[Editor’s Note: The resale market is a fascinating industry. This is such a great example of how an innovative person or company can fill a niche with win-win outcomes. ]
When a company is caught growing cannabis illegally, it’s often the landlord who’s left to clean up the mess. The criminals rarely come back for their equipment and the police want nothing to do with it either.
So, the landlord is confronted with clearing out sometimes hundreds of sophisticated, expensive lights, watering systems, and other various cultivation items in order to get the space back to rent. Metal scrapper and the owner of CH Hydroponics James Robba stumbled into the market when he was asked to disassemble a huge illegal grow.
Initially, he tried taking the lights apart to sell for scrap metal. Then he found that he could make more money keeping the lights intact and reselling them versus taking the lights apart. He began testing the lights to see if they worked and when they did he began selling them. “I was getting between $200 and $250 per ballast,” said Robba. For the uninitiated, ballasts run grow lights that are used in indoor grows.
After selling off his first tear down, he began running ads on Craigslist offering his demo work in order to get more second-hand equipment. “We started tearing down huge grows,” he said. “People that get busted don’t go back for their equipment.” He said building managers and landlords began calling him.
“We’ve seen gnarly stuff,” said Robba. “We’ve seen people tunnel down, right through a foundation, down 20 feet to tap into the main power line.” He has disassembled illegal grows with 500 lights making these $5-$6 million illegal operations.
You would think that it’s the landlord who has called the police and informed them about the illegal grow. But Robba said instead it’s usually disgruntled employees who end up tipping off the police. He told one story about an unhappy employee who knew the building didn’t have security guards on Sunday, so he went there with the intention to steal. Instead, he set off a silent alarm which automatically called the police. Oops.
Another way that illegal grows are discovered is that cities are using drones to find buildings with excessive amounts of HVAC equipment on the roof. Most buildings will have a few of these mechanical units on the roof, but a grow could have as many as 40. A telltale sign of something unusual.
Then there’s the smell. Robba said one operation without thinking opened a roof panel on the building, thus letting out the fragrant aroma of its cannabis plants. Neighbors complained and called the police.
With all these illegal grows getting busted and torn down, one would think people would be going to jail but that isn’t happening. Police departments found it wasted time and money to go after the lawbreakers. An operation one block from the police station in San Bernardino was busted with over 25,000 plants and no one went to jail. Instead, cities found that good old-fashioned building codes and civil penalties were the way to go.
It’s very black and white. There is no way to argue building codes. It removes the police and courtrooms from the equation. It’s very easy for a city to tag a property with a building code violation and charge the owner with fees and penalties. Five tons of HVAC equipment on a roof is a dangerous situation for the occupants inside because in general buildings aren’t able to withstand that amount of weight.
It’s a violation and the city can earn big money by charging an owner a daily penalty until the building comes back into compliance. So, rather than spend money on police and attorneys to shut down an illegal grow, the city can instead earn money and still have the same outcome. This incentivizes the owners and landlords to fix the situation as quickly as possible.
If the equipment is cheap and old, Robba will charge the owners to remove it. If it’s high quality, then they pay the landlord a reduced rate to demolish the grow. Robba said he does about two a month, but then added he’s already done three this past month. A new light can cost $250 each, while Robba pays about $20 for each ballast, he can resell them for roughly $75.
He believes the high tax rate of legal cannabis companies in California is creating the shadow black market. While many hobbyists buy his used equipment, he also believes that plenty of small black market operators are buying it as well. Still, he said it is getting harder for the illegal grows to stay in business as the city cracks down.
He doesn’t condone breaking the law, but he said the disruption of legalization has hurt the small operators who will now need to turn to other forms of business to make a living. Other things that could be more harmful than a small grow operation.
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Original Post: Green Market Report: Illegal Grows Spark Resell Market In Used Equipment
[Ed. Note: Big tobacco wants in on the cannabis market. While we are not surprised in the least, we hope the marketplace continues to support small, independent growers. Note to Altria: please use organic and sustainable grow methods.]
Cronos Group Inc. (CRON) (TSX: CRON) confirmed on Tuesday that it was having discussions concerning a potential investment by tobacco company Altria Group Inc. (MO) in Cronos Group. The company statement said that “No agreement has been reached with respect to any such transaction and there can be no assurance such discussions will lead to an investment or other transaction involving the companies.”
The stock closed 11% higher on Monday after rumors of such talk sparked a run on the shares. The confirmation of the talks sent the stock another 15% higher and was lately trading at $11.23, below its 52-week high of $15.30. Yesterday Cronos sent an email to MarketWatch saying, “We do not comment on market rumors.” Last week, it was reported by The Wall Street Journal that Altria was considering taking a significant minority stake in e-cigarette company Juul Labs Inc.
