This Week in Cannabis Investing: Uber and Leafly Offer Weed Delivery

Weed delivery launched on a major third-party delivery platform for the first time, as Uber Technologies (UBER) announced a strategic partnership in Toronto with online cannabis marketplace Leafly (LFLY). Using the UberEats app, customers can select the "Cannabis" category and order delivery from three retailers: Hidden Leaf Cannabis, Minerva Cannabis and Shivaa's Rose. 

Uber's foray into cannabis delivery suggests continued interest from strategic groups in getting involved in the sector. Major opportunities and deals are occurring outside the U.S., which will continue until we get more federal clarity around banking. Because of Canada's more open legal parameters, Uber is likely using this partnership to analyze how to enter the U.S. market if federal legalization occurs.

"When the road is clear for cannabis, when federal laws come into play, we're absolutely going to take a look at it," Dara Khosrowshahi, CEO of Uber, told CNBC in April 2021.

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The partnership with Leafly is expected to offer customers in Toronto a safer and more convenient option for legal marijuana home delivery and help combat booming sales from the illegal market. The latest retail sales data from Statistics Canada indicated that legal adult-use cannabis sales in Toronto were at U.S. $39.4 million for July. 

Verano Ends Plans to Buy Goodness Growth

The U.S. cannabis market saw another acquisition terminated on Oct.14 after Illinois-based operator Verano Holdings (VRNOF) said it is walking away from its deal with Goodness Growth (GDNSF). The announcement isn't shocking, given the current market environment. The largest domestic cannabis companies are striving to generate positive cash flow. And a transaction like this might have been too much for Verano to proceed with given the high cost of their equity at these valuations.

This year has been a challenging one for mergers and acquisitions (M&A) globally. The pace and amount of announced deals are down significantly across the entire market, and cannabis is not immune. According to Viridian Capital Advisors, U.S. cannabis M&A volume is down 68% on 40% fewer deals. This type of environment increases the odds of previously announced deals breaking and not reaching completion.

Verano Holding's deal to acquire Goodness Growth was announced in February and contained an all-stock valuation of $413 million. Had the acquisition gone through, Verano would have gained 18 dispensaries and access to the New York market, one of the largest potential cannabis markets in the U.S. However, the freedom to free up capital from the acquisition may improve where Verano stands, as stock fell by only 1.5% on Oct. 14 versus a more than 60% decline for Goodness Growth shares.   

TerrAscend Completes $45.5M Debt Financing

On a more positive note, Pelorus Equity Group, a leading provider of real estate loans for marijuana companies, entered into a $45.5 million debt funding transaction with North American retail dispensary operator TerrAscend (TRSSF). Participants around the industry were watching outcomes surrounding TerrAscend closely, but the looming possibility of a maturing note has been resolved. 

The loan from Pelorus will go to the Toronto and New York-based operator's New Jersey and Maryland subsidiaries and support ongoing growth initiatives. 

Earlier this year, TerrAscend expanded operations in Maryland through the acquisition of a medical dispensary for $11.7 million. After acquiring Gage and launching Cookies in New Jersey stores, the company saw a 40% increase in sales from the first weekend. 

Circle K Will Start Selling Marijuana Next Year

It is hard to believe some of the historic moves happening in the U.S. cannabis industry considering the stock prices. But, as it's been said time and time again, "The stock market is not the economy, and the economy is not the stock market." On Oct. 19, Green Thumb Industries (GTBIF) entered into an agreement with Alimentation Couche-Tard (ANCTF) to add medical cannabis dispensaries to Circle K convenience stores, initially targeting a portion of its Florida locations. 

Details are still forthcoming, but the opportunity seems poised to bear fruit in 2023. This development is another big step forward in the cross-section of mainstream industries seeking opportunities in cannabis and finding ways to partner. There's also good potential value for GTI in finding a capital-efficient way to increase cannabis access in Florida, where we've seen more conservative rollouts relative to peer markets.

Congress Could Move on SAFE Banking

As we mentioned last week, Senator Cory Booker (D, New Jersey) remains optimistic about passing the SAFE Banking Act. There is real hope that legislation to reform cannabis banking will pass during the lame-duck session after this November's midterm elections, finally allowing major financial institutions to participate in the cannabis sector without penalties.   

"We're going to see a really good bipartisan attempt to move it," Senator Booker said this week in an interview with NJ.com. "The Senate has got to move and pass a bill that deals with a lot of areas – restorative justice, making the banking industry equally available, and investing tax revenue to help with addiction and create economic opportunities and deal with the sins of the past." 

After the news from Booker on progress with SAFE, there was another immediate boost for pot stocks and the subsequent cannabis ETFs. This trend continues to be very closely followed because of the potential value of incoming institutional capital flows and strategic groups entering the U.S., as noted above regarding Uber and Leafly. We still see potential public equity limitations as cannabis market participants wait for legislative action. It is encouraging to hear these positive comments from the legislature on addressing banking issues in the industry, but the market is demanding action for more sustainable progress to be achieved.