Pot of Gold: Oakland’s Jetty Extracts Acquired for $30 Million

It's the largest Bay Area cannabis industry acquisition deal yet and possibly the shape of things to come. 

We’ve all seen weed deals, but the Bay Area has never seen a $30 million weed deal — until last week. The Green Rush went boom as a Canadian investment firm called Cannex Capital announced its acquisition of Oakland’s Jetty Extracts in a transaction worth as much as $30 million.

That eye-popping sum represents the largest cannabis industry acquisition in the Bay Area, and in California. If all the incentives of this $30 million deal are met — which is no guarantee — it would be the second-largest cannabis acquisition in the U.S. in the six years since Colorado and Washington voters approved legal cannabis.

The largest-ever deal dropped only two weeks before. In late March, pharmaceutical conglomerate GB Sciences signed a letter of intent to purchase the Las Vegas operations of Nevada dispensary chain NevadaPure for a slightly higher $32 million.

While the Canadian cannabis industry has seen corporate acquisition deals as large as $850 million as that country prepares for nationwide legalization this summer, U.S. companies generally just operate within their own states, meaning they’re rarely valued at such stratospheric levels.   

The close timing of these developments, and their similar complexity and financial risk, tell us a lot about the cannabis industry’s ascent into a full-fledged boom economy.

Jetty Extracts is headquartered in Oakland, and it makes a range of popular extract products like the Gold vape cartridge, the direct infused-oil applicator pen Dablicator, and a few exclusives for the cult-hit PAX Era vaporizer pods. Jetty’s products are available at an impressive 600 dispensaries statewide, the company has a licensed 12,000-square-foot production facility in Oakland, and its retail distribution operation is uniquely vast and nimble.

That makes Jetty Extracts as sure a bet as the purchasing Canadian investors are likely to find in the $5 billion-a-year California marijuana industry. But the deal evokes memories of Oakland’s Blue Bottle Coffee selling to Nestlé for $425 million, to significant hometown backlash.

And there’s some question whether these outside investors can fulfill their end of the bargain.

“I’d be nervous taking so much money from a Canadian firm,” one Bay Area cannabis executive tells SF Weekly. “Cannabis businesses are grossly overvalued in Canada.”

This is an almost all-stock transaction, based on Canadian stock values that are enjoying a fabulous run. Canadian cannabis companies have much higher values than their U.S. counterparts, reaping the benefits of being able to trade on public stock markets, and not living in a nation of leaders named Trump or Sessions.

But Canadian cannabis stocks are not valued based on their companies’ current sales. They’re valued on gigantic, theoretical sales increases — in some cases more than 100 to 200 times their current sales revenue — once Canada kicks off nationwide recreational use this summer.

“Some [companies] have market values that are larger than estimated sales for Canada’s entire recreational marijuana market,” Barron’s pointed out in a cover story last month.

In the case of the Jetty Extracts acquisition, most of the $30 million hasn’t been paid yet. Cannex Capital has provided an up-front payment of just under $3 million dollars to fund expansion. But the rest of the payout comes in small chunks over the course of the next three years, contingent on hitting sales goals.

The $30 million payout also depends on Cannex’s shares maintaining their current value over that three-year period. Those shares could be worth a million times their current price in three years. Or Cannex could be bankrupt and off the exchange by then.

These are the risks and rewards at play as California marijuana brands close in on the multimillion-dollar paydays they’ve long hoped for. Some will do it through venture capital investments, like delivery service Eaze’s $10 million from Snoop Dogg and other lenders. (Snoop’s Casa Verde Capital has secured an additional $45 million to throw at more marijuana investments.)

But this Jetty deal is a straight-up acquisition by an outside international investment firm. Californians might want to prepare to see more of our favorite marijuana brands gobbled up by Canadian conglomerates we’ve never heard of, because Canada’s marijuana investment market is so much more mature than ours.

SF Weekly loves Jetty Extracts. They’re a reliable fixture at local cannabis events, and their Shelter Project has long provided free medical cannabis to cancer patients. Jetty Extracts did not return comment on whether these programs will continue in light of their acquisition.

It’s fair to wonder whether these complex, big-money marijuana transactions are all smoke and mirrors. But when a local cannabis company sells for $30 million, that’s kind of a big deal.

 

See more of SF Weekly‘s 420 issue:

City Hall Goes Green, for the Retail Cannabis Hiring Fair
San Francisco City Hall was lit and green, actually, for the first such industry job fair held in a major U.S. city hall.

RZA Still Sharp
We spoke to Wu-Tang Clan’s RZA as he prepares to bring the mothafuckin’ ruckus to the Castro Theatre with a live hip-hop rescore of The 36th Chamber.

Quim Rock Is the Weed Lube You Didn’t Know You Needed
The ‘personal intimate oil’ lets the magic of marijuana go down on the lady parts, to rock your sexy time.

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