In October, Altria, the maker of Marlboro cigarettes, was making headlines when it was rumored that it was in talks with another cannabis company Aphria. The Globe and Mail reported that Altria was considering an equity stake in Aphria (APHQF). However, the story source cautioned that a deal could take time to reach and that it could possibly end up not occurring. The Globe’s source said that the leadership teams from Altria and Aphria have met on several occasions. It was rumored that Altria would start with a minority stake and then ultimately push it to a majority stake.
Aphria issued a statement saying, “That there is no agreement, understanding or arrangement in place with a potential investor at this time” and then added, “Aphria will advise the investment community of any material changes, if and when they occur, in accordance with applicable disclosure requirements.”
The Center for Disease Control and Prevention (CDC) reported that during 2017, about 249 billion cigarettes were sold in the United States—a 3.5% decrease from the 258 billion sold in 2016. Four companies—Philip Morris USA, Reynolds American Inc., ITG Brands, and Liggett—accounted for about 92% of U.S. cigarette sales.
By state, the average retail price of a pack of 20 cigarettes (full-priced brands), including federal and state excise taxes, ranged from $5.12 in Missouri to a high of $10.66 in New York, as of November 2016. On average, federal and state excise taxes account for 44.3% of the retail price of cigarettes.
Altria was once known as called Philip Morris. It is based in Richmond, VA and its roots as a tobacco company date back to 1847 when it was founded in London. It was split off from Philip Morris in 2002. Its subsidiary NuMark is focused on developing and marketing e-vapor products for adult smokers and vapers. It also has a 10 percent equity investment in Anheuser-Busch InBev NV, the maker of Budweiser beer.
Altria generated more than $25.5 billion dollars in sales in 2017.
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Original Post: Green Market Report: Cronos Group Confirms Tobacco Talks With Altria
Emblem Corp. (EMMBF) is making a $3 million strategic equity investment into Canadian cannabis company Natura Naturals Inc. In addition to the investment, the two companies have also signed a three-year cannabis supply agreement for Natura to provide Emblem up to 3,000kg of high-quality cannabis flower per year from its Phase 1 cultivation facility. The deal is expected to close later this week.
“We are extremely excited about the opportunities that our new-found Emblem partnership holds for us. With our first commercial LP sale, the future growth, venture possibilities, and business transactions that lie ahead for Natura seem very promising,” said Ben Nikolaevsky, President, and CEO of Natura Naturals.
Initial cannabis product deliveries to Emblem are expected to start in October 2018 with a total of 750kg deliverable for the balance of 2018. According to the statement, the agreement increases Emblem’s total available cannabis by approximately 37.5% in 2018 and significantly accelerates Emblem’s product availability to coincide with the launch of the adult-use market in October 2018.
“Our partnership with Natura quickly accelerates our time to market, with an immediate increase in product volume, supporting both our medical and adult-use demand,” said Nick Dean, President, and CEO of Emblem. “We have been very impressed with the Natura leadership team, their cultivation capabilities, and the quality of production they are achieving within their Phase 1 retrofit. Emblem has found a valuable partner in Natura and we are confident our relationship will continue to strengthen and grow as Natura completes Phase 2 of their retrofit, bringing online an additional 55,000 kgs of production in 2019.”
According to the company statement, Emblem will invest $3,000,000 in cash in Natura for 3,750,000 common shares of Natura and 3,750,000 common share purchase warrants exercisable at $1.05 for 24 months (subject to acceleration provisions). Post-closing, Emblem will own approximately 5% of Natura’s outstanding shares on a non-diluted basis, and 7% on a fully diluted basis.
Natura is based in Leamington, Ontario. The first 155,000 square feet of the facility is currently being converted as part of its Phase 1 retrofit and is expected to be complete in August 2018 and capable of producing 15,000kg of cannabis per year. The Phase 2 conversion will retrofit the remaining 507,000 square feet for cannabis cultivation and is expected to bring total production capacity to approximately 70,000kg per year by mid-2019. Natura holds a genetic library of 32 cannabis strains, which will be made available to Emblem.
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Original Post: Green Market Report: Emblem Makes $3 Million Investment In Natura
Green Spirit Industries (GSRX) continues to build itself up from the Pink Sheets as this tiny dispensary chain expands its footprint.
The company reported revenue of $353,430 for the second quarter and gross profits of $153,073. The second quarter loss per share was $.03, an 85% improvement from the same period last year, which was a loss per share of $.20. Operating expenses for the current quarter decreased 50% to $1,656,561, compared to $3,297,215 for the prior year period. Total assets as of June 30, 2018, were $9,626,698, versus total liabilities of only $248,824.
