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Newsletter 34: Curaleaf Signs Distribution Deal with CVS Pharmacies; Shares Soar 20%

EXECUTIVE SUMMARY

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• Cresco Labs Receives Approval to Enter Michigan Market

• Curaleaf Signs Distribution Deal with CVS Pharmacies; Shares Soar 20%

• BlackRock Invests in Cannabis as Legalization Gains Traction

• Cannabis Fund Innovator Horizon Is Planning ETF of US Companies Only


COMPANIES: Cresco Labs Receives Approval to Enter Michigan Market

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On March 25, 2019, Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF), one of the largest vertically integrated multi-state cannabis operators in the United States, announced that it has completed it’s pre-qualification for cultivation and processing licenses in Michigan relevant to the terms and conditions of the Department of Licensing and Regulatory Affairs Medical Marihuana Licensing Board. The pre-qualification represents the authorization of the entity to move forward with the licensing process for its intended facilities.


Cresco Labs CEO and cofounder Charlie Bachtell commented, “We expect to replicate the process that has enabled us to quickly and efficiently get operational in other markets and begin making our full suite of brands available to patients wanting to experience the positive benefits of cannabis.”


The company’s application for a cultivation and processing facility will be aimed at repurposing a former 100,000+ square foot factory in Marshall, Michigan. The company has been granted conditional local approval to build and operate the facility pending final approval of its state facility license application.


With around 10 million people and more nearly 300,000 registered patients in the state’s medical cannabis program, Michigan is a robust market. According to Arcview Market Research/BDS Analytics, the total cannabis market in Michigan,ncluding both medical spending and future legalized adult-use spending, is projected to increase to nearly $1.4 billion by 2022 from $869 million in 2018.


With their acquisition of the Michigan interest and pending acquisition in Florida, Cresco Labs will have 15 production facilities, 21 operational retail dispensaries, and licenses to operate a total of 51 retail dispensaries across 11 states. With operations in seven of the ten most populated states in the country with legalized cannabis programs totaling more than 150 million residents, Cresco Labs has access to nearly 70% of the estimated total addressable US cannabis market.


COMPANIES: Curaleaf Signs Distribution Deal with CVS Pharmacies; Shares Soar 20%

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On March 20, 2019, CVS Health Corp. announced that it will begin selling products infused with the increasingly popular cannabinoid, cannabidiol (CBD), at its stores as part of a distribution deal with cannabis company, Curaleaf Holdings Inc.. The company’s CBD products will be available in about 800 CVS stores to start, with the intention of expanding to more stores. CVS has almost 10,000 pharmacies worldwide.


CVS confirmed that it has started selling CBD creams, sprays and lotions in eight states, including California, Illinois, Colorado and Alabama. The infused products will be sold over the counter, and the company doesn’t intend to sell any supplements or food additives containing CBD, a company spokesman said. Indeed, the US Food and Drug Administration has not approved CBD’s use in food or beverages, whereas tinctures and other products are sold widely. As a non-psychoactive cannabinoid, CBD has become an increasingly popular wellness ingredient, gaining traction as regulations have been eased across the US—most notably with the passing of the Farm Bill in December 2018 that legalized hemp nationwide.


Curaleaf operates more than 40 cannabis dispensaries across 12 states, and recently pushed into Nevada and California through acquisitions. Curaleaf has developed a slate of hemp-derived products including lotions, tinctures, vape pens and patches.


Following the news, Curaleaf stock jumped as much as 17% in Toronto, giving the company a market value of more than $2.6 billion after the share price had already gained 41% this year.


MARKETS: BlackRock Invests in Cannabis as Legalization Gains Traction

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BlackRock Inc. funds have begun to invest in cannabis as the nascent industry continues to grow. Five actively managed BlackRock funds have recently become the largest institutional investors in Curaleaf Holdings Inc., the dispensary operator that just announced plans to sell its CBD products in CVS Pharmacies. Despite the legal status of cannabis in Canada, federal prohibition in the US has created hurdles for domestic cannabis companies and the firms that seek to invest in them.


“Most institutional investors and banks have stayed on the sidelines for investing in cannabis businesses that touch the plant,” said John Brecker, a partner at Altitude Investment Management, a New York-based cannabis venture fund.


Of BlackRock’s five funds that report holding Curaleaf stock, the $878 million BlackRock Resources & Commodities Strategy Trust owns the most shares, according to SEC filings; it held about 1.1 million shares as of Dec. 31. The fund typically invests in companies that work in natural resources and commodities, mostly in the mining and energy industries. Its top holdings are fertilizer maker Nutrien Ltd. and energy producers Royal Dutch Shell Plc and Total SA.


COMPANIES: Cannabis Fund Innovator Is Planning ETF of US Companies Only

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Horizons ETFs Management Canada Inc., provider of the cannabis-focused Horizons Marijuana Life Sciences Index ETF (HMMJ), has announced its intention to create a fund that will contain only US licensed producers. The creator of the first cannabis exchange-traded fund is looking to expand its cannabis roster, with plans for US leveraged and inverse offerings. The US cannabis market is growing feverishly, with legal spending expected to reach $22 billion by 2022, according to Arcview Market Research and BDS Analytics.


“We’ve had a lot of investor inquiries saying, ‘HMMJ is great but I want exposure to the underlying US marijuana market directly,”’ Hawkins said in a phone interview.


Currently the Canada-focused HMMJ fund can’t hold any firms with US cannabis operations because the Toronto Stock Exchange prohibits the listing of companies that aren’t compliant with federal law where they operate. In a recent exception, HMMJ added Colorado-based Charlotte’s Web Holdings Inc. earlier this week as it only deals with hemp-derived products and CBD, which are now legal. Indeed, Horizons has not yet filed a prospectus for the US marijuana ETF, which would not trade on the TSX, Hawkins said