Canadian Firm Poised To Enter Florida Pot Market

Jul 31, 2018

A Canadian love-fest for Florida pot companies continues to blossom with a $93 million deal that includes a Ruskin-based grower yet to begin selling marijuana products.

Toronto-based Scythian Biosciences Corp. announced Monday it intends to purchase a company that will take over the grower 3 Boys Farms, which received a highly sought-after medical marijuana license last August after suing the state. The deal also includes purchasing an unnamed “health care organization” as part of Scythian Biosciences’ entry into the booming U.S. cannabis market.

In a letter to health officials earlier this month, 3 Boys asked for nearly nine-month extension before it begins dispensing medical marijuana products to patients. Under Florida law, “medical marijuana treatment centers” are supposed to have products on the shelves 210 days after being authorized to begin cultivating cannabis. The Ruskin-based grower got the go-ahead to begin cultivation in January and faced a July 31 deadline to begin dispensing.

The July 17 letter informed health officials about a potential mid-August sale of 3 Boys to Cannabis Cures Investments LLC, also known as CannCure.

Under the agreement announced Monday, CannCure will buy 60 percent of 3 Boys and 60 percent of the unnamed health care organization. Scythian will eventually purchase CannCure. The deal, if approved by state health officials, is expected to close in October, and will be Scythian’s first U.S. investment, according to CEO Robb Reid.

“With only 13 licenses (issued) and 21 million people, we feel that it is perhaps the single most important opportunity in the United States,” Reid told The News Service of Florida in a telephone interview Monday from London.

Reid compared Florida’s “emerging market” with that of Canada, which has more than 200 licensed marijuana operations and a population of 40 million people, or about double that of the Sunshine State.

“You can figure that up very quickly. The numbers add up. Thirteen licenses to serve that population. … That’s a market we want to be in,” he said.

The Scythian-3 Boys deal is the latest indication of the skyrocketing value of Florida’s highly restricted medical marijuana licenses in what some investors estimate will be a $2.5 billion market by 2025.

Last month, California-based MedMen announced it was purchasing Treadwell Nursery, which operates as “Remeny Wellness,” for $53 million. The agreement gave MedMen, a high-end brand which has dispensaries in Beverly Hills and Las Vegas, the right to operate 25 dispensaries throughout the state, the maximum currently allowed under Florida law, along with Treadwell’s five-acre cultivation facility in Eustis.

The high price tag on the 3 Boys deal, however, includes the purchase of the unidentified “healthcare organization,” described in the announcement as being established in 1991 and having six locations throughout Florida.

According to a press release, Scythian will initially purchase 70 percent of CannCure and have an option to acquire the remaining 30 percent.

Namaste Gorgie, LLC, which is owned by Cathy DeFrancesco, is listed in state records as a manager of CannCure. DeFrancesco is also an investor in a publicly traded company that owns DFMMJ, which also has a Florida medical marijuana license.

DFMMJ was involved in another Canadian-backed acquisition of a medical marijuana licensee last year.

DFMMJ Investment LLC --- an entity wholly owned by Liberty Health Sciences, whose major investor is Ontario-based Aphria --- paid $40 million to take over management and operation of Chestnut Hill Tree Farm in March 2017, even before the Alachua-based grower began selling marijuana products in the state.

Some marijuana industry insiders questioned several aspects of the deal announced Monday, beginning with DeFrancesco’s potential ownership interests in two separate marijuana operations.

But Brady Cobb, Scythian’s strategic advisor of U.S. operations, said in an interview Monday that the 3 Boys deal complies with state law, which limits investors from having more than a 5 percent interest in more than one medical marijuana operation.

“There will be no cross-ownership in excess of 5 percent of the public companies,” Cobb said. “We raised this issue at the very beginning. We volunteered this to the department when we first ever broached this transaction.”

State regulations also are intended to keep doctors from having a financial interest in medical marijuana operations, similar to a federal law, known as the “Stark Law,” that bars doctors from self-referring patients to entities with which they have financial relationships.

The “health care organization” is touted in the press release as “revolutionizing the way medical care is being delivered.”

The organization “is not just a healthcare provider --- it is an all-in-one health service provider prepared to cover all of its patients' medical needs with six statewide clinics in Florida,” according to the release.

As part of the deal, the organization plans to roll out 12 additional centers over the next two years, “including the acquisition of primary care practices/groups, which will substantially increase the group’s patient base statewide.”

But Cobb insisted, if the deal is approved, there won’t be any “cross-pollination” between doctors and marijuana dispensaries, although the services may at times be what he called “complimentary.”

Instead, services at the health care centers and the dispensaries will be stand-alone, Cobb said.

“The physician is not going to say, ‘Hey wink, wink, go see this dispensary,’ ” Cobb said. “The patient’s going to be left to choose where they get their prescription filled.”

Cobb also promised that physicians tied to the health-care organization won’t be present in the dispensaries and retail employees won’t work at the doctor’s offices.

“That is not the focus here. And that’s not the goal. I know many people are going to say that. But, ultimately, that’s one of the things we put on the table with the (health) department. We’re going to fashion this transaction in a way that gives them the comfort level that they need to approve it,” Cobb said.

As for the nine-month delay in getting products to patients, Cobb said he was confident health officials would sign off on the delay.

“It came down to funding,” Cobb said, adding that the arrangement between 3 Boys and Scythian was finalized after a separate deal fell through.

The Legislature first legalized non-euphoric medical marijuana in 2014 and ordered health officials to issue five licenses to cannabis operators. The number of state-mandated licenses has grown since the passage in 2016 of a constitutional amendment broadly legalizing medical marijuana but has remained limited. Health officials have issued 13 licenses and have laid out the framework for an additional four. Future licenses are tied to increases in the number of eligible patients, now at just over 100,000.