It’s no secret that mergers and acquisitions activity is on a steep ascent throughout the cannabis industry. In July alone, a number of significant transactions occurred.
Curaleaf Holdings Inc., a vertically integrated U.S. cannabis company, announced in a press release that it signed “a definitive agreement to acquire GR Companies Inc. (Grassroots), the largest private vertically integrated multistate operator, in a cash and stock deal valued at approximately $875 million.” Curaleaf CEO Joseph Lusardi commented in the release, “With a combined 68 open dispensaries, this transaction ... enhances the depth of our retail and wholesale platform across the country.”
Orchid Ventures, a California-based, multistate cannabis brand, entered “into an agreement to purchase assets from GreenBloom Cannabis Co., a vertically integrated cannabis operator with five retail stores, two cultivation facilities, one distribution entity and six brands across Oregon and California,” as we reported on CannabisBusinessTimes.com.
And the Supreme Court of British Columbia approved an arrangement between Supreme Cannabis and Blissco, “where Supreme Cannabis will acquire all of the issued and outstanding common shares of Blissco not already owned by Supreme Cannabis,” the acquiring company announced in a press release. In the release, Supreme CEO Navdeep Dhaliwal stated, “Supreme Cannabis will acquire Blissco’s facility built to EU GMP standards that has been extracting oils for the Canadian market since August 2018. Blissco’s scaled capabilities allow for Supreme Cannabis’s high-quality inputs to be processed in-house, creating a near-term large-scale extraction opportunity ....”
To help you keep track of major M&A deals, as well as help you navigate M&A transactions, we’re pleased to introduce in this issue the new “M&A Monthly” department—which features M&A highlights from our M&A Weekly newsletter (for which you can sign up to receive all the latest M&A news, plus insights and strategic information from experts, at: bit.ly/CBT_MAWeekly).
In light of the industry’s increasing M&A activity, predominantly among larger businesses, “Tomorrow In Cannabis” columnist Kenneth Morrow shares his perspectives on ways that smaller companies can survive and thrive amidst heavy consolidation and cutthroat business practices by applying strategies that are more common to larger corporations, such as controlling or owning various parts of the supply chain.
This tactic is illustrated in part by Supreme Cannabis’s acquisition of Blissco—which effectively brings in-house extraction infrastructure and expertise under Supreme’s control.
That tactic also plays a significant role at Pacific Reserve, this issue’s cover story subject. While it was not via an acquisition, the Salinas, California-based company sought out and was awarded licenses for processing, manufacturing and distribution to accelerate the owners’ vision for controlling their supply chain and destiny.
Whatever your end game, it’s essential to keep your eye on other players—within the industry and beyond—and their strategies. As Warren Buffett said, “The more you learn, the more you earn.”
Familiarity With CBD Products Is Growing in the U.S.
Departments - Upfront | Fast Stats
39 percent of U.S. adults, according to a recent Gallup poll, support over-the-counter CBD sales.
“Given the limited amount of pure-play cannabis stocks available for U.S. investors, it comes [as] no surprise that millennials are concentrating in these positions.”
^ In an email to Fortune, Matt Hawkins, managing principal at Cresco Capital Partners, shared his thoughts on Aurora Cannabis’ recent No. 1 ranking on the trade and investment app Robinhood’s most-held stocks list, ahead of Apple (No. 4) and other major companies. The app is especially popular with millennials and Gen Z users. Source: Fortune
courtesy of Constellation Brands
“While we remain happy with our investment in the cannabis space and its long-term potential, we were not pleased with Canopy’s recent reported year-end results.”
^ In a June 29 earnings conference call, Constellation Brands Inc. Chief Executive William Newlands said his company was not pleased with the fourth-quarter earnings of cannabis producer Canopy Growth Corp., in which Constellation holds a 38-percent ownership stake (with options for up to 50-percent ownership in the future). On July 3, Bruce Linton announced he had been fired as Canopy’s CEO. Source: Marketwatch
“Phylos bridged the divide between the cannabis community and rigorous science and made that science accessible and compelling to many. And then it torched that bridge.”
^ Robert C. Clarke, cannabis researcher and Cannabis Business Times columnist, shared his thoughts on why he resigned from the Phylos Bioscience Scientific Advisory Board in the wake of the company’s announcement to start a breeding program. Source: Cannabis Business Times
Understanding Sulfur Deficiency Issues in Cannabis Cultivation
Figure 1. The pattern of how the chlorosis (yellowing) begins at the leaf base and then works toward the leaf tip can be used as an aid in diagnosing a sulfur (S) deficiency.
