Amazon adjusts drug testing policy, announces support for the MORE Act legislation
In this week's "Rising High," The Fly's recurring series focused on cannabis and psychedelic stock news, The Fly looks back on a change to Amazon’s drug testing policy.
AMAZON TO ACTIVELY SUPPORT MORE ACT: Amazon (AMZN) announced Tuesday that it is adjusting its drug testing policy. "In the past, like many employers, we've disqualified people from working at Amazon if they tested positive for marijuana use," said Amazon Worldwide Consumer CEO Dave Clark. "However, given where state laws are moving across the U.S., we've changed course. We will no longer include marijuana in our comprehensive drug screening program for any positions not regulated by the Department of Transportation and will instead treat it the same as alcohol use. We will continue to do impairment checks on the job and will test for all drugs and alcohol after any incident. And because we know that this issue is bigger than Amazon, our public policy team will be actively supporting The Marijuana Opportunity Reinvestment and Expungement Act of 2021 - federal legislation that would legalize marijuana at the federal level, expunge criminal records, and invest in impacted communities. We hope that other employers will join us, and that policymakers will act swiftly to pass this law."
HERITAGE TO ACQUIRE BLOOM BRANDS: Heritage Cannabis (HERTF) announced Tuesday it has entered into a non-binding letter of intent to purchase all of the issued and outstanding common shares of California based Capna Intellectual, doing business as Bloom Brands, in an all share transaction. Under the terms of the Agreement, Bloom will receive approximately $15M of Heritage common shares in two tranches. The first tranche of $7.5M will be at a deemed value of CA 14c per Heritage share, followed by a second tranche of shares six months after closing at a deemed value of either the greater of CA 16c or a 15% discount to the 15-day VWAP. The agreement also includes potential milestone payments of up to an additional $17M of Heritage common shares contingent upon Bloom achieving certain financial targets over a twelve-month period. All shares issued as part of the agreement will be subject to lock-up provisions and applicable statutory hold periods. The transaction is expected to close by the end of July and is subject to customary closing conditions and applicable third party and regulatory approvals. There can be no assurance that the transaction will be completed on the terms set out herein or at all.
HEXO TO ACQUIRE REDECAN: HEXO (HEXO) announced Friday that it has entered into a definitive share purchase agreement to acquire all of the outstanding shares of the entities that carry on the business of Redecan, Canada's largest privately-owned licensed producer, for a purchase price of C$925M payable in cash and through the issuance of common shares of HEXO and subject to certain customary adjustments. Under the terms of the agreement, the C$925M purchase price will be paid to the Redecan shareholders as follows: C$400M of consideration due on closing paid in cash; and C$525M of consideration due on closing paid through the issuance of HEXO common shares at an implied price per share of C$7.53. It is anticipated that the Redecan shareholders will collectively hold approximately 31% of HEXO's issued and outstanding common shares immediately following the closing of the Transaction on a pro forma non-diluted basis. The Transaction is expected to close in calendar Q3 2021, subject to the satisfaction of customary closing conditions, including the receipt of applicable regulatory approvals and the shareholder approval described above required under TSX rules. The Transaction has been unanimously approved by HEXO's board of directors. Following the news, Roth Capital analyst Scott Fortune said he believes the company "chose to pay up" for what he calls "a leading, high-margin operator" in Canada as Hexo doubled down on its target to become a top-three Licensed Producer in the Canadian cannabis market. While he views the deal favorably from a product brand, provincial distribution, and automated manufacturing standpoint, Fortune still sees near-term challenges associated with Canadian market oversupply, he tells investors. He maintains a Neutral rating on Hexo shares. Meanwhile, Stifel analyst Andrew Carter said he believes the potential combination is "compelling" and could create a platform that may lead in Canadian market growth. However, Redecan is a coveted asset among Canadian Licensed Producers and he sees risk of a competing bidder, said Carter. He also thinks Hexo is taking on "expensive convertible debt" to make the deal possible, which he sees enhancing the overall risk and making his neutral approach to the shares "appropriate." He kept a Hold rating on Hexo shares.
AUXLY EARNINGS: Auxly Cannabis (CBWTF) announced Monday first quarter loss per share of C$0.01 on a revenue of C$12.2M, which compared to a loss per share of C$0.02 on a revenue of $10.5M. Following earnings, Desjardins analyst John Chu lowered the firm's price target on Auxly to C$0.60 from C$0.65 and kept a Buy rating on the shares.
CANOPY GROWTH EARNINGS: Canopy Growth (CGC) reported Tuesday fourth quarter loss per share of C$1.85 on net revenue of C$148.67M, which compared to loss per share of C$3.72 on a revenue of $115M last year. Following earnings, Alliance Global Partners analyst Aaron Grey lowered the firm's price target on Canopy Growth to $32 from $40 and kept a Neutral rating on the shares. The analyst said that while the company maintained its profitability targets, he sees the company's ability to improve its cost structure as key to achieving this target. Additionally, Canaccord analyst Matt Bottomley upgraded Canopy Growth to Hold from Sell with a price target of C$30, down from C$32. Eight Capital analyst Graeme Kreindler also upgraded Canopy Growth to Neutral from Sell with a price target of C$29, down from C$34.50. The analyst said shares are "fully valued". Meanwhile, MKM Partners analyst Bill Kirk lowered the firm's price target on Canopy Growth to C$51 from C$55 but kept a Buy rating on the shares. The company's Q4 EBITDA losses were wider than anticipated while its gross margin of 14% was below 26% in Q3 and 42% in Q4 of last year, the analyst said. Kirk added however that the re-opening of Canadian economy will see Canopy Growth return to sequential growth as the company looks to have better aligned its supply chain/logistics to capture domestic and international demand opportunities and efficiencies.
PRICE ACTION: As time of writing on Wednesday morning, Aurora Cannabis (ACB) rose approximately 4.9% to $9.82, Canopy Growth was up 3.8% to $25.20, Tilray (TLRY) increased 8% to $18.32, Cronos (CRON) rose 4.8% to $8.65 and Trulieve (TCNNF) was up 2.3% to $38.17.
OTHER CANNABIS/PSYCHEDELIC STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Body and Mind (BMMJ), CannTrust (CTST), Canopy Rivers (CNPOF), Clever Leaves (CLVR), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), CV Sciences (CVSI), CURE Pharmaceutical (CURR), Delta 9 (VRNDF), Emerald Health (EMHTF), Fire & Flower (FFLWF), FluroTech (FLURF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb Industries (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HEXO (HEXO), High Tide (HITIF), IM Cannabis (IMCC), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Omnicanna (ENDO), Organigram (OGI), Planet 13 (PLNHF), Skye Biosciences (SKYE), SLANG Worldwide (SLGWF), Sproutly (SRUTF), Stem Holdings (STMH), Sunniva (SNNVF), Supreme Cannabis (SPRWF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Valens (VLNCF), Village Farms (VFF), Vireo Health (VREOF), WeedMD (WDDMF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).