A Tale Of Two States: A recent profile in Cannabis Business Times compared the Illinois and Oklahoma markets, highlighting Oklahoma’s more ‘free market’ approach to Illinois’ closely controlled structure. While Oklahoma is a (very loose) medical-only market, its sales totals are roughly comparable to Illinois, as looser rules on patients and low barriers to entry have driven up patient counts and supply. Stunningly, Oklahoma has forty times the number of dispensaries as Illinois, with the bulk of business licenses held by local operators.
Why It Matters: Illinois firms love talking about the Illinois model as a success story in delivering safety and consistency. It’s not totally inaccurate, but the Oklahoma comparison does highlight how a constrained market can limit growth, concentrate profits with a few firms, and have negative effects on consumers. Our wacky, decentralized approach to legalization is deeply flawed, but it does afford a really interesting perspective - when every state is doing things different, it’s a little easier to see what works and doesn’t.
Merger Mania: Canadian cannabis companies Aphria (NASDAQ: APHA) and Aurora Cannabis (NYSE: ACB) recently held advanced talks on a potential merger-of-equals, which would have established the combined company as a clear market leader with 30% of the Canadian market. The merger would’ve left shareholders of each company with roughly equal stakes and seen Aphria CEO Irwin Simon step in to manage the new entity. The companies had identified $200 million of cost savings, but couldn’t get the deal across the finish line due to disagreements on executive compensation and board composition.
Why It Matters: Consolidation in a maturing industry… makes sense (see also: Colorado)? Neither company’s road to today has been without its bumps (Aphria with short seller allegations; Aurora with… well, a whole lot of issues), but the proposed combination would mitigate a lot of perceived problems. A lot of these companies bet early that being the biggest names in the game would pay off for them. It’s especially true for Aurora, which, despite flashy wins early in its history, has failed to deliver and would actually transact the merger at a discount. It’s really because, with the Canadian cannabis market softer than expected and competition fiercer, profits are tougher to come by - making Aphria’s positive earnings extra attractive. So, if you can’t beat ‘em, merge with them, right?
Raw Deal: But what if nobody’s interested? In the case of iAnthus Capital Holdings (CSE:IAN), they’re restructuring and recapitalizing the business, in a plan that will reduce debt from $169 million down to $101 million, cut the interest rate from 13% to 5%, and provide a $14 million bridge loan. If that sounds like a sweet deal, it’s worth noting that the deal will also wipe existing shareholders down to (at best) ~3% of the equity. The plan comes after a tumultuous 2020, where iAnthus has battled with lead debtholder Gotham Green Partners, faced halted public trading, and sought out options in a strategic review.
Why It Matters: It’s been quite a saga for iAnthus, especially as Gotham Green got hard nosed in the fight and started seeking to enforce its rights. Previously, there was news that management might buyout the company, but those plans have seemingly fallen through. It’s likely that no suitor, management or otherwise, could solve for the challenging financial structure iAnthus finds itself in - where a medley of secured and unsecured debtholders, alongside actual shareholders, have competing interests. When debtholders broadly got aligned, their plan moved forward - when in doubt, wipe the shareholders out.