January 13, 2016
Oakland Dispensary Shares To Be Publicly Traded
Following a brutal 2015 for marijuana stocks, the cannabis investment sector has something to smile about to start the new year. The stock markets will soon welcome a dispensary to the ranks of the publicly traded: Black Oak Gallery, better known as Blüm Oakland.
Blüm joins dispensary Kaya Shack in Portland, Oregon, a subsidiary division of a publicly-traded company, Kaya Holdings (KAYS). Kaya Shack opened in 2014.
But Blüm Oakland didn’t take the traditional route of selling shares to raise capital. Rather, the Oakland dispensary has announced it will merge with an already public company, Terra Tech Corp. (TRTC), an agricultural and cannabis cultivation company in Newport Beach, California, with a market cap of nearly $30 million.
“It’s very significant,” said Matt Karnes, president of GreenWave Advisors, a New York City-based cannabis consulting firm. “The fact that you have a dispensary that has to file financial disclosures and be transparent, that definitely helps the legitimacy of the industry.”
Karnes does not expect the SEC to oppose the deal, because Terra Tech has already stated in its filings that it plans to grow and sell marijuana. “They didn’t come back and ding it,” Karnes said. “I don’t expect them to block it.”
The emergence of publicly traded marijuana-touching businesses should also help reduce the leeriness that many institutional investors feel for the cannabis sector by providing them with companies that they can scrutinize.
“When a company has to file financial statements, it eliminates uncertainty,” said Karnes. “It could provide investors with a benchmark. They’ll have a company that they can compare to other marijuana companies that may go public.”
While Blüm’s soon-to-be publicly traded status is a major advance for the cannabis industry, the merger would also be a major milestone for Blüm’s owner Salwa Ibrahim, who hopes it will help the dispensary fulfill ambitions of expanding into other markets.
Ibrahim said Blüm and Terra Tech have already worked together to secure permits in Nevada for a venture known as MediFarm, which has several cultivation, processing, and dispensary sites in the state.
“It is our hope that we can continue to secure permits and to develop sustainable but successful operations in new markets opening up,” Ibrahim said in a statement. “We’re looking forward to bringing together the core teams of both companies and finding other capable operators in this growing industry to join with as we continue to further our business strategy.”
Under the agreement, Terra Tech will acquire 100% of Blüm’s outstanding shares plus its integrated supply chain, which consists of an onsite cultivation facility, proprietary strains, and retail storefront, the companies said in a statement. The deal is expected to close by March 31.
Blüm opened in November 2012 and had close to $15 million in revenue in 2015. The company sees almost 1,000 patients daily, and has about 42,000 registered patients in all.
Terra Tech bought Blüm for about 1.5-times forward-looking revenue – estimated to be about $14 million – for the 12 months after the merger closes, or about $21 million. To protect stockholders, 80% of the equity will be held in escrow subject to performance adjustments at the end of the 12-month term.
Terra Tech’s shares were up to 11 cents from nine cents on the news. The company had a 52-week high of 28 cents and a low of 8 cents.
Terra Tech CEO Derek Peterson said the merger gives his company more cash-flow and positions it to take advantage of the regulatory changes that will come with the implementation of California’s Marijuana Regulation and Safety Act in 2016 this March.
The states new regulations will for the first time allow for-profit marijuana businesses. Some of Terra Tech’s competitors are not likely to successfully navigate the licensing process, while they will increase the number of potential legal-market customers in the state. Also under the new regulations, vertically-integrated cannabis businesses which growing, extract, process and sell product will not be allowed – that is, unless that company was formed before July 1, 2015.
Terra Tech Corp also owns IVXX LLC, which produces medical cannabis-extracted products for regulated medical cannabis dispensaries throughout California, and Edible Garden, whose produce is sold in major grocery stores such as Shoprite, Walmart, and Krogers.
“As we continue to develop our long-term strategy in Nevada, it has always been our goal to also focus on near-term acquisitions that have immediate value to our stockholders,” explained Mike Nahass, Director of Terra Tech.