8-K: Body and Mind Inc. to Divest Long Beach Dispensary for $856,250

Body and Mind Inc. has agreed to sell its Long Beach dispensary, NMG Long Beach, LLC, to SGC Retail Partners, LLC for $856,250.

Summary

• Body and Mind Inc. (BaM) is selling its wholly-owned subsidiary, DEP Nevada, Inc.'s (DEP) interest in NMG Long Beach, LLC (NMG LB) to SGC Retail Partners, LLC (SGC).
• The purchase price is $856,250.
• $100,000 has already been paid to DEP as a deposit.
• The agreement involves a Membership Interest Purchase Agreement (MIPA) between DEP, SGC, and NMG LB.
• The transaction includes a dual closing process with two separate closing dates.
• The First Closing involves the transfer of 80% of the membership interests to SGC, while the Second Closing transfers the remaining 20%.
• DEP retains voting rights until the Second Closing but waives economic benefits after the First Closing.
• SGC will manage the business operations at the facility under a Management Services Agreement (MSA) at its sole cost and expense.
• The closings are subject to approvals from the California Department of Cannabis Control (DCC) and the City of Long Beach, as well as landlord consent.
• SGC will receive 100% of the monthly Net Profits as a management services fee.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The company is divesting an asset to focus on other markets, which is generally a positive strategic move. The deal terms seem reasonable, and the management comments are optimistic about future growth.

Positives

• BaM receives $856,250 in cash for the divestiture.
• BaM can focus on retail cannabis store launches in Illinois and New Jersey.
• SGC assumes operational costs of NMG LB as of the First Closing Date.

Negatives

• BaM waives any and all economic rights or benefits as a result of such retained ownership, including rights to distributions, dividends, and to issue, sell, or redeem Interests, from NMB LB as of an after entering into the NMG LB MIPA.

Risks

• The deal is subject to regulatory approvals from the California Department of Cannabis Control (DCC) and the City of Long Beach.
• The deal is subject to landlord consent.
• Delays in obtaining regulatory approvals could impact the timing of the closings.
• If the parties cannot agree on a material detriment to DEP, consent may not be withheld.

Future Outlook

BaM will focus on retail cannabis store launches in Illinois and New Jersey, which augment our existing retail footprint.

Management Comments

• We work daily to increase our market share through delighting customers while also continuing to hone our operational efficiencies to drive profits.
• We are primarily guided by the metric of return on investment.
• Currently, we believe the most significant return on investment projects in front of us are successful retail cannabis store launches in Illinois and New Jersey, which augment our existing retail footprint.

Industry Context

The divestiture allows Body and Mind Inc. to streamline its operations and focus on expansion in key markets like Illinois and New Jersey, aligning with the broader industry trend of companies optimizing their portfolios for growth and profitability.

Comparison to Industry Standards

• Comparable transactions in the cannabis industry often involve similar structures, such as membership interest purchase agreements and management services agreements, to facilitate the transfer of ownership and operational control.
• The valuation of $856,250 for the Long Beach dispensary appears to be within the typical range for similar retail cannabis operations, although the specific terms and conditions of the deal, such as the management fee structure, can significantly impact the overall value.
• Companies like Curaleaf, Green Thumb Industries, and Trulieve have also been actively involved in acquisitions and divestitures to optimize their market presence and operational efficiency.

Stakeholder Impact

• Shareholders: May view the divestiture positively as it allows the company to focus on higher-growth markets.
• Employees: Employees of the Long Beach dispensary will likely be managed by SGC Retail Partners, LLC.
• Customers: No immediate impact expected, as the dispensary will continue to operate under new management.

Next Steps

• Obtain regulatory approvals from the California Department of Cannabis Control (DCC) and the City of Long Beach.
• Obtain landlord consent.
• Complete the First Closing, transferring 80% of the membership interests to SGC Retail Partners, LLC.
• Complete the Second Closing, transferring the remaining 20% of the membership interests to SGC Retail Partners, LLC.

Key Dates

Keywords

dispensary, cannabis, divestiture, Long Beach, Body and Mind Inc., NMG Long Beach, SGC Retail Partners, Membership Interest Purchase Agreement, Management Services Agreement, California Department of Cannabis Control