Hightimes and Harvest Health Move Closer to Finalizing California Dispensary Deal
Hightimes Holdings, owners of the popular pot publication High Times, inched one step closer to becoming a bonafide plant-touching cannabis business this week.
The Los Angeles-based media company announced Tuesday the initial closing of a deal to acquire 10 operational and planned marijuana dispensaries in California from Arizona-based multistate operator Harvest Health and Recreation.
According to a news release, Harvest Health and its affiliates sold a “portfolio of equity and assets” of eight dispensaries to Hightimes for a total consideration of $61.5 million. Hightimes spent $1.5 million in cash and traded $60 million in Series A convertible preferred stock (600,000 shares) for a book of seven Have a Heart-branded cannabis retail locations and one Reefside outlet in Santa Cruz.
A second closing for the two remaining dispensary locations is expected to occur on September 30, 2020, and will include the transfer of another $6 million in stock (60,000 shares), according to a filing.
Close watchers of this deal will recognize that the purchase agreement has now been amended for a third time.
The initial transaction between the two companies, announced in April, included the transfer of 13 operational and planned dispensaries for $80 million in cash and stock. That deal also granted Hightimes the ability to acquire two additional dispensaries at a later date.
Referred to in a filing as the “prior purchase agreement,” the original deal had Harvest Health receiving $5 million in cash, a $7.5 million promissory note with 10% interest, and $67.5 million in Series A preferred Hightimes stock.
Earlier this month, the two companies altered the deal to include 10 dispensaries in exchange for $1.5 million in cash, a $4.5 million promissory note and $61.5 million in Series A shares.
The transaction was again amended prior to the initial closing on June 22, 2020, and although the total value of the deal hasn't changed, the issuance of a promissory note has been eliminated from the package and replaced with additional Hightimes shares.
Despite announcements from both companies indicating the proposed transaction is nearing completion, a closer look at filings reveals that it’s far from a done deal.
The dispensaries included in the deal have complex ownership structures, and at least four entities have social equity partners.
Have a Heart founder Ryan Kunkel is a partner in eight of the dispensaries involved in the initial closing announced Tuesday, but half of those entities include social equity partners in the Bay Area that would need to consent to a transfer of ownership in order for the deal to move forward smoothly. The transaction would also require the approval of local and state licensing authorities.
Here's how things breakdown:
Kunkel owns 100% of two Have a Heart locations -- in Blythe, Calif., and Coalinga, Calif. -- and holds a 72% stake in a third Have a Heart location in San Bernardino, Calif. The other partners in the San Bernardino operation have assigned their interest to Kunkel or Interurban Capital Group, a subsidiary owned by Harvest Health.
In the case of the four dispensaries with social equity partners, Harvest and its subsidiaries do not “hold any rights to acquire” their partners’ interests, a filing notes.
In San Francisco, entrepreneurs Alexis Bronson and JanAva Whitmere each own 40% of their planned Have a Heart dispensaries. For his part, Bronson has said he has no intentions of agreeing to a sale.
“The license is now 100 percent mine,” he told SF Weekly last month. “I don’t want my reputation spoiled by corporate canna-greed.”
However, at least one other social equity partner -- Josh Chase, who owns 51% of a Have a Heart dispensary permit in Oakland -- has indicated his interest in going along with the deal, according to SF Weekly.
Another Have a Heart location in Oakland, which is 50% owned by equity recipient Marshall Crosby, is also involved in the transaction.
An eighth location in Santa Cruz, called Reefside Health Center, is at stake as well. Kunkel owns 9.9% of that business, and has been paying $10,000 per month to majority owner Jakob Laggner for the option to acquire his majority interest for $2.2 million.
However, according the filing, the “City of Santa Cruz does not permit the transfer of more than 20% of the ownership interest of a licensed entity,” which could throw a wrench into the proposed deal with Hightimes.
The other two dispensaries set to change hands in September include Harvest of Merced, LLC, and Harvest of Riverside, LLC. The former is 83% owned by Steve White, the CEO of Harvest Health, and 5% owned by Harvest of California (HOC). Both have agreed to transfer their respective interests.
Meanwhile, Harvest of Riverside is 100% owned by Sandra Christensen, and HOC is currently negotiating to acquire 95% of her interests, according to the filing.
In addition to its dealings with Harvest Health, Hightimes recently announced plans to spend a combined $500,000 and trade 15 million shares of common stock for two cannabis stores in Northern California.
The company also closed a nearly $26 million transaction with Red White & Bloom Brands (RWB) earlier this month.
Under the terms of that deal, RWB will turn 18 planned and operational marijuana dispensaries throughout Michigan (where it controls 22% of the cannabis retail market), Illinois and Florida into High Times stores. It will also commercialize High Times-branded cannabis products in those three states, and CBD products throughout the U.S.
In exchange, Hightimes will receive $15 million worth of RWB shares and a minimum cash royalty payment of $10.75 million during the first 18 months of the arrangement.
The moves in the Midwest and California are aimed at repositioning the popular pot publication as a trusted producer and seller of branded cannabis products.
Hightimes is currently trying to raise $50 million from both accredited and non-accredited investors via a regulation A+ IPO campaign that’s been active for nearly two years. As of May 7, the company had raised more than $20 million from upwards of 30,000 backers.
The crowdfunding campaign is slated to end on June 30, 2020, however Hightimes has already extended the multiple times.