Cannabis News

Chalice Receivership Update: Weak Market, Insiders Pounce

Published

1 year ago

August 18, 2023

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I’ve been writing about the Chalice receivership process since late May, when Chalice Brands Ltd. (OTCMKTS: CHALF) filed an Oregon Circuit Court complaint. In that Oregon lawsuit, Chalice brought claims against five local subsidiaries to drive them into receivership, claiming some $35 million owed. This lawsuit was orchestrated with a parallel Canadian proceeding. In that one, Chalice and its affiliates received protection from creditors, while the company attempts to reorganize without filing bankruptcy.

I haven’t been following the Canadian proceeding, but things are coming into focus here in Oregon. I’ll share two takeaways today. First, the bid and sale process shows that the market for Oregon cannabis businesses remains depressed and unattractive, even at steep discounts. Second, the proposed sale of the Oregon subsidiaries’ assets won’t sit well with many people. This is because the sale is teed up for the bargain basement price of $3 million, to buyers who could be fairly called Chalice “insiders.”

The market for Oregon cannabis assets is awfully weak

We didn’t need a Chalice faceplant to know things were bad. Here in the Portland office, we’ve spent much of 2023 helping clients sell, or attempt to sell, Oregon cannabis businesses and related assets. On offer are whole verticals we helped purchase in the COVID run-up. There just aren’t a lot of buyers right now, especially at scale.

Chalice was a relatively large outfit. At the outset of this Receivership, the Chalice subsidiaries held 22 Oregon cannabis licenses, including 16 retail licenses. All 22 licenses remain “active” today, although some aren’t operating per OLCC dispensation. As of May 23, 2023, Chalice subsidiaries also owned four inactive licenses in Nevada; and a single, active California license. A bit more on those below.

Following the Oregon Receiver’s appointment, he went about marketing the Oregon assets energetically, including the 22 cannabis licenses. A mere four offers were received by the bid deadline. (In full disclosure, we represent one of the bidders, and other interested parties.) Following a period of negotiation with the high bidder (not our client), and following what the Receiver has described as extensive creditor negotiation and outreach, he picked a winner. They negotiated some, landing at a sale price of $3 million for all locations save three undesirable stores.

During the bid process, interested parties who were willing to sign a nondisclosure agreement gained access to a data room. Presumably, that data room contained revenue and other performance metrics for the businesses at issue. I did not visit the data room and can only speculate as to the revenues these 22 businesses were generating. I do feel fairly confident though, in opining that the $3 million sticker price looks like a helluva deal. To wit, Chalice announced the acquisition of just four of the stores on offer for $6.5 million just one year ago.

Granted, some of the Oregon assets aren’t operating at this time. The buyers have also agreed to pay cash at close, which bolsters the offer, and would allow the receiver to clear out tax liabilities and some portion of monies owed to secured creditors. Under the draft asset purchase agreement I’ve reviewed, the buyer should also receive the five Nevada licenses (but not the California license), whatever those are worth, as part of the $3 million purchase price. The buyer would not be assuming any liabilities.

At this point we should ask who is getting screwed here, if the Court approves this sale. In my view, it’s primarily smaller, Oregon cannabis businesses and third parties (e.g. landlords, service providers), whom the Chalice subsidiaries owe money that will never be repaid. To wit, the initial Complaint in the Oregon litigation alleged that the Chalice subsidiaries “… owe approximately $3.7 million in the aggregate in trade payables…” (ouch) as well as a “significant amounts of indebtedness to third parties” (awfully vague).

A second group of disadvantaged parties is arguably the shareholders of Chalice Brands– or most of them. It appears the parent company will never receive the $35 million that the subsidiaries allegedly owe to their investment vehicle. Today, the company’s stock price is deservedly in the toilet at $.0000010 USD, down from a 52-week high of $.27 USD. Arms-length investors took a bath.

So, who is about to benefit? Read on.

The familiar faces buying Chalice assets

The winning bidder is an entity called APCO LLC, a newly formed Delaware entity owned in whole or in part by familiar parties, William Simpson and Gary Zipfel. Many readers may recall that Simpson founded Chalice Farms in 2014. He sold to Golden Leaf in 2017 and became its CEO as part of that deal. Simpson left or was ousted at the end of 2018, long before the company renamed itself Chalice Brands. Finally, in January of this year, Simpson was appointed as Advisor to the Chalice Board. He was described by CEO Jeff Yapp as a “major shareholder” in the announcement.

