Two AZ operating publicly traded cannabis companies & their divergent approaches to the Arizona market. One holds, one sells

Not even Kenny Rogers could read the tea leaves in Arizona but we will try.

It is no secret that various Arizona cannabis companies take very different financial approaches to the Arizona limited license market, but when assets are valued near $10 million for a paper license alone, is it a sell, buy, or a hold? Only time will tell, but seeing the different approaches to raising capital and selling assets might indicate wisdom or the exact opposite. For example, MG Magazine reports, (“Harvest”), a vertically integrated cannabis company with one of the largest and deepest footprints in Arizona and the U.S. announced on December 30th, 2019, that it will be saving capital. They announced a debt financing tranche while preserving Arizona assets. CNN reports, (“MedMen Enterprises”), a cannabis dispensary chain with operations across the U.S., is unloading multiple assets including recently purchased assets in Arizona approaching 40-50 million in cash value. Which is the wiser move? 

“We are no longer in the land-grab growth phase of this industry,” Adam Bierman, MedMen’s co-founder and CEO stated. “In the high-growth phase or life of the business, we were reliant upon the capital markets to fuel that growth. In this chapter, we have to rely upon ourselves, our assets and how we choose to monetize those assets.”

The AZ market is lucrative now with verified sales of vertically integrated licenses as of June 2019 for 9.7 million for a paper license alone, and it will undoubtedly continue to grow for the foreseeable future, with the possible legalization of cannabis. The ‘ Smart and Safe AZ Initiative (S&SI) ’, the most likely path to legalization, and drafted and backed by medical dispensaries to specifically give them long term control of the adult-use marketplace, will double the value of the assets. So wouldn’t you want to keep those licenses? MedMen doesn’t think so.

Only time will tell if MedMen’s move is fortunate or foolhardy. If the Smart and Safe AZ Initiative passes, the assets that MedMen will sell for a break-even amount or small profit will double in value in 2021; a result which could prove to be a very bad decision. On the other hand, Harvest shows a glimpse of its confidence in the Smart and Safe AZ initiative by retaining assets and debt financing, rather than selling its Arizona licenses which are valued at over a hundred million dollars. Perhaps MedMen can’t find financing; perhaps MedMen thinks the licenses have been overvalued; perhaps MedMen thinks another scenario might play out here. There is always more to the story but after investing 100k in the S&SI and then to pull out, seems hasty? Will MedMen not have the ability to buy back in one day? On the other hand, Harvest appears to have the savvier executive team, or perhaps it’s the unique loyalty and commitment Harvest has to the AZ market which guides its focus. 

“The closing of this initial tranche serves as the foundation for our 2020 growth objectives and expansion plans,” said Harvest Executive Chairman Jason Vedadi. “We believe this financing adds capital at a reasonable cost and will support Harvest as we continue on a path toward profitability.”

During these next few months, all the publicly traded companies that have assets in Arizona, Curaleaf, Harvest, etc., and anyone else looking for capital will have the option to sell these high priced $10 million dollar assets. They will have to make strategic decisions whether to hold on or sell them for $10 million dollars and there are buyers lined up, says John Labate, industry broker. It seems to those of us in the inside that the executive team at Harvest has once again proven itself to have the wisdom to lead both a major financial organization and the cannabis organization. 

We look forward to seeing what happens in 2020 and beyond. Stay tuned for future developments on this story. Keep your finger on the pulse with

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