8-K: Blum Holdings Secures $100,000 in Unsecured Promissory Notes and Pursues Acquisition of Cannabis Dispensary

Blum Holdings, Inc. has entered into a material agreement for $100,000 in financing and a non-binding letter of intent to acquire a licensed cannabis dispensary in Northern California.

Summary

• Blum Holdings, Inc. executed Unsecured Promissory Notes totaling $100,000 with four investors on January 8, 2025.
• The notes mature on December 30, 2026, and do not accrue interest except in the event of default.
• The notes are convertible into a convertible promissory note, which will automatically convert into capital stock upon a qualified equity financing of at least $10,000,000 or a lesser amount approved by the lenders.
• The conversion price will be the lesser of 85% of the lowest price paid by cash investors in the equity financing or the price represented by a $30,000,000 pre-money valuation of Blum Holdings.
• Lenders will receive warrants to purchase up to 7,812 shares of Blum Holdings' common stock at an exercise price of $0.64 per share.
• Blum Holdings also entered into a non-binding letter of intent on January 8, 2025, to acquire 100% of a licensed cannabis dispensary in Northern California through a newly formed subsidiary, Blm Acquisition Co.
• The total consideration for the acquisition is $2,000,000, including $1,300,000 in cash, $200,000 in cash or stock based on earn-outs, and $500,000 in Blum Holdings' common stock at $1.90 per share, held in escrow for 12 months.
• Performance-based bonus awards may be payable in cash or stock based on milestone requirements for 2025.
• The acquisition is subject to customary conditions, definitive agreements, and necessary approvals, with no guarantee of completion.

Sentiment

Score: 6

Explanation: The announcement is moderately positive, with the company securing financing and pursuing an acquisition. However, the non-binding nature of the acquisition agreement and the potential risks associated with the financing temper the overall sentiment.

Positives

• The $100,000 in financing provides Blum Holdings with additional capital.
• The potential acquisition of a licensed cannabis dispensary could expand Blum Holdings' operations and market presence.
• The convertible note structure allows for future equity financing at potentially favorable terms.
• The acquisition includes performance-based bonus awards, aligning incentives with the seller.

Negatives

• The promissory notes accrue default interest at a rate of 10% per year, compounded monthly, if an event of default occurs.
• The acquisition is subject to customary conditions and definitive agreements, with no guarantee of completion.
• The $500,000 in stock consideration is subject to a 12-month holdback period.

Risks

• The company may not be able to successfully negotiate and enter into definitive agreements for the proposed acquisition.
• The company may not be successful in completing the proposed acquisition.
• The company may face challenges in integrating the acquired dispensary into its existing operations.
• The company may not be able to achieve the performance-based milestones required for the bonus awards.
• Failure to meet obligations under the promissory notes could trigger default interest and acceleration of the debt.

Future Outlook

The company intends to complete the acquisition of the cannabis dispensary, subject to the execution of definitive agreements and customary closing conditions. Blum Holdings will also need to manage its debt obligations under the promissory notes.

Management Comments

• Sabas Carrillo, Chief Executive Officer, signed the report on behalf of Blum Holdings, Inc.

Industry Context

The cannabis industry is rapidly evolving, with increasing consolidation and competition. Acquisitions of licensed dispensaries are a common strategy for companies looking to expand their market presence. Access to capital is crucial for growth in this sector.

Comparison to Industry Standards

• Comparable companies in the cannabis industry, such as Curaleaf, Trulieve, and Green Thumb Industries, have also pursued acquisitions to expand their footprint.
• Financing through convertible notes and warrants is a common practice in the cannabis industry, particularly for smaller companies seeking capital.
• Acquisition multiples in the cannabis dispensary sector vary widely depending on factors such as location, revenue, and profitability.

Stakeholder Impact

• Shareholders may see potential benefits from the acquisition and financing, but also face risks related to integration and debt management.
• Employees of the acquired dispensary may experience changes in their roles and responsibilities.
• Customers of the acquired dispensary may see changes in product offerings and service quality.
• Suppliers of the acquired dispensary may see changes in their relationships with the company.
• Creditors of Blum Holdings may be impacted by the new debt obligations.

Next Steps

• Negotiation and execution of definitive agreements for the acquisition of the cannabis dispensary.
• Completion of due diligence for the acquisition.
• Obtaining necessary approvals and consents for the acquisition.
• Management of debt obligations under the promissory notes.

Key Dates