The other APCO owner listed as an purchase agreement signatory, Gary Zipfel, was appointed to the Board of Directors of Chalice Brands at the same time Simpson resurfaced. Like Simpson, Zipfel was also described as a “major shareholder.” In Court filings, the Receiver has been careful to describe APCO as “a good faith-purchaser, in that Purchaser demonstrated honesty in fact and fair dealing in negotiating its bid.” Maybe so, at least in that certain capacity. On the other hand, the Receiver has distanced himself, prudently and cautiously, from activity occurring prior to his appointment. In his August 2 report to the Oregon Court, for example, the Receiver wrote:

Prior to the CCAA filing in Canada, and the initiation of the Receivership in Oregon, the Board of Directors of Chalice formed a Special Committee to initiate a strategic review to determine if there was a potential buyer of the assets of Chalice. The Special Committee spent several weeks actively soliciting buyers for all of its Canadian and U.S. holdings, including speaking with investment bankers to determine if their clients had any interest in acquiring Chalice’s assets. The Receiver is generally advised that these efforts were quite robust, and while no sale was completed during this strategic review, many of those interested parties did submit bids and/or complete due diligence during the CCAA and Receivership process.

Interesting! Parties affected by this proposed sale to APCO may be interested in getting information from Chalice on:

the run-up to this “robust” outreach process, starting with Chalice’s apparent decision to stop paying vendors before bringing on Simpson and Zipfel, and throughout their tenures
whether the Special Committee solicited offers only for “all of its Canadian and U.S. holdings”, or also offered separately the Oregon assets headed for APCO
a summary of the “many bids” received by the Special Committee, and whether any of those bids outclassed the $3m in cash that APCO and its owners now propose to pay for the Oregon assets
who served on the Special Committee, and the rationale in refusing any or all of the “many bids”
why this process lasted only “several weeks” (an incredibly compressed timeline)
the involvement of Zipfel and Simpson in the offering process, in their respective capacities as Advisor and Director of the Chalice Board, or otherwise

This could be a bunch of smoke with no fire. I don’t know. Fairness also requires an acknowledgement that the Chalice insiders’ company brought more cash to the table than other bidders in this hapless Oregon process. Still, I hope that someone digs into this: right now it feels like we are sitting on half a story. The proposed sale optics are problematic in that all of these Chalice assets are teed up for transfer to Chalice insiders, and for a song. Meanwhile unpaid farmers, landlords and everyone else would take it in the shorts upon Court approval.

We will keep tracking this one as it works its way through the Receivership process. Until then, for previous posts on Chalice check out the following:

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Is Kratom Addictive? Understanding Dependence, Risks, and Safe Usage

Published

9 hours ago

November 12, 2024

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is kratom addictive

Is kratom addictive? Discover the potential for dependence on Kratom, the risks involved with its use, and how to approach its consumption responsibly.

From 2011 to 2017, over 1,800 calls to poison centers involved kratom in the U.S. This significant number highlights the concern regarding kratom addiction.

However, without Food and Drug Administration (FDA) oversight, and due to various consumption methods like teas and capsules, there are significant health risks. Safe use of kratom is now in question due to these issues.

Research debates how dependence develops, outlining signs like loss of control and withdrawal symptoms. These signs are seen in regular kratom users. Ironically, some people switch from drugs like heroin to kratom, looking for a legal alternative.

Understanding Kratom: Origins and Prevalence

Kratom comes from the Mitragyna speciosa tree in Southeast Asia. It can act like a stimulant or like opioids, based on how much you take. People use it in different ways, for a small energy boost or stronger effects at higher doses.

The legal status of kratom in the U.S. is complicated and changing. It’s a hot topic because some worry about its misuse. It’s still legal in several states. This shows how different places handle drug rules. The National Institute on Drug Abuse is looking into its medical benefits. But, the FDA hasn’t approved it for medical use yet. The DEA calls it a “drug of concern,” which means policies might change.

