Key Takeaways; Cannabis Sector
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High Tide reported break-even net income amid record cannabis sales in the first quarter of 2024.
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TerrAscend is claiming a $26 million tax refund, as they unveiled a strategy to navigate 280E challenge.
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Cresco is struggling with losses; Nonetheless, they’re eyeing new cannabis markets.
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Cannabis REIT Chicago Atlantic reported 17% interest income increase for 2023.
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Ayr Wellness CEO is optimistic about future adult-use marijuana markets.
Key Takeaways; Psychedelic Sector
This week was ablaze with financial reports from several cannabis players, revealing a notable trend: many cannabis multistate operators (MSOs) are seeking 280E tax refunds to bolster their financial health. While this move seems to improve their balance sheets and cash flows, it also raises concerns about future tax burdens, because should 280E persist, these gains could turn into future tax burdens. Nonetheless, the elimination of 280E would be a game-changer, but its fate hangs in the balance, mainly due to uncertainty regarding the DEA’s potential rescheduling of cannabis from Schedule 1 to Schedule 3.
Below is a weekly roundup of what happened this week in the cannabis and psychedelic sectors. In this ever-evolving landscape, we explore the major developments and groundbreaking initiatives happening among companies operating in these industries; from advancements in medical research, therapeutic applications to shifts in legal frameworks and current market trends.
Top Marijuana Companies for Week
#1: High Tide
High Tide Inc. (NASDAQ: HITI), a prominent Canadian cannabis retailer based in Calgary, Alberta, reported a significant financial milestone in its first-quarter fiscal results for 2024. Despite industry-wide challenges, the company announced break-even net income and positive free cash flow.
During the November-January quarter, High Tide witnessed a notable increase in revenue, reaching 128.1 million Canadian dollars ($94.6 million), marking an 8% rise compared to the previous year.
The company also reported generating CA$3.6 million in positive free cash flow for the quarter, indicating a healthy financial position. It stated that it aims to sustain this positive cash flow throughout fiscal 2024, with CA$28.7 million in cash reserves as of January 31.
Noteworthy achievements during the quarter included a record CA$7.3 million in sales from its Cabanalytics Business Data and Insights platform, along with a substantial increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to CA$10.4 million, marking a 90% growth year-over-year.
The company’s loyalty programs also saw significant traction, with 32,000 people enrolled in its paid loyalty program and over 1.32 million memberships in the Cabana Club loyalty program as of March 2024, showcasing High Tide’s commitment to customer engagement and retention.
High Tide CEO, Raj Grover, emphasized the importance of reaching break-even net income, highlighting it as a critical milestone within the company’s trajectory, particularly in the context of the global cannabis market; “I am very proud to announce that High Tide has reached break-even net income this quarter, which is a critical milestone in our ongoing corporate trajectory and is a rarity in the global cannabis space,” Grover said in a news release.
#2: TerrAscend
TerrAscend Corp. (OTC: TSNDF), a major player in the multi-state marijuana industry, made headlines with its recent announcement during the release of its fourth-quarter and full-year 2023 financial results. The company revealed plans to halt tax payments under Section 280E of the Internal Revenue Code, alongside hints regarding their legal rationale.
TerrAscend, headquartered in Canada, intends to file amended tax returns for 2020, 2021, and 2022, with the expected refunds covering federal and state taxes from 2020 and 2021.
According to Executive Chair, Jason Wild, the company’s revised tax stance could lead to amended returns and an estimated refund of around $26 million. This decision follows the reclassification of $59.2 million in tax liabilities on TerrAscend’s balance sheet as of the close of 2023, as stated by Chief Financial Officer Keith Stauffer during the company’s fourth-quarter earnings call.
Stauffer indicated that TerrAscend will adopt a conventional taxpayer approach moving forward, bypassing the implications of 280E. When pressed for specifics on the legal strategy regarding nonpayment of taxes under 280E, Stauffer alluded to a legal interpretation similar to that outlined in the ongoing Boies Schiller lawsuit, where cannabis companies are contesting federal marijuana prohibition under the Controlled Substances Act.
This announcement from TerrAscend coincides with a period in the cannabis industry marked by companies exploring strategies to mitigate 280E tax burdens. Trulieve Cannabis Corp. (OTC: TCNNF) has already received substantial tax refunds, while Ascend Wellness Holdings, Inc. (OTC: AAWH) also filed amended federal tax returns and anticipates refunds and Jushi Holdings Inc. (OTC: JUSHF) has also outlined their own strategies regarding 280E.
In terms of financial performance, TerrAscend reported a significant increase in net revenue for the quarter ending December 31, reaching $86.6 million, up by 25.4% compared to the same period in 2022. However, the company posted a quarterly net loss from continuing operations amounting to $41.8 million.
Furthermore, for the full-year 2023, TerrAscend reported net revenue of $317.3 million, marking a 28% year-over-year increase, alongside a net loss from continuing operations totaling $82.3 million.
#3: Cresco
In 2023, Cresco Labs Inc. (OTC: CRLBF), a prominent Chicago-based cannabis multistate operator, faced significant financial setbacks, recording a staggering $180 million net loss for the year, according to their fourth quarter and full-year financial report.