“We are very proud of the tremendous progress we made in the second quarter of 2018. This was our first full quarter of operations, with dispensaries in Dorado, Puerto Rico and Point Arena, CA,” said Green Spirit CEO Les Ball, “We opened two other dispensaries, in and near San Juan, Puerto Rico, late in the quarter. In addition to these four dispensaries, we made tremendous progress at Sunset Connect, our cultivation operation in California, and at Spirulinex, our extraction and manufacturing operations in California. Both are moving forward with full-scale operations.”
Green Spirit raised $3,000,500 in gross proceeds during the quarter for acquisitions and general corporate purposes, bringing the total raised since May 2017 to more than $12,000,000.
The revenue in the second quarter included two cannabis dispensaries that were in operation. One in Dorado, Puerto Rico and the other in Point Arena, California. Two other dispensaries were opened in and near San Juan, Puerto Rico late in the quarter, and will contribute full-quarter revenue beginning in the third quarter. The company further developed its California-based cannabis cultivation, extraction, and manufacturing businesses, leasing 25,000 square feet of indoor growing space in Oakland for Sunset Connect Oakland, LLC, as well as laboratory and manufacturing space in San Francisco for Green Spirit Essentials LLC and Spirulinex, LLC. Green Spirit holds majority interests in the three companies.
According to the company statement, Green Spirit has the following items in its pipeline:
- In addition to three fully operational medicinal cannabis dispensaries in Puerto Rico, the Company has four more dispensaries with pre-qualified licenses either under construction or near completion.
- In California, the Company expects to secure several locations for new dispensaries and to seek additional acquisitions as well.
- With the addition of newly acquired dispensaries and, most significantly, the full launch of operations at Sunset Connect, Green Spirit Essentials and Spirulinex in the third quarter, the company anticipates triple-digit revenue growth in third and fourth quarters.
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Original Post: Green Market Report: Green Spirit Industries Reports 2nd Quarter
Happy July 10. 710 is a thing for cannabis consumers. If you don’t know what that is, it’s okay. We’re here to help you learn. July 10 is or 710 is becoming a big sales promotion day and is growing in popularity. Cannabis consumers are always happy to find a new reason to celebrate and since 420 has been adopted by even non-cannabis consumers, 710 or Dab Day is the latest insider holiday.
If you turn the numbers upside down, it loosely resembles the word “OIL.” So, fans of cannabis oil as using that as an excuse to celebrate. Not convinced?
According to MJ Freeway, point-of-sale (POS) data from thousands of cannabis retailers across the U.S., Monday, July 10, 2017 sales were 15% higher than average Monday sales. The 15% increase can be wholly attributable to increased concentrate purchases. Concentrate category sales jumped 18% on July 10, 2017. In the last three years, year-over-year 710 holiday sales growth has averaged 19%.
In addition to that, MJ Freeway predicts a sales spike of more than 25% today. Of course, these sales pale in comparison to 420 sales, but it is significant enough for dispensary owners to recognize it. Plus since 420 has been so heavily commercialized, it gives cannabis consumers a new secret handshake.
Cannabis oil can also be described as concentrates or extracts and has become one of the fastest growing categories for sales. It’s been well documented that flower sales have either stalled or declined as oil sales increased. MJ Freeway noted that the flower category share as a percent of total product sales has declined 14% since 2014. Comparably, edible category share growth is up 2% since 2014.
The company went on to say that on average, individual cannabis retail locations have experienced the following product sales growth since 2014:
- Concentrate sales have grown 412%
- Edibles have grown 272%
- Flower sales have grown 149%
Cannabis data provider Flowhub has also picked up on this trend in sales growth. The seed-to-sale software company tracked a sample set of cannabis consumers on this holiday over the course of one year. They found that there was an 88% growth in concentrate sales when comparing 7/10/2016 against 7/10/2017 for the same sample set of customers. ($15,053.75 in 2016 and $121,802.14 in 2017). In comparison to an average Monday, sales of concentrates increased 34% on Dabs Day 2017, and in comparison to an average Tuesday, sales of concentrates increased 26% on Dabs Day 2017.
Cannabis oil companies aren’t missing the opportunity to use the holiday to promote their products. The Green Solution is offering up to two grams of NectarBee shatter, wax and pie crust concentrates for $24.95 each on July 10. If there isn’t a dispensary in your area, the online cannabis catalog on iheartjane.com currently has over 20,000+ cannabis products specific to the “extracts” category, which is the largest offering in the world.
If companies aren’t sure how to approach this holiday, MJ Freeway has created two retail guides:
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Original Post: Green Market Report: 710 Is Turning Into A Thing For the Cannabis Industry