Photo by Paul Cockson
While magnesium (Mg) is sometimes a forgotten element, sulfur (S) is actually ignored. Few fertilizer bags even list the amount of S provided. Typically, it is only listed as an ingredient, and the main amount of S supplied is from the associated sulfate (-SO4) attached to the micronutrients. This low amount provided as part of the micronutrients is generally insufficient to meet plant demands.
One reason S has not received much attention is because atmospheric S has been readily available due to the burning of high sulfur coal. In the 1966 book, “Sand and Water Culture Methods Used in the Study of Plant Nutrition,” author E.J. Hewitt states that in the United Kingdom, S deficiencies are rarely seen within close proximity to cities or towns due to the use of household coal-burning heating units. With the increased use of low-S containing coal and natural gas for electricity generation, the amount of atmospheric S available to plants is diminishing. To compensate for this shift, agricultural applications of S-containing fertilizers such as potassium sulfate (K2SO4), calcium sulfate (CaSO4), and magnesium sulfate heptahydrate (MgSO4.7H2O) have increased.
With greenhouse cannabis production, we require fertilizers to be readily water soluble. Sulfate-based fertilizers such as K2SO4, CaSO4 and MgSO4.7H2O easily precipitate out of solution into insoluble forms. The primary culprit is CaSO4, which is gypsum and commonly used as wallboard in building construction. So the S fertilization strategy must be customized to meet the demands of the greenhouse environment.
Figure 2. The initial symptom of a sulfur (S) deficiency begins as a slight chlorosis (yellowing) of the mid-section leaves (A), which becomes more pronounced in yellowing (B), and then gives an overall yellowing (C).
Photos by Paul Cockson
Evaluate Your Fertilizer Program
The first step in determining if you are providing enough S is to evaluate your fertilization program. Sufficient levels of S usually are not provided by the irrigation water. (In most cases this is ideal, for S in the hydrogen sulfide form (H2S) is associated with the rotten egg smell.) Ideally, fertilizer and the corresponding substrate S levels should be in the 50 to 200 ppm range. Assuming the availability of a baseline level of atmospheric S, the critical lower target range should be above 25 ppm S. Higher levels of S generally are considered to be non-toxic, but there is a limit above ~300 ppm. Elevated S levels can inhibit the plant’s ability to uptake both boron (B) and molybdenum (Mo). The key for plant nutrition is balancing all the factors that impact uptake to optimize growth.
Because S concentrations are typically not listed on most fertilizer bags, you will need to send a fertilizer solution sample to a commercial lab to obtain a complete analysis of the S and the other elements contained in your fertilizer. This is an invaluable test that should be done to ensure that your overall fertilization program is on track.
Sulfur Deficiency Symptoms
Cannabis (Cannabis sativa) plants can develop symptoms of S deficiency, but the occurrence is much lower than, say, a nitrogen (N) deficiency. Sulfur and N deficiencies have very similar leaf symptomology. The key is observing where on the plant the symptoms first appear. Nitrogen is a mobile element, which means when the plant senses that N is low, it will remobilize N from the older leaves to the younger growth. That is why N deficiency symptomology of total leaf chlorosis (yellowing) initially appears on the older, lower leaves. (Note: With advanced N deficiencies, the symptomology will work its way up the stem into the middle section of the plant, which can confuse the diagnosis.)
Sulfur is a partially mobile element. In most S-deficiency situations, symptoms of leaf yellowing will appear in the middle section of the plant on the recently matured stage of leaves (Fig. 4). This is the case when N is also amply provided. If at the same time, N levels are inadequate, S deficiency symptomology can overlap in lower portions of the plant in the same region where N symptomology will appear. This makes diagnosing the situation more challenging and reinforces the need to submit a tissue sample to a commercial lab for complete nutrient analysis to confirm your diagnosis.
The typical progression of S symptomology begins as an overall pale discoloration of the middle zone leaves (Fig. 2A). This yellowing is associated with a drastic decrease in chlorophyll concentration in the leaf due to the plant’s inability to synthesize key amino acids. The pattern of how the chlorosis first appears on the leaf will aid in diagnosing S deficiency. Typically chlorosis first appears at the leaf base and progresses outwards toward the leaf tip (Fig. 1). As symptoms progress, the overall level of yellowing intensifies (Fig. 2B&C). With advanced conditions, due to the lack of chlorophyll, sun burning of the leaves will result in the appearance of necrotic spots. Plant growth will also be stunted (Fig. 3). In general, the S sufficiency range for cannabis is between 0.17 percent to 0.26 percent as suggested by Bryson and Mills in “Plant Analysis Handbook IV.”
Figure 4. Typical symptomology of a sulfur (S) deficiency appearing in cannabis as chlorosis (yellowing) of the middle leaves.
