We continue our look at the smaller ‘MSO’s’ today with Body and Mind Cannabis ($BAMM). They claim ‘multi-state operator’ loud and proud on their website (it’s all the rage right now), with operations in California and Nevada and Arkansas and Ohio.

They operate 2 dispensaries in CA – San Diego (with the ‘lowest prices!’ in the city), and Long Beach with ‘Double Rewards‘ Saturdays, and ‘Super Sundays‘ promotions (buy 2 get, 50% off 2nd purchase).

I reference their promotional programs to point out the aggressive sales postures that appear in California. Outside of urban flagships (like say, Terrascend’s ‘Apothecarium’), it looks like a pretty ‘nuts and bolts’ market. Those ‘nuts and bolts’ being hard efforts at marketing that attempts to get very close-to-the-consumer (via social media) and retention of them (via rewards programs). The vast bulk of existing stores in the market don’t look like they qualify for one of those sexy Architectural Digest lists.

In the relatively ‘small’ world of legal cannabis, we find a link between $BAMM’s ‘assets’ and Sunniva ($SNN), who was the previous owner of an asset $BAMM utilizes. $SNN referred to this asset as the ‘glasshouse’. I had looked at $SNN three years ago (January 2018), and a year later, they were still running hot on the pump and euphoria of public companies entering legal cannabis (I’d reposted that 2018 analysis a year later, and got a bunch of nasty-grams from folks). It wasn’t hard to see though that the company was heading for a cliff, and off it went…..spectacularly. $SNN attempted to keep control of the ‘glasshouse’, but ultimately failed <An interesting ‘point in time’ view of California is included within that MJBDaily article>.

The glasshouse lives on, but now in a creditor’s hands. $BAMM is now connected to the ‘glasshouse’ by means of some sort of operating agreement, in what they describe as a ‘brand management agreement’, with $BAMM being ‘brand director’.

The 2 dispensaries in CA aren’t fully owned (one is 60% held, the other under an operating agreement, ‘pending completion of definitive agreement’. No timeline given), and their production in-state is done under licence. The company now running the glasshouse describes it as a production/manufacturing/distribution platform… as well as apparently contract grows. The thing is 480k ft² after all.

In Ohio, $BAMM announced a full transfer of ownership to themselves of a dispensary back in October, only to walk that back in November. They’ve now got different signs on the outside, and are at the ‘drywall stage’ of installing a processing facility nearby, but still don’t own the Ohio dispensary yet.

In Arkansas, they’ve got a dispensary and a grow-op being commissioned and said to be nearing production. It won an award (woot).

Nevada…well. They had bought a grow-op, and in mid-2019, began construction on an extraction/manufacturing facility nearby. Their grow-op got dinged in enforcement actions by the state regulator ($BAMM’s subsidiary is the ‘Nevada Medical Group’). The ultimate penalty was a very fortunate $50k fine (and lucky for them, Nevada offers an instalment plan). Looks like the State regulators aren’t coming down as hard as they can, yet. But, what kind of an outfit would even test those waters? Really dumb ones in my opinion.

$BAMM appointed their current CEO Mike Mills in April of 2020 – curiously, he’s said to have a background in media (Financial/National Post). Haven’t see this in cannabis before. I can’t find much on what he actually did though, outside of one reference to his name in the movie section. Mills looked pretty set on joining the Whistler Chamber of Commerce at one point, and is a partner in a photography shop. Ummm, yeah.

I noticed $BAMM had issued several corporate updates in January, and found that they’d missed a year end filing deadline with the exchange. Aside from saying their financials will eventually be up (they’re working hard apparently), they also mention that they’re now offering drive through at one of the locations in CA, and that they’ve rebranded that dispensary in Ohio.

I’m curious to see if $BAMM can hit the February 3rd deadline they’ve given themselves. Moreso, I’m wondering if there isn’t something that’s popped up from the (very) recent year end they dropped.

Ok. And sigh.

No less than five corporate updates in the past 6 weeks – and delayed financials – isn’t teeing this thing up well for me. I’ll try to shake that off. Let’s look at their most recent statements – and see whats under this hood. Note, these numbers are from July 2020.

To the financials!

________________________________________________________________________________________

• Cash at $1.3MM, inventory at $1.7MM. Sales of $5.2MM for the year, gross margin reported at 29%.
• General and Administrative of $7MM. Yeah.
• They list PP&E at $6.7MM, but most are leases. It doesn’t look like they actually own anything other than equipment and a vehicle. Total for non-lease related assets is less than $1MM
• 130MM shares o/s. 205 shareholders. Yep. Hello $AUSA. More below.
• 27MM in options and warrants, mid-dated through 2025, all under a buck. More below.
• 101 full-time employees across operations.
• They’re paying $25k/mo in rent for the Nevada grow-op, it isn’t owned. Neither is anything else but fixtures by the looks of it.
• Australis ($AUSA) is wrapped up with $BAMM, owning an aggregate 35% of the outfit. It looks like anytime $BAMM moves, $AUSA raises concurrently, and funds $BAMM for incremental acquisitions to maintain that ownership level. Sigh.
• It’s no wonder that margin sucks, even being vertical wherever they are. There’s ownership littered everywhere around the assets. More below.