This loss was primarily attributed to the company’s exit from two state markets and the collapse of a high-profile $2 billion merger with Columbia Care, now known as The Cannabist Company Holdings Inc. (OTC: CBSTF).
However, amidst the adversity, Cresco managed to end the year on a positive note, reporting a fourth-quarter profit of $4.8 million on revenue of $188.2 million. This marked a significant turnaround from previous quarters and showcased the company’s ability to adapt and recover. Furthermore, as of the beginning of 2024, Cresco reported holding $109 million in cash and equivalents, indicating a solid financial position to pursue its growth strategies amidst a rapidly evolving industry landscape.
Looking ahead, Cresco is prioritizing markets like Florida and Ohio, aiming to position itself strategically for potential regulatory changes. Unlike some competitors, the company is not banking solely on federal cannabis reform or expecting tax refunds under Section 280E of the Internal Revenue Code. Instead, it plans to make substantial investments in key markets and evaluate opportunities as they arise.
#4: Chicago Atlantic
Chicago Atlantic Real Estate Finance, Inc. (NASDAQ: REFI), a cannabis real estate investment trust (REIT) based in Illinois, announced a significant increase in net interest income for the year 2023. According to a recent financial news release, the company’s net interest income surged to $57.1 million, marking a notable 17% rise compared to the previous year ending on December 31.
During the fourth-quarter earnings call, senior management at Chicago Atlantic highlighted the growing prospect of federal marijuana reform, which they believe is driving investment and enhancing equity for their clients. They expressed optimism regarding potential changes in legislation, including the rescheduling of marijuana and the elimination of Section 280E of the Internal Revenue Code, which could significantly improve cash flow for borrowers associated with the company.
Despite a slight decline of 5.8% in net income in the fourth quarter compared to the previous quarter, attributed to increased management and incentive fees, Chicago Atlantic remains bullish about the future outlook. Co-CEO Tony Cappell emphasized the rising demand for credit within the cannabis industry, particularly as states like Ohio gear up for recreational cannabis launches and potential adult-use legalization looms in Florida; “The demand for credit in this capital-constrained industry should only accelerate as a result,” Cappell said.
As of Dec. 31, Chicago Atlantic had committed to lending approximately $378.8 million across 27 portfolio investments, signaling its substantial involvement in financing cannabis real estate ventures.
In addition to its financial performance, Chicago Atlantic also announced two promotions within its senior management team. Former co-President Peter Sack was appointed co-CEO alongside Tony Cappell, while Phil Silverman, who previously served as interim Chief Financial Officer, was appointed permanently to the position.
#5: Ayr Wellness
In a recent earnings call with investors and analysts, David Goubert, the CEO of Ayr Wellness Inc. (OTC: AYRWF), a Miami-based multistate operator (MSO), expressed confidence in the company’s ability to leverage upcoming adult-use marijuana markets. During the earnings call, Goubert highlighted Ayr’s strategic positioning, noting that only 15 of its 91 retail stores are currently operating in adult-use markets. He believes this positions Ayr favorably to tap into the potential of emerging recreational opportunities, particularly in states like Ohio, Florida, and Pennsylvania.
Additionally, during the earnings call, Ayr reported a 10% increase in full-year revenue, totaling $463.6 million for 2023 compared to $421.4 million in 2022. Goubert attributed this growth to the expansion of retail operations in Florida and wholesale activities in New Jersey. The company’s wholesale business, initiated in New Jersey in the third quarter of 2022, is set to expand into Massachusetts, New Jersey, and Ohio in the current year.
Despite the revenue growth, Ayr reported a total net loss of $279.5 million for 2023, with a quarterly net loss of $30.3 million ending December 31. However, in February, Ayr successfully completed a debt extension, retiring or deferring approximately $400 million of debt, which is expected to bolster the company’s financial position moving forward.
Top Psychedelic Company for Week
#1: Awakn
Awakn Life Sciences Corp. (OTC: AWKNF) a biotechnology company specializing in medication-assisted treatments for addiction, particularly Alcohol Use Disorder (AUD), successfully concluded an investigative study on a proprietary S-ketamine oral thin film (OTF) formulation. Administered sublingually, this formulation demonstrated significant dissociative effects, akin to intravenous racemic ketamine, and effectively reduced alcohol cravings in harmful drinkers.
This achievement follows Awakn’s recent global licensing agreement with LTS Lohmann Therapie-Systeme AG for the S-ketamine OTF, securing access to Phase 1 clinical trial data and patents. Leveraging this agreement, Awakn has designated the program AWKN-002 for AUD treatment in the US market, intending to advance to late-stage clinical trials following a planned pre-IND meeting with the FDA in the first half of 2024.
AWKN-002, coupled with manualized relapse prevention cognitive-behavioral therapy (CBT), is poised to broaden access to ketamine treatment due to its rapid onset and offset of action compared to intravenous ketamine. This expansion aligns with Awakn’s commitment to reaching more patients in need of life-saving addiction treatments.
