8-K: Pineapple Express Cannabis Company Secures Revenue Sharing Deal for Los Angeles Dispensaries

Pineapple Express Cannabis Company's subsidiary, Ananas Growth Ventures, has entered into a revenue sharing agreement to receive 5% of all retail sales from seven Los Angeles cannabis dispensaries in exchange for a $5 million promissory note.

Summary

• Pineapple Express Cannabis Company, through its subsidiary Ananas Growth Ventures, has entered into a revenue sharing agreement with Pineapple Consolidated, Inc.
• The agreement grants Ananas Growth Ventures 50% of the management fees from seven cannabis retail locations in Los Angeles.
• This equates to 5% of all retail sales from these locations going to Pineapple Express.
• In exchange, Ananas Growth Ventures will issue a $5 million promissory note to Pineapple Consolidated, Inc. with a 1% annual interest rate.
• The promissory note matures on April 20, 2029, and is payable at the discretion of Pineapple Express and Ananas Growth Ventures.
• The agreement is effective as of April 20, 2024, but was ratified and signed on June 10, 2024.

Sentiment

Score: 7

Explanation: The agreement is a positive step for the company, securing a revenue stream, but the debt obligation and related party transaction temper the overall sentiment.

Positives

• The company secures a direct revenue stream from established retail locations.
• The agreement allows for revenue generation while keeping overhead nominal.
• The deal is structured to provide a percentage of sales, aligning incentives with retail performance.
• The promissory note has a low 1% interest rate.

Negatives

• The company incurs a $5 million debt obligation through the promissory note.
• The promissory note is payable at the discretion of the company, which could create uncertainty for Pineapple Consolidated, Inc.

Risks

• The success of the agreement is dependent on the performance of the seven retail dispensaries.
• The company is exposed to the risk of non-payment of the promissory note.
• The cannabis industry is subject to regulatory changes that could impact the agreement.
• The agreement is a related party transaction due to the shared director, which could raise conflict of interest concerns.

Future Outlook

The company aims to rapidly increase its footprint throughout California and scale into underdeveloped markets, with this agreement being a key step in that direction.

Management Comments

• CEO Matthew Feinstein stated that this is a key moment in the company's maturation.
• Feinstein emphasized the importance of generating direct revenue while keeping overhead nominal for a sustainable and profitable business.
• Feinstein also commented on the imminent cannabis rescheduling, comparing it to the end of alcohol prohibition in the 1930s.

Industry Context

This agreement reflects a trend in the cannabis industry where companies are seeking to secure revenue streams through strategic partnerships and acquisitions, particularly in established markets like Los Angeles.

Comparison to Industry Standards

• Revenue sharing agreements are common in the cannabis industry, particularly between management companies and retail operators.
• The 5% revenue share is within the typical range for such agreements, but the specific terms depend on the location, brand, and market conditions.
• The 1% interest rate on the promissory note is relatively low, which is favorable for Pineapple Express.
• Companies like Curaleaf, Trulieve, and Green Thumb Industries often use similar strategies to expand their market presence, but they typically have larger scale operations and access to more capital.

Related Party Transactions

• The agreement is a related party transaction because Matthew Feinstein serves as a director for both Pineapple Express Cannabis Company and Pineapple Consolidated, Inc.

Stakeholder Impact

• Shareholders may view this agreement positively as it provides a new revenue stream.
• Employees may benefit from the company's growth and expansion.
• Customers will continue to have access to cannabis products through the retail locations.
• Suppliers may see increased demand for their products due to the increased sales volume.

Next Steps

• The company will begin receiving 5% of retail sales from the seven Los Angeles dispensaries.
• The company will continue to explore opportunities to expand its footprint in California and other markets.

Key Dates

Keywords

cannabis, revenue sharing, promissory note, retail dispensaries, Los Angeles, management fees, Ananas Growth Ventures, Pineapple Consolidated Inc.