Weekly Roundup on the Cannabis Sector & Psychedelic Sector

Key Takeaways; Cannabis Sector

• Ayr Wellness reported solid first quarter results.

• Cresco Labs reported stagnant sales but an optimistic outlook for 2024.

• Tilray announced a $250 million equity offering to fund U.S. asset acquisitions amid legalization optimism.

• Flora Growth is strategizing on cannabis reform to its reverse financial trend.

Key Takeaways; Psychedelic Sector

• Enveric Biosciences is eyeing $410 million licensing deals as the company advances its depression treatment program.

• Awakn is facing hurdles amid financial filing delay.

Below is a weekly roundup of what happened this week in the cannabis and psychedelic sectors. In this ever-evolving landscape, we explore the major developments and groundbreaking initiatives happening among companies operating in these industries; from advancements in medical research, therapeutic applications to shifts in legal frameworks and current market trends.

Top Marijuana Companies for Week

#1: Ayr Wellness

Ayr Wellness Inc. (OTC: AYRWF) delivered promising financial results for the first quarter ending March 31, 2024. The company reported a slight revenue increase of 0.3% to $118 million compared to $117 million last year, and a 2.8% sequential growth. The net loss for the quarter was reduced to $106 million from last year’s $194 million, which according to the company, was influenced by the discontinuation of its Arizona business. This year’s net loss included a $79,172 loss related to debt restructuring.

Ayr’s cash levels rose to $71 million, up from $50 million at the end of 2023, and it reported a working capital of $98 million, a significant improvement from a negative $7.2 million. Retail revenues saw a decline of $3.5 million due to an 8% decrease in same-store sales transactions, offset by $4.5 million from new store openings and acquisitions. Wholesale revenues increased by $3.8 million, driven by New Jersey store openings and higher Ohio sales.

Operating expenses were cut to $52 million from last year’s $69 million, primarily due to lower stock compensation and payroll expenses.

Looking ahead, Ayr expects second-quarter revenue to be flat or slightly up, with stronger growth anticipated in the second half of 2024. The company maintains an adjusted EBITDA margin target of approximately 25% and aims for positive cash flow for the year.

#2: Cresco Labs

Cresco Labs Inc. (OTC: CRLBF), a prominent cannabis company and owner of Sunnyside, announced its financial results for the first quarter of 2024, which ended on March 31. The company reported stable revenue at $184 million, narrowly surpassing analyst estimates by $1.2 million.

Despite flat sales, Cresco achieved notable financial improvements. Adjusted gross profit increased by 7% to $95 million, achieving a 51% gross margin—an enhancement of 580 basis points. Additionally, the company successfully cut its adjusted selling, general, and administrative (SG&A) expenses by 24% to $52 million, making up 28% of total revenue.

Cresco reported $16 million in income before taxes but faced a net loss of $2 million for the quarter. Nevertheless, adjusted EBITDA rose significantly by 82% to $53 million, reflecting a 1,380-basis point increase in the adjusted EBITDA margin, which now stands at 29%.

A highlight of the report was Cresco’s remarkable cash flow generation, with operating cash flow soaring by 1,000% year-over-year to $36 million and free cash flow reaching $33 million.

Cresco’s CEO, Charles Bachtell, attributed this success to the company’s focus on efficient execution and the strengthening of its teams, he also hinted at future growth opportunities for the company; “The continued development of our teams’ capabilities and our relentless focus on efficient execution is leading to very strong performance across our retail and branded product business resulting in a 10x increase in operating cash flow year-over-year,” Charles Bachtell said in a statement.

Cresco continues to maintain strong market positions in Illinois, Pennsylvania, and Massachusetts. Its diverse brand portfolio includes Cresco, High Supply, FloraCal, Good News, Wonder Wellness Co., Mindy’s, and Remedi.

Looking ahead, Cresco is optimistic about leveraging upcoming adult-use cannabis markets to drive further growth and cash flow generation in 2024.

#3: Tilray

Tilray Brands, Inc. (NASDAQ: TLRY) announced plans to raise up to $250 million through an at-the-market equity offering to fund potential acquisitions in the U.S., anticipating changes in cannabis legalization. According to the company, this strategic move is not intended for general working capital but specifically to capitalize on the evolving regulatory landscape in the U.S. cannabis market.

On May 13, Tilray revealed plans to issue 13.1 million shares of common stock in exchange for $19.8 million in principle of the 2024 Convertible Notes, reducing the outstanding principal amount to $330,000 as of May 14, 2024.

The Biden administration has shown a clear intent to advance the legalization process. On May 16, President Biden announced the push to submit the proposed rescheduling to the Federal Register, initiating a 60-day comment period. As a result, many Canadian cannabis companies like Tilray and Canopy Growth Corporation (NASDAQ: CGC) are increasingly targeting the larger U.S. market for growth once the regulatory landscape changes, due to the relatively smaller scale of the Canadian market.