From 2011 to 2017, poison control centers in the U.S. got over 1,800 reports about kratom. This shows it’s widely used and might pose health risks.

Kratom’s main ingredients bind to opioid receptors very strongly, stronger than morphine even. This fact is key to understanding its effects.

As more people use kratom, more are reporting serious health problems. These include liver and heart issues, and tough withdrawal symptoms, particularly in those already sick.

The statistics show mounting worries about kratom in the U.S. As its use grows, it’s becoming more important to health policies and laws. What happens next will depend on further research and legal decisions.

Is Kratom Addictive: Investigating the Substance’s Nature

The question of kratom’s addictiveness focuses on how it affects brain receptors and its long-term health implications. The ongoing debate highlights concerns about dependence and the risk of addiction. Scientists are closely looking at these issues.

How Kratom Works in the Brain

Kratom’s main alkaloids, mitragynine and 7-hydroxymitragynine, bind to the brain’s opioid receptors, similar to painkillers and narcotics. This connection suggests a potential risk of dependence. These alkaloids are key to kratom’s pain relief but also point to possible addiction concerns, especially with frequent, high-dose usage.

Patterns and Consequences of Long-term Use

Using kratom often, especially in large doses, can increase the risk of dependence and intense withdrawal symptoms, similar to opioid withdrawal.

Although some use it for pain or to improve mood, long-term kratom users might see serious health problems, like liver damage and mental health issues.

Withdrawal symptoms, including irritability, nausea, and sleep problems, show kratom’s impact on one’s physical and mental health.

Assessment of Addiction Risks

Studies indicate a significant risk of addiction to kratom, especially with high doses or frequent use. Dependence develops as the body gets used to kratom, leading to tolerance and a need for more to feel its effects. Withdrawal symptoms emphasize this risk, as highlighted by health experts.

Physiological Effects: Kratom’s Impact on the Body

There is a lot of debate about the safety and use of kratom. This herbal extract comes from the Mitragyna speciosa plant. It has drawn attention for its possible harmful effects on the body. The FDA has issued many warnings about kratom, raising safety concerns.

Kratom Adverse Effects: Kratom users have reported side effects like nausea, vomiting, and confusion. More serious issues include high blood pressure and liver damage. These problems highlight the risks of using kratom.

Herbal Extract Safety: Some kratom products contain heavy metals and pathogens. These can cause severe health issues, including death. This shows the importance of safety in herbal products.

FDA Warnings and Regulations: The FDA has linked kratom to over 35 deaths and warns against using it. They point out the lack of medical uses and the risk of addiction.

Physiological Impact: Kratom’s effects depend on the dose and the user’s body. Yet, it can lead to dangerous outcomes like liver damage and seizures.

Safety Concerns from Authorities: Federal agencies like the DEA are worried about kratom’s safety. Although not a controlled substance, monitoring suggests users should be careful.

Kratom might offer temporary relief for some ailments, but it comes with significant risks. The FDA’s warnings should make people think twice. If considering kratom, it’s crucial to talk to a doctor first. Experts stress the need for safety and caution with herbal extracts.

Conclusion

Kratom’s role in health and regulation is complex, with views and research findings widely varied. Some people use kratom for its claimed health benefits, but it’s a hot topic. Experts advise caution and suggest consulting a doctor before using kratom due to the unclear effects.

Clinical studies using scores like SOWS and COWS haven’t confirmed withdrawal symptoms from kratom. This adds to the debate, especially when some users report withdrawal. This makes kratom a controversial subject among different findings and user experiences.

When it comes to treating opioid addiction, kratom can be both helpful and harmful. Some have used it successfully to fight addiction. Yet, some states have banned it. This highlights the need for regulations and consistent product quality. It also raises questions about kratom’s legal status due to mixed actions by authorities.

The situation shows how complex kratom is in the realm of substance use and law. Without clear evidence supporting either its benefits or risks, it poses a challenge. More research is needed to guide regulations and health advice. For now, anyone thinking of using kratom should be careful, seek medical advice, and keep up with laws and health guidelines.

WHAT IS KRATOM ANYWAY? READ ON…

WHAT IS KRATOM AND WHY ARE YOU HEARING ABOUT IT NOW?

