CULTIVATED: MedMen's deal falls apart, Integrated CBD raises debt, and new cannabis headwinds

CannabisAn employee of the Clever Leaves company checks a cannabis plant at a greenhouse in Pesca, Colombia, Colombia October 2, 2019.REUTERS/Luisa Gonzalez

Welcome to Cultivated, our weekly newsletter where we're bringing you an inside look at the deals, trends, and personalities driving the multibillion-dollar global cannabis boom. Sign up here to get it in your inbox every Friday.

Happy Friday,

Well, it certainly wasn't a boring week!

I hope all my Jewish friends had an enjoyable break-the-fast and atoned for their plethora of sins on Yom Kippur. As for me, I'm in Seattle this weekend for my best friend from college's wedding - wish me luck on my speech on Saturday night.

On Tuesday, cannabis retailer MedMen terminated its $682 million merger with PharmaCann, in a move analysts called 'surprising' given that the deal passed DOJ antitrust scrutiny less than a month ago.

MedMen first announced it would acquire PharmaCann in October of last year, setting off a wave of cannabis M&A as US companies sought to build scale.

A year later, many of those deals still haven't closed, gummed up by DOJ investigations, less-than-stellar revenues in the Canadian legal market, and slumping share prices across the board. We seem to be entering a new wave in the cannabis industry, where investor optimism has given way to a demand for "efficiency" and "winning markets" as many of these stocks have lost over 50% of their market cap over the past six months.

My colleagues at Markets Insider have covered the decline in the cannabis sector in depth.

Making money in the complex cannabis industry is hard. Coupled with the CannTrust saga over the summer - and the ongoing THC vape-linked illnesses - it's been a tough couple months to be a cannabis investor or CEO.

-Jeremy

Here's what we wrote about this week:

The $680 million MedMen-PharmaCann merger just blew up in a 'surprise' and experts say it's a sign of pain to come for cannabis dealmaking

MedMen terminated its $682 million merger with PharmaCann on Tuesday, in a move one analyst called 'surprising.'

The merger's cancellation points to a challenging dealmaking environment in the cannabis industry, as the sector has declined close to 50% in the past few months.

Business Insider spoke to lawyers, bankers, and analysts who work with cannabis companies about what this means for the industry.

Growth-stage venture capital in the cannabis and CBD industry is getting harder to come by. So Integrated CBD raised debt.

For CBD companies, growth stage equity capital is getting harder to come by. That's why Patrick Horsman, the CEO of Integrated CBD, an industrial-scale hemp oil manufacturer, took a novel approach in fundraising. He took on debt.

Integrated CBD closed a $50 million funding round on Tuesday, raising a mix of equity and debt from investors. The bulk of the debt, $30 million, was provided by an undisclosed $7.5 billion hedge fund.

Cannabis e-commerce startup Tokr, which just raised $4 million in seed funding, explains how it plans to broaden its appeal beyond hard core users

Tokr is an e-commerce startup that sells CBD and cannabis products direct-to-consumer. The company recently raised $4 million in a seed funding round led by cannabis-based private equity fund Merida Capital Partners.

According to Tokr's founders, the biggest question from potential investors was about the company's marketing strategy.

Capital raises, M&A activity, partnerships, and launches

  • Toronto-based 48North has acquired Sackville & Co, a US cannabis brand. Financial terms of the deal were not disclosed.
  • Australian Stock Exchange-listed Zelda Therapeutics is merging with Ilera Therapeutics to create "a global medicinal cannabis company." The combined company will be named Zelira Therapeutics Limited.
  • NEO Alternatives launched on Thursday, branding itself as an "an innovative health and wellness company focused on redefining and elevating the cannabis and CBD categories." Adam Patti, who previously built up ETF services provider IndexIQ before it was acquired by New York Life, will be the CEO.
  • Integrated CBD, an industrial CBD oil manufacture, closed a $50 million funding round, including $30 million in debt from a hedge fund and a $20 million Series A from equity investors. We broke the news here.

Executive moves

  • Constellation Brands CFO David Klein will become the chairman of Canopy Growth's board.
  • Harvest Health & Recreation continues to beef up its legal team. Andrew S. Luadzers, formerly director counsel, employment law at Target, will become senior counsel at Harvest where he'll be focused on labor and employment issues.
  • Colorado edibles brand Wana is staffing up in California, bringing on four staffers in sales roles.
  • Jason Karp, ex of Tourbillion Capital Partners, and Nathaniel Turner of Flatiron Health joined Integrated CBD's board.

Chart of the week

vape pen market shareRuobing Su/Business Insider

Stories from around the web

Mitch McConnell meets with pot execs in California, pitched need for cannabis banking reform (MarketWatch)

Feeling burned: The first year of legal cannabis has been a complete disaster for investors (Financial Post)

How marijuana laws may be contributing to vaping illnesses (Axios)

Lung issues could be linked to where vaping devices are made (NBC News)

Did I miss anything? Have a tip? Just want to chat? Send me a note at jberke@businessinsider.com or find me on twitter @jfberke.

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