Ok. Enough of that. I’ve got enough of a handle on this thing now to realize that their operations look like just hobby to this outfit. Let me explain.

If you need any support for some of the observations I made recently about OTC/Pink markets, $BAMM’s kind enough to disclose what that actually means in terms of stock price and bid/ask spreads. This table says a lot of things to myself, and little positive to an investor. A trader (with a very strong stomach) could see something different:

There’s a reason for this. Despite being listed on the CNSX (pretty downmarket on its’ own), the company discloses there are only 205 shareholders of record as of December 9th, 2020.

The deal with FloDistro (or Satellites Dip (SD)/Bobs LLC(?)) – the company operating the glasshouse) is complex. It looks like SD didn’t have the money to finish the glasshouse either, and is using those wishing to use the site as funding and tertiary investment. To wit:

There was also some equipment given to SD for them to use…I’m not going to go too far into this, as the deal didn’t last, landing near the purview of the courts shortly after the loan became due in late 2019:

Apparently, there isn’t too many singles at the dance, as $BAMM didn’t wait long to reinitiate ‘new’ paper with SD under the ‘brand’ agreement mentioned above:

I can’t figure out what was going on with this. The equipment loan was rejigged into a purchase agreement, and some sort of arrangement of payment (aligned with that Contribution Fee) extinguished liabilities that SD had with $BAMM. It appears that the agreement is humming along fine now. I couldn’t venture a guess at anything around it.

$BAMM doesn’t seem to have much operational acumen, at least in CA. They’ve outsourced a chunk of operational support to a company called GLDM in exchange for 3% gross(!). ‘ShowGrow’ is the names of the dispensaries they currently have a piece of/operate. Could be an extension of the initial sale transaction:

As it turns out, $BAMM had made the initial move to acquire GLDH back in 2018, for some $8.3MM CAD, with earn-outs able to double that acquisition price. Given the subsequent licensing above, there’s additional spit-swapping going on. We also see that the seller needed/wanted cash up front, and naturally, $BAMM turned to $AUSA for that cash:

Regarding the ‘Tier 3’s’ we’ve been looking at lately, the litigiousness (in some) and broader ownership interests (like in $BAMM) demand more fulsome references (and pictures) of notes to the financials. I mean, $BAMM is selling ownership for financing. That means to a prospective shareholder that a purchase of a share in $BAMM represents a far smaller piece of assets that a share in ownership implies.

In the financials, we discover that GLDH doesn’t even own 100% of the dispensaries. And that there was an original deal made that was less than the ‘modified’ agreement presented above. In that previous agreement, $BAMM coughed up $4MM for the percentages in GLDH, and of course, borrowed the money from $AUSA – paying $795k for it. As well, the revised agreement bumped the interest rate from 15% to 20% (probably after $BAMM realized it’s being used as a sleeve). I’d guess that licensing agreement with GLDH popped up as some sort of recompense for the interest rate adjustment:

Jesus, I hate this ‘moving target’ crap. Way cute in finance fees being 20%(!).

It’ll be interesting to see how hard the in-the-money options and warrants are struck during Q3F2021 (as in right now). They’re late reporting up to October, and the 4th calendar quarter didn’t see much movement in share price. Late to the MSO party, their equity is now trading much higher. Share volumes are hitting well north of 100k/day, a big jump from the previous 6 months. That the thing has(d) such a small ownership base….this might be larger now:

Ok. I could go on. But for a middling company (with multiple dispensaries with declared verticality and weak sales and one of the shittiest margins I’ve come across) that’s really a front for a financial firm….and being run by a wedding photographer no less….ugh. It’s not worth the effort to myself.

These guys have all the feels of being ‘amateur’ in much of their business model, and a hooker on a street-corner when it comes to money. The story sounds ok, until one actually opens the book.

Savage? Yeah.

But peddling shares that represent ownership of <50% of the ‘assets’ presented? That’s savage. Buying $AUSA would probably get you more exposure to $BAMM than owning $BAMM itself.

The OPEX is ridiculous for the sales ($BAMM owns the ops, but not all of the revenue), there’s virtually no hard assets in the thing, and delays in financials (1st Q no less) send up flags. They’re paying $AUSA $10k/mo for services, have granted them the Body and Mind trademark globally, and, have also given them 2 director seats.

$BAMM is nothing more to me than a hedge fund sporting a big pot leaf with annual revenue that wouldn’t add up to a single quality storefront (in a half dozen states).

Hard pass.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $BAMM or $AUSA.