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New Rule, December 5: Oregon Cannabis Retailers, Processors and Labor Peace Agreements

Published

10 hours ago

November 12, 2024

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Oregon’s Measure 119 passed last week, as expected. This means that as of December 5^th, every OLCC licensed retailer, processor, researcher and testing lab must secure a labor peace agreement before OLCC will approve a new or renewal license application. The labor peace agreement must be with a “bona fide labor organization.”

I previewed M119 back in September, explaining:

Compulsory peace agreements aren’t anything new in cannabis, although it would be something different here in Oregon. California, for example, requires labor peace agreements for many of its cannabis licensees, and has for many years. We had clients struggle with the concept initially, and we saw some fumbled rollouts, but people eventually adjusted.

Measure 119 further provides that retailers and processors would be required to remain neutral, under the peace agreements, when labor organizations communicate with employees about collective bargaining rights “with any licensure or renewal application.”

M119 may be legally problematic

I’m not a First Amendment lawyer, but it’s not clear to me that an Oregon business can be constrained from speaking with employees– regardless of what M119 provides. Oregon’s speech protections are extremely broad, which is why we have a naked bike ride, tons of strip clubs and no campaign finance restrictions.

I’m also not a labor lawyer, but I’m told M119 could hit a snag on the National Labor Relations Act.

I’ve run these concepts by an Oregon First Amendment lawyer and a couple of labor lawyers, and all confirmed to me that M119 has real exposure. I found that feedback interesting, because M119 sponsors would have understood this when they set out signature gathering. Back in September, I wrote:

The United Food and Commercial Workers Local 555 spent a good deal of money to get Measure 119 on the ballot, rounding up some 163,000 signatures when only 117,173 were required. This follows on a stymied effort to get House Bill 3183 passed last year, which would have accomplished the same thing legislatively.

HB 3183 failed after a couple of advisory letters from the State of Oregon, Legislative Counsel Committee (see here and here). Those letters discussed preemption exposure for what is now M119 under the National Labor Relations Act, The Taft Hartley Act, and other federal laws. Oregon Business and Industry, the largest business group in the state, also submitted opposing testimony, highlighting legal exposure.

As to the First Amendment issues, anyone watching this is advised to follow litigation recently brought by Ctrl Alt Destroy, Inc., on a similar requirement in California.

So let’s see how that goes, and let’s see if anyone in the Oregon cannabis space wants to make a run at litigating M119. For now, credit to UFCW Local 555, I guess, for not giving up and for getting this thing on the ballot. And for having some fun by slipping a Rickroll into the voter pamphlet. I’m sure that won a few people over.

The OLCC process

I don’t have any information yet on what OLCC is going to do ahead of the December 5^th deadline. It’s worth noting that, in addition to California, other recreational cannabis states including New York, New Jersey, Rhode Island, Connecticut and Delaware all have similar requirements. Most likely, OLCC will put out an FAQ page very soon that looks something like this and licensees will need to upload something or other to CAMP with respect to any post-December 5^thapplication or renewal.

As far as OLCC licensees negotiating these agreements, the best approach would be to speak with experienced labor counsel. Labor law is highly specialized, and negotiating a labor peace agreement with any outfit claiming to be a “bona fide labor organization” is not a typical exercise.

For now, this is just one more thing for licensed cannabis businesses to comply with. Please reach out to us if you have any questions or need a referral.

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The CBD Dog Treat Guide

Published

11 hours ago

November 12, 2024

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CBD dog treats good or bad

As the popularity of CBD (cannabidiol) continues to rise, many pet owners are exploring its potential benefits for their furry companions. CBD is derived from the hemp plant and is known for its therapeutic properties, which may help alleviate anxiety, pain, inflammation, and other health issues in dogs. However, when considering CBD treats for your dog, it’s crucial to understand the ingredients that go into these products. This article will delve into the essential ingredients to look for in CBD treats, their benefits, potential risks, and how to choose the right product for your canine friend.

Understanding CBD and Its Benefits for Dogs

Before we dive into the ingredients, it’s important to understand what CBD is and how it can benefit dogs. CBD is a non-psychoactive compound found in cannabis plants. Unlike THC (tetrahydrocannabinol), which can produce a “high,” CBD does not have intoxicating effects. Instead, it interacts with the endocannabinoid system (ECS) in both humans and animals, which plays a crucial role in regulating various physiological processes.