Photo by Brian Whipker
Corrective Procedures
The fix for S deficiency is easy. Epsom salts (magnesium sulfate) can be applied at the rate of 2 pounds per 100 gallons of water (2.4 kg/1000L). Apply this as a 5 percent to 10 percent flow-through leaching irrigation. This will stop symptom progression but will not reverse any severe leaf chlorosis or necrotic spotting. For regions that lack sufficient S in irrigation water and S is not part of the regular fertilization program (i.e., 20-10-20 does not contain significant amounts of S), monthly applications of Epsom salts at the rate of 1 pound per 100 gallons of water (1.2 kg/1000L) is the common production practice to green up plants and avoid deficiencies. (Also note, avoid mixing Epsom salts with calcium (Ca)-based fertilizers, as this will result in an insoluble precipitate forming in the fertilizer container.)
Figure 3. Plant growth is also affected when sulfur (S) is limited (left plant as compared with the complete control plant at the right).
Photo by Paul Cockson
Conclusions
Symptoms of S deficiency readily develop on cannabis. Growers need to increase the amount of S available from the irrigation water, and provide supplemental S to the plants as needed to avoid further deficiencies.
Brian Whipker, Paul Cockson, James Turner Smith & Hunter Landis are from the Department of Horticultural Science, North Carolina State University, Raleigh, N.C.
A Look at Wholesale Cannabis Pricing Trends in Massachusetts and Illinois
Departments - Upfront | Sales Trends
The number of licensed retailers will greatly affect how these states’ wholesale prices trend.
Massachusetts and Illinois exemplify how wholesale prices frequently trend upward in expanding medical cannabis programs that transition to adult-use markets. However, the fact that each state has its own unique quirks means that the extent and duration of price inflation will vary.
Massachusetts
In Massachusetts, adult-use sales began in late November 2018. Demand in the medical program was expanding rapidly already, with sales volume to patients increasing by more than 50 percent from 2017 to 2018.
Massachusetts medical cannabis businesses that expanded into adult-use could transfer some inventory to the recreational sector, tightening supply overall. Accordingly, the state’s quarterly spot index rose from $2,600 to $2,952 per pound during Q4 2018 to Q1 2019.
However, as more cultivators gained adult-use licenses, state data shows that wholesale prices trended downward as production increased. Weekly wholesale prices in Massachusetts rose to more than $3,000 per pound late in Q1 2019 but declined in April and May. As of June 14, the state spot index was averaging $2,887 per pound for Q2 2019.
As of late May, Massachusetts only granted 18 adult-use retailers permission to begin sales. As such, there is limited shelf space to fill, and access to the licensed market is not widespread, allowing production to catch up to demand.
Illinois
Illinois’ rollout of an adult-use cannabis industry may proceed differently given current medical market conditions and the state’s plan to begin recreational sales quickly. Illinois’ medical cannabis program saw significant growth in 2018, when dispensary sales rose by almost 60 percent over 2017. Revenue growth accelerated in early 2019 as the state’s dispensaries and producers repeatedly set new monthly sales records.
In Q4 2018, Illinois’ spot index averaged $3,033 per pound. It opened 2019 by rising 3.7 percent to average $3,145 per pound in Q1. Prices almost reached $3,200 per pound in April but declined in May. As of June 14, the state’s spot index was averaging $3,099 per pound for Q2.
Legislation legalizing an adult-use cannabis industry in Illinois calls for sales to begin in January 2020. The state’s 55 medical dispensaries will be permitted to begin sales right away if they qualify for licenses and may also apply to open a second storefront. The state’s existing growers, of which there are about 20, will be allowed to expand, but no new cultivators will be licensed until July 2020. With about 100 adult-use retailers possibly opening their doors early next year and medical sales booming, cultivators could struggle to produce supply adequate to meet demand in a state with a significantly larger population (12.7 million in 2018, according to the U.S. Census Bureau) than Massachusetts (6.9 million in 2018).
Overall, Cannabis Benchmarks’ historical data shows that the transition to a legal adult-use cannabis market has resulted in wholesale flower prices behaving uniquely state-to-state, depending on various factors such as how many businesses are licensed, the prevalence of outdoor cultivation, and regulatory burdens. For example, in Colorado, wholesale rates were not observed to decline steeply until about two-and-a-half years after the opening of recreational sales in 2014. However, Oregon saw a steep decline less than 18 months after its first licensed retailers opened.
Cannabis Business Times’ interactive legislative map is another tool to help cultivators quickly navigate state cannabis laws and find news relevant to their markets. View More
Noelle Skodzinski
Adam Koh