Financially, Tilray reported a 30% increase in net revenue for the recent quarter, reaching $188.3 million, up from $145.6 million the previous year. Despite this growth, the company adjusted its fiscal year 2024 EBITDA guidance to $60-63 million, down from an earlier projection of $68-78 million, and acknowledged challenges in achieving positive adjusted free cash flow due to delays in asset sale collections.

Tilray has over 800 million shares outstanding, with a recent trading price of $1.98 per share and a 52-week high of $3.40. Many analysts have maintained a four-star rating for Tilray, though some have recently lowered the price target, reflecting cautious optimism amidst ongoing market and regulatory developments in the cannabis sector.

#4: Flora Growth

Flora Growth Corp. (NASDAQ: FLGC), a Florida-based cannabis company, recently reported a net loss of $3.4 million for the first quarter ending March 31, 2024. This marked a return to losses after a brief period of profitability last year, with revenues slightly declining to just over $18 million from $19.3 million the previous year. Operating expenses also decreased to $6.3 million from $7.7 million.

Despite these challenges, Flora Growth remains hopeful due to anticipated cannabis reforms in key markets such as the United States and Germany. CEO Clifford Starke expressed confidence in the progressive cannabis agendas in these regions; “Legislators in the primary markets in which we operate, namely the U.S. and Germany, have demonstrated a willingness to advance a progressive cannabis agenda,” Clifford Starke said in a statement.

In Germany, where Flora Growth recently entered through the acquisition of TruHC, the company plans to capitalize on the consumer-focused market by selling home cannabis grow kits, seeds, and cuttings.

Through expanding its European presence, Flora Growth has secured distribution partnerships in the United Kingdom, Poland, and Israel. Additionally, the company closed a $3.23 million underwriting deal and entered into a sales agreement for $3.8 million with Aegis Capital Corp.

With $24.2 million in total assets, including $4.1 million in cash, against $21.1 million in total liabilities, Flora Growth feel it is strategically positioned to navigate the evolving cannabis landscape and potentially reverse its recent financial downturn.

Top Psychedelic Companies for Week

#1: Enveric Biosciences

Enveric Biosciences, Inc. (NASDAQ: ENVB) announced efforts to secure licensing contracts for its drug pipeline, following a recent partnership with MindBio Therapeutics (CNSX: MBIO).

The company’s CEO, Joseph Tucker, highlighted significant interest from strategic pharmaceutical partners for Enveric’s new drug candidates targeting mental health disorders. The company’s lead asset, EB-003, is a non-hallucinogenic compound aimed at treating depression and anxiety, progressing towards an investigational new drug application and a planned Phase 1 clinical trial.

Enveric has executed seven non-binding term sheets with four potential partners, which could result in up to $410 million in milestone payments and future royalties. These partnerships are centered on compounds developed via Enveric’s AI platforms, Psybrary and PsyAI, generating over 1,000 molecules across various therapeutic areas, including neuropsychiatric conditions, cancer, and joint disease.

Additionally, the clinical-stage biotech company, which focuses on developing treatments for depression and anxiety, reported a net loss of $2.46 million for first quarter 2024 but maintained $6.36 million in cash, bolstered by $4.5 million raised through warrant and equity issuances.

The first quarter was described as “highly productive,” by the company’s CEO, who reflected the company’s strategic advancements and ongoing efforts to expand its therapeutic portfolio and partnerships.

#2: Awakn

Awakn Life Sciences Corp. (CSE: AWKN) (OTC: AWKNF) a clinical-stage biotechnology company focusing on medication-assisted treatments for addiction, particularly Alcohol Use Disorder (AUD), recently disclosed its plan to file its audited annual financial statements and MD&A for the financial year ended January 31, 2024, by May 30, 2024. This announcement came in line with the standard timeline applicable to venture issuers.

The company underwent a significant change in February 2024, when it delisted its common shares from Cboe Canada and listed them on the Canadian Securities Exchange (CSE). This transition made the company a venture issuer under Canadian securities law. However, due to the listing occurring twelve days after the financial year’s end, the filing deadline for financial statements technically remained that of non-venture issuers, which is 90 days from the financial year end.

As a result, Awakn Life Sciences Corp. was notified by the Ontario Securities Commission of its late filing and the potential issuance of a cease-trade order if the financial statements were not filed by 3:00 p.m. (EST) on May 7, 2024.

The company is undergoing an audit conducted by its auditor MNP LLP, expecting completion and filing of the financial statements by May 30, 2024. In anticipation of potential regulatory actions, Awakn has applied for a management cease trade order under National Policy 12-203 – Cease Trade Orders for Continuous Disclosure Defaults (“NP 12-203”). This measure, if approved, would allow individuals who are not directors, officers, or insiders of the company to continue trading in their securities.

Should the application for a management cease trade order be rejected, the company expects a full cease trade order to be issued shortly after May 7, 2024. In the meantime, Awakn announced its commitment to providing bi-weekly default status reports through news releases, complying with alternative information guidelines under NP 12-2023 until the filing requirements are met. The company assured stakeholders that there is no undisclosed material information concerning its affairs.