Cannabis Summary for Aug. 27, 2021
THE S&P/TSX Cannabis Index lost 2.54 to 159.44, while the CSE Composite Index lost 6.55 to 675.22. Canadian cannabis giant Tilray Inc. (TLRY) edged up 12 cents to $16.96 on 1.15 million shares, as it made its latest effort to throw its weight around with shareholders. The company has been trying for over five months to convince shareholders to increase its maximum allowable share count. A new open letter from chairman and chief executive officer Irwin Simon brought fresh cajolement.
By way of background, Tilray has 446 million shares outstanding and is currently allowed to boost this to no more than 743 million. In March, it proposed increasing this maximum to 900 million. Shareholders shot it down in April. Undeterred, Tilray revived the idea in June, even setting its sights on a more ambitious 990 million. It claimed that this would help it “move quickly to seize the highly attractive acquisition and financing opportunities we see ahead.” As the weeks wore on, the silver tongue grew brassy. “HELP TILRAY GROW!” came the insistent refrain in over two dozen entreaties filed on SEDAR. Considering that Tilray has postponed the requisite shareholder meeting twice, first from July 29 to Aug. 19 and then again to Sept. 10, it is plain to see that its besieging beseechment is not working.
Mr. Simon continued to plead Tilray’s case in his latest letter. He talked up last week’s “milestone transaction” with U.S. MSO (multistate operator) Medmen Enterprises Inc. (MMEN: $0.355), through which Tilray is eyeing its entry into the U.S. cannabis market. Tilray sees additional “tremendous international growth opportunities” and even views itself as a potential “consolidator in the global cannabis market,” wrote Mr. Simon. Shareholders can help by voting yes at the Sept. 10 meeting so that Tilray can “lead this industry by growing larger and faster than our competitors.” Noting that Tilray currently has 49-per-cent voter support — almost enough to cross the 50.1-per-cent approval threshold — Mr. Simon concluded with a “Please vote,” as well as the apparently obligatory “HELP TILRAY GROW!”
South of the border, a different MSO, Bob Groesbeck and Larry Scheffler’s Planet 13 Holdings Corp. (PLTH), added 11 cents to $6.37 on 192,500 shares. Investors sifted through mixed financials for the second quarter. Revenue came to $32.8-million (U.S.), exceeding analysts’ predictions of $30.6-million (U.S.), but adjusted EBITDA of $7.2-million (U.S.) fell below analysts’ predictions of $7.5-million (U.S.). Total expenses also ballooned to $18.9-million (U.S.) in the second quarter from $9.7-million (U.S.). As a result, the company swung to an operating loss of $638,000 (U.S.) (from operating income of $3.4-million (U.S.) in the first quarter) and an overall net loss of $4.4-million (U.S.) (from net income of $442,000 (U.S.)).
Much of the increase in costs reflects the opening of Planet 13’s second so-called SuperStore, located in California. The first SuperStore is in Nevada, right off the Las Vegas Strip, and bills itself less as a dispensary and more as an entertainment multiplex that sells cannabis, food, drinks, tourist kitsch and more. The Nevada complex accounts for the vast majority of Planet 13’s sales, making the company an MSO mostly in name only. Yet the company opened its California location last month and won a licence in Illinois (Chicago) earlier this month. Co-CEO Mr. Scheffler declared today that Planet 13 has “the wind at our backs” and is looking forward to seeing “all the improvements we put in place start to pay off.”
Another Nevada- and California-focused operator is Body and Mind Inc. (BAMM), which reached an intraday high of 74 cents before closing at 66 cents (up two cents) on 485,700 shares. The stock has climbed from 50 cents since Aug. 19, on no news that would explain the rapid increase. Now a fellow Vegas-based company seems to have provided an explanation. Australis Capital Corp. (AUSA), halted at 24.5 cents, has released financials disclosing that on Aug. 19, it struck a deal that will stop putting so much selling pressure on Body and Mind’s shares in the open market.
Australis’s interest in Body and Mind goes back to 2018. In No vem ber of that year, Australis acquired 16 million shares of Body and Mind at 40 cents, plus warrants. Through warrant exercises and other transactions, Australis increased its position to 34.8 million shares by May, 2019. It then unloaded 15 million shares in late 2019 through private transactions. The year 2020 brought some open market sales, but also saw a debt-to-equity conversion that kept Australis’s holdings fairly steady at 19.2 million. That was where they stayed from July, 2020, until February, 2021. After that, however, the steady drip of sales resumed. Australis’s position dropped to 18.1 million shares
as of August, 2021, while over the same period, Body and Mind’s share price slumped to around 40 cents from over $1.
In the new financials, Australis revealed that on Aug. 19, it reached an agreement with Len Clough’s Toro Pacific Management Inc. (TPMI) to sell 9.9 million Body and Mind shares for $2.97-million by Sept. 30, 2021. “The company agreed it would not sell any additional [Body and Mind] shares until after that date and give TPMI the right of first refusal of any subsequent sales for two years until Sept. 30, 2023,” noted Australis. This is music to the ears of beleaguered Body and Mind shareholders. The sale would also push Australis below the 10-per-cent insider threshold, giving it far less influence over Body and Mind’s activities (including a board nomination right above the 10-per-cent threshold).
One of the reasons that Australis seemed to pause its share sales of Body and Mind from mid- to late 2020 was that during this time, Australis was engaged in a dissident battle. The dissidents won, and Terry Booth, best known as the co-founder and former CEO of Canada’s Aurora Cannabis Corp. (ACB: $9.07), became Australis’s CEO in January, 2021. He has since been steadily promoting the company’s ambitious expansion plans. Its resulting acquisition spree even became a source of pride when the stock was halted three weeks ago for tardy year-end financials; Mr. Booth blamed the delay on the new management having “accomplished a lot” and enacted “a mountain of changes.” The changes include a rebranding as Audacious (though the listed entity remains Australis).
The new financials resolve the issue and should let the stock resume trading soon. Mr. Booth, in full promoter swing, used the accompanying press release to promise “strong growth, accretive transactions, clever partnerships and multistate expansion ... to ignite, excite and delight our stakeholders.” He even unveiled yet another new name, this time for the company’s wish list: the “Audacious Cannifesto.”