg and one in Brandon.
“We are pleased to announce another strategic retail acquisition to grow our market share across the Canadian prairies,” said John Arbuthnot, CEO of Delta 9. “On closing of this transaction Delta 9 will operate 38 stores, positioning us as one of Canada’s largest vertically integrated cannabis retailers.”
The purchase price to be paid by the company relating to the transaction will be $3,250,000, subject to customary adjustments. $2,925,000 of the purchase price will be satisfied through the issuance of such number of common shares in the capital stock of the company (each a common share) equal to the deemed price of the 10 day volume weighted average price of the common shares on the Toronto Stock Exchange (the TSX) on the date immediately preceding the closing date of the transaction (the common share price). $325,000 of the purchase price will be satisfied through the issuance of such number of common shares equal to the common share price, which will remain held in escrow for a period of approximately six months.
The Garden Variety retail cannabis stores have demonstrated significant revenue, EBITDA, and earnings growth over 2020 and 2021. The company expects the transaction to be accretive in 2022 and 2023 before synergies. The acquisition represents an attractive revenue multiple of approximately 0.41x annualized revenue. The combination of the Garden Variety cannabis stores and Delta 9’s existing store network will make Delta 9 a leading retailer of cannabis products in Manitoba.
The purchase agreement includes several customary conditions in favour of the company, including due diligence and the approval of the TSX. The closing of the transaction remains subject to the approval of the TSX.
The transaction is expected to close on or around Aug. 29, 2022.
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Zach Mentz
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