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Report on Business Cannabis Professional Wed., Sept. 11: Tilray; Willow Biosciences; FTC warns on CBD claims; Canopy Rivers; PI Financial

Cannabis Professional’s daily roundup of industry news. View archive here.

Tilray has signed an agreement with U.S. investment bank Cowen and Company that will see Cowen act as broker for up to US$400-million worth of Tilray shares. The majority of cannabis firms reported revenue growth and improved operating cash flow margin in their most recent quarterly financials, according to a Q2 earnings recap by PI Financial Corp. analysts. Eight Capital initiated coverage of Willow Biosciences with a “buy” rating and $4.50 target price. The U.S. Federal Trade Commission said on Tuesday it has issued warnings to three companies for selling CBD-infused products using medical claims that are not backed by credible scientific evidence. Canopy Rivers has formed a strategic advisory board that will “provide guidance to Canopy Rivers’ executive team.”

– Mark Rendell

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Tilray taps Cowen to help sell $400-million worth of shares

Tilray Inc. has signed an agreement with U.S. investment bank Cowen and Company, LLC., that will see Cowen act as broker for up to US$400-million worth of Tilray shares

According to the sales agreement, when Tilray wishes to sell shares, “it will notify Cowen by email notice (or other method mutually agreed to in writing by the parties)... containing the parameters in accordance with which it desires the Placement Shares to be sold.”

“Cowen may sell Placement Shares by any method permitted by law deemed to be an ‘at the market,’” the agreement says. The agreement acknowledges that “there can be no assurance that Cowen will be successful in selling Placement Shares.”

The announcement comes one day after Tilray said that it has finalized plans to merge with the private equity firm Privateer Holdings Inc., which is Tilray’s main backer and largest shareholder, controlling 77 per cent of Tilray shares.

That transaction will see Privateer – whose executive chairman Brendan Kennedy is CEO of Tilray – trade in its current Tilray shares for a new set of Tilray shares, or “cash in lieu of issuing an equivalent number of shares of Tilray.”

The new shares issued to Privateer shareholders will be subject to a two-year lock-up agreement.

“During the first year following the closing of the merger, shares will be released only pursuant to certain offerings or sales arranged by and at the discretion of Tilray,” the company said in a news release on Monday. “Over the course of the second year following closing, the remaining shares will be subject to a staggered release in equal quarterly increments.”

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– Mark Rendell

Most cannabis firms improved operating cash flow margin in quarter: PI Financial

The majority of cannabis firms reported revenue growth and improved operating cash flow margin in their most recent quarterly financials, according to a Q2 Earnings Recap released by PI Financial Corp. analysts on Wednesday.

“Of the 66 cannabis companies in our study, 50 reported quarter over quarter revenue growth with 41 companies reporting improved operating cash flow margin,” wrote analysts Jason Zandberg, Devin and Fayassir Haqna.

“The bad news is that the vast majority of cannabis stocks are not generating operating cash flow while still requiring significant cash expenses to build infrastructure.

“The good news is that most cannabis companies demonstrated a significant improvement in cash flow from calendar Q1 to calendar Q2. Of the 66 companies (both US and Canadian operators...), 41 reported an improvement in operating cash flow margin – defined as cash flow from operations (before working capital changes) divided by revenue. We believe these two key metrics will grow in importance as equity markets have softened and refinancing options may not be as plentiful as the past few years,” the analysts wrote.

- Mark Rendell

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Eight Capital begins coverage of Willow Biosciences

Investment dealer Eight Capital said this week it initiated coverage of Willow Biosciences Inc. with a “buy” rating and $4.50 target price due to the company’s potential to transform the cannabinoid production industry with “faster, cheaper and of higher quality than current methods.”

Calgary, Alta.-based Willow Biosciences, which has experience with opioid biosynthesis and is in the research and development stage with cannabinoids, was trading at 60 cents a share on the Canadian Securities Exchange when the note was published. “The recent sell-off in the cannabis sector has resulted in a steep correction in the share price and represents a very attractive entry point and risk-to-reward opportunity for long-term investors seeking to benefit from the disruptive potential of biosynthesis in the cannabis industry,” said Eight Capital Research Analyst Ammar Shah in a note.

Eight Capital forecast the company will generate billions of dollars in revenues in the “back half of the next decade.”

Willow Biosciences will eventually need to establish agreements with consumer packaged goods and pharmaceutical companies to serve end-users, and management is believed to be in active discussions with large players, the investment dealer said. “Management’s previous experience with patent approvals gives us confidence in the company’s ability to secure intellectual property assets,” Eight Capital said. “We anticipate that this will translate to successful filings which could serve as an early de-risking event given the large swath of other entities attempting to achieve biosynthetic cannabinoid production.”

- Marcy Nicholson

U.S. FTC issues warning to companies selling CBD-infused products

The top U.S. consumer and trade regulator said on Tuesday it had warned three companies selling products infused with cannabidiol that it was illegal to advertise that such products could fight disease without providing credible scientific evidence.

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The Federal Trade Commission said the three unidentified companies claimed, without providing substantiation, that CBD can treat more than two dozen conditions including cancer, Alzheimer’s, multiple sclerosis, schizophrenia, epilepsy, diabetes, psoriasis, and AIDS.

The companies, which sell oils, tinctures, capsules, gummies and creams, have 15 days to inform the FTC about how they will address the warning.

- Reuters

Canopy Rivers forms strategic advisory board

Canopy Rivers Inc. announced on Wednesday the formation of a strategic advisory board, that will “provide guidance to Canopy Rivers’ executive team.”

The first three members of the board are John Ruffolo, the former CEO of OMERS Ventures; Meg Lovell, former corporate and commercial counsel at Imperial Brands PLC; and Philip Donne, the former president of Campbell Canada and former president and CEO of Kellogg Canada.

Rivers also announced that Daniel Pearlstein, EVP, Strategy, is no longer with the company. Mr. Pearlstein joined Rivers last spring, after leaving an equity research job at Eight Capital.

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- Mark Rendell

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