When the High Times Cannabis Cup scheduled for the 4/20 weekend earlier this year ran into permitting problems in San Bernardino, California, it should have sent up a huge red flag to the events and entertainment sector of the cannabis industry.
At the heart of the matter was the fact that Proposition 64 in California, passed by the voters in 2016, mandated that event organizers not only needed permission from the state level Bureau of Cannabis Control, but also from local lawmakers where the event is to be held. High Times had failed to obtain that local approval from the San Bernardino City Council and no permit was issued for public consumption or sales of cannabis at the event. Attendance suffered and vendors ultimately paid the price with lower than expected sales.
At the time, the organizers behind a competing cannabis event by the name of Chalice Festival had their sights set on July dates in Victorville, California, where they planned to hold their own celebration of weed, hash, art, and music as they had for years.
Event founder and owner of Hitman Glass, Doug Dracup, assured vendors and fans that their event was greenlit and well prepared and would not suffer the same setbacks that High Times had in April.
Victorville city officials had other ideas, however, and the permit for the Chalice Festival was firmly denied. Event organizers have filed a lawsuit against the city, which is still pending, but were forced to announce the cancellation of the event altogether, promising to reschedule soon and even refund ticket costs to earlybird buyers.
The fact that it has not been rescheduled or that we don’t know anyone who got a ticket refund is really not a surprise. What did come as news to many people today is the fact that a company called Gemini Finance Corp. reacted to the cancellation of the July event by foreclosing on a $587,000 loan that they had out to Chalice Festival.
Sensing blood in the water, the sharks at High Times swooped in and gobbled up a $560,000 debt to purchase the rights to the future of the Chalice Festival. Yep, High Times now owns Chalice.
Threw up a little in your mouth? Sorry, but keep reading.
Basically, Gemini now holds a $560,000 note between High Times and Chalice that they expect to be paid back in full by March 29th, 2019.
The move is the latest in a string of costly acquisitions by High Times Holding Corp. that includes absorbing Dope Magazine (and its events), the same with Culture Magazine, they bought out Green Rush Daily’s online presence, struck a deal with iHeart Radio, and more. Most of the deals involved High Times giving up millions of dollars in its own prospective stock offering in lieu of cold, hard cash since by all accounts they don’t have any of the latter.
In fact, a recent SEC report reveals the full details of the promissory note repayment in relation to the Gemini/Chalice deal. If they fail to repay the $587,500 total by the end of March next year, the deal is secured by… you guessed it… High Times stock.
We’ve asked this question before: Just what is High Times stock worth? Well, it is worth revisiting, since things have certainly changed since the last time we looked, and not for the better.
In the first six months of 2018, High Times revenues dropped $1.2 million, continuing a freefall pattern dating back at least to 2016. Cannabis Cup revenues, their bread and butter these days, fell by 14.2% between January 1st and June 30th of this year and print advertising revenues unsurprisingly dropped by 13%. Their net loss for those six months increased by 95.3% to $19.7 million.
In fact, the current owners of High Times still owe the original owners well over $28 million! A massive $9.7 million installment is due on that chunk alone by the end of this month.
Meanwhile, they are asking literally anyone to buy their IPO stocks at $11/share, hoping to raise up to $14.7 million in order to gain entrance to being traded on the NASDAQ. According to the Wall Street Journal, just $12 million had been raised by September forcing the company to file for an extension with the Securities and Exchange Commission.
This can’t be good for investor confidence.
Experts agree that the recent debt load taken on by High Times, even if it is offset heavily by stock offerings, has not paid off as planned and has made the company a risky investment. Even its own Reg A+ IPO disclosure reads “this investment involves a high degree of risk” and that it’s “suitable only for persons who can bear the economic risk for an indefinite period of time and who can afford to lose their entire investment.”
Unlike actual publicly traded cannabis offerings like Tilray (NASDAQ: TLRY), Canopy Growth (NYSE: CGC) , or even GW Pharma (NASDAQ: GWPH), High Times doesn’t produce any tangible smokable, dabbable, or edible cannabis products, instead relying on its dying magazine and Cannabis Cup events.
Of course, their October Cannabis Cup scheduled to take place in Sacramento had to be scrapped at the last minute when city officials demanded repayment on High Times promises from earlier in the year and High Times wouldn’t buck up.
Chalice got hit with a payment demand for over a half a million bucks when their July event fell through.
High Times scooped them up using borrowed money and now adds Chalice to its growing list of failing assets.
High Times hopes to catch up to its own runaway debt by selling IPO stocks to the general public for $11/share since savvy investors know better.
That plan isn’t working.
The likely outcome is one that High Times Cannabis Cup vendors from coast to coast have seen play out way too many times. When it’s time to pay the piper, it will likely be the people and companies who bought into the brand hype that will be left holding the bill.
*Update 11/8/18: Two websites (here and here) reporting that High Times Holdings Corp. has already defaulted on their note have since removed those headlines from their sites as this story continues to develop. Our article has been updated accordingly.