Potential Benefits of CBD for Dogs

Anxiety Relief: Many dogs experience anxiety due to various factors such as loud noises, separation from their owners, or changes in their environment. CBD may help reduce anxiety levels by promoting a sense of calm.

Choosing the Right CBD Treats

When selecting CBD treats for your dog, it’s essential to look beyond just the CBD content. The overall quality of the treat is equally important. Here are some key ingredients you should be aware of:

1. High-Quality CBD Oil

The foundation of any good CBD treat is the quality of the CBD oil used. Look for treats that contain:

Full-Spectrum or Broad-Spectrum CBD: Full-spectrum products contain all cannabinoids found in the hemp plant, including trace amounts of THC (below 0.3% as per legal standards). Broad-spectrum products contain multiple cannabinoids but no THC. Both types can provide an “entourage effect,” enhancing the therapeutic benefits.

2. Natural Ingredients

Just like human food, the ingredients in your dog’s treats matter significantly. Look for treats made with natural ingredients rather than artificial additives or preservatives. Here are some beneficial components:

Whole grains like oat flour or brown rice flour provide essential nutrients and fiber that support digestive health. They are also a good source of energy for active dogs.

Healthy fats are vital for maintaining your dog’s coat and skin health. Ingredients like coconut oil or peanut butter not only enhance flavor but also provide beneficial fatty acids that support overall well-being.

Incorporating fruits and vegetables into your dog’s treats can boost their nutritional value:

To make treats more appealing without resorting to artificial flavors, look for natural flavorings like chicken broth or carob (a chocolate substitute safe for dogs). These ingredients can enhance taste while keeping the treat healthy.

3. Functional Ingredients

Some treats may include additional functional ingredients designed to address specific health concerns:

These compounds are often included in joint support treats to help maintain joint health and mobility, especially in older dogs or those with arthritis.

Probiotics can promote gut health by supporting a healthy balance of bacteria in your dog’s digestive system.

Certain herbs like chamomile or ginger may offer calming effects or aid digestion. Always ensure these herbs are safe for canine consumption before choosing treats containing them.

Ingredients to Avoid

While there are many beneficial ingredients to seek out, it’s equally important to know which ones to avoid:

1. Artificial Additives

Many commercial pet treats contain artificial colors, flavors, and preservatives that can be harmful to your dog’s health. These additives may lead to allergic reactions or other health issues over time.

2. High Sugar Content

Just like humans, dogs do not need excessive sugar in their diets. Treats high in sugar can lead to obesity and dental problems.

3. Low-Quality Fillers

Avoid treats with low-quality fillers such as corn syrup or by-products that do not provide any nutritional value.

4. THC (Tetrahydrocannabinol)

Always ensure that any CBD product you choose contains less than 0.3% THC to avoid any psychoactive effects on your dog.

How to Introduce CBD Treats Safely

When introducing any new treat into your dog’s diet—especially one containing CBD—it’s essential to do so gradually:

Start Small: Begin with a small amount of the treat to see how your dog reacts.

Monitor Your Dog: Observe your dog for any adverse reactions such as changes in behavior or gastrointestinal upset.

Adjust Dosage as Needed: Depending on your dog’s size and needs, you may need to adjust the dosage over time.

Consult Your Veterinarian: Before starting any new supplement regimen, including CBD treats, consult with your veterinarian—especially if your dog has existing health conditions or is taking other medications.

Conclusion

CBD treats can be a beneficial addition to your dog’s diet when chosen carefully with attention to ingredient quality and safety. By understanding what goes into these treats—such as high-quality CBD oil, natural ingredients, functional additives—and knowing what to avoid, you can make informed decisions that support your dog’s health and well-being.

Always prioritize transparency from manufacturers regarding ingredient sourcing and product testing; this will ensure you’re providing your furry friend with safe and effective options tailored to their needs. With proper research and guidance from a veterinarian, you can confidently explore the potential benefits of CBD treats for your beloved pet while ensuring they enjoy a tasty snack that’s good for them too!