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4 Important Things that Happened in the Cannabis Sector This Week

Deals are going bad across the industry, and more might be coming.

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The wheels are officially off the hype train in the cannabis market. I have only been writing about companies that have shown fiscal responsibility and are nearing a path toward profitability (even in the doldrums of the cannabis market) or questioned a company’s path toward profitability.

This week, I wrote about Village Farms International and their successful joint venture with Emerald Health Therapeutics, Pure Sunfarms. In addition, I questioned the long-term health of cbdMD and also examined Neptune Wellness Solutions and how they have their hands in some rather lucrative markets simultaneously. Lastly, on Thursday, I wrote about Trulieve’s domination of soon-to-be billion dollar Florida cannabis market.

Here is the rest of the news you need to know from this week…There are some big ones…

Aleafia Health Terminates Supply Agreement with Aphria

We have written about Alefia Health before and really like their focused business model, and this week the small-cap cannabis company axed a deal with Aphria, a top-three grower, for failing to meet the supply agreement. Aphria was supposed to provide a mix of cannabis oil and dried cannabis to Alefia’s subsidiary, Emblem.

Alefia acquired Emblem after the supply agreement was in place with Aphria. So, when Aphria started to show up light on the deliveries, it is likely Alefia’s management nixed the deal as it was redundant. The combined output of Emblem and Alefia is 138,000 kilos. Prior to Alefia Health and Emblem merging, the latter’s output was only 40,000 kilos.

However, the bigger concern is this – and it should be a wake-up call for investors owning shares in big LPs – Aphria simply could not grow enough cannabis to meet the terms of the deal. While Aphria will bear the brunt – the stock dropped 12% over the last three days – blame should certainly fall on Health Canada’s slow application and approval process. The company has been waiting for more than a year for its Aphria Diamond facility to get the green light from Health Canada.

This could be the start of dominoes starting to fall on other supply agreements. Hexo Corp. only produced 9,800 kilos in Q3 and its owes Quebec 200,000 kilos of cannabis. Yikes.

MedMen and PharmaCann Terminate $682M Merger

This blockbuster deal fell apart this week after a HSR expiry press release less than a month ago. The deal’s termination was immediately followed by the ouste of CFO, Michael Kramer. The firing of Kramer is just one of the recent departures at MedMen, James Parkers, the previous CFO, filed a breach of contract lawsuit against the company in January.

As fallout from the deal, Pharmacann must surrender some quality assets – a cultivation facility in Illinois, a retail location in Evanston, Illinois, a retail license in Chicago and a vertically integrated facility in Virginia.

No one is sure what killed the deal, but antitrust concerns might be the culprit.

Washington State Temporarily Bans Flavored Vapes

State health regulators overwhelming voted to halt all sales on flavored tobacco and cannabis vaporizer products. Washington is now the second state behind Massachusetts. According to data provided by Seattle-based data analytics company Headset, at least five of the top-15 selling cannabis vape cartridges in Washington state in 2019 have been flavored.

The ban is set for 120 days and can be renewed.

“A flavor ban is a prudent preventative step to help reduce youth access and use of vapor products during this outbreak,” according to the Board of Health’s website.

Popular California Vaping Manufacturer has its Facility Raided

State authorities raided Kushy Punch seizing illegal cannabis vaping cartridges. This move comes as most health authorities including the CDC believe black market vaping products are to blame for the health crisis.

The focus on Kushy Punch come after the state Bureau of Cannabis Control (BCC) and the Department of Consumer Affair’s Cannabis Enforcement Unit (DOI-CEU) served a search warrant on the company’s manufacturing facility in Canoga Park, California, on Oct. 2.

The search warrant resulted in the seizure of nearly $21 million in illegal cannabis products, which included 7,200 vape cartridges, according to the BCC.

Kushy Punch issued a statement saying the cartridges were never for sale and were to be destroyed.

The saying that there is no such thing as a free lunch is very much true for Robinhood.