In the case of the Hightimes Holding Corp. initial public offering, what a long, strange trip it’s been.
More than 18 months after Hightimes started offering shares to buy and sell on the OTC or the Nasdaq, some 23,197 investors who spent an average $655.58 for stock in the money-losing Los Angeles cannabis media and events company remain in limbo with their purchase.
After raising more than $15 million at $11 per share in the IPO thus far, Hightimes' executive chairman and former CEO Adam Levin tells CelebStoner the parent company of iconic High Times magazine and the Cannabis Cup events expects to list on the OTC “soon” in a move that will provide a public marketplace for Hightimes shareholders.
“Yes, it’s dragged on longer than we thought,” says Levin, “but we’re in a good position with capital structure, the operating business and our roadmap going forward.”
In April, Hightimes named Kraig Fox, a former exec at Live Nation, as president and CEO, replacing Levin.
Nasdaq Listing Not Happening for Hightimes
A stock listing on the more highly regulated Nasdaq market remains on the back burner for now, despite the company’s stated intention to trade on the exchange. The IPO process that launched in March 2018 has been lengthy partly due to a regulatory review of each individual shareholder agreement. With more than 23,000 shareholders and counting, it’s taken time for FINRA, the security industry’s regulatory body, to comb through the offering.
Meanwhile, shareholders may hold private share sales among themselves through the company.
Initially, the Hightimes IPO had a termination date 30 days after the offer went public. The company has since amended the deadline numerous times. The latest deadline, August 30, was pushed back again.
Anatomy of a Reg A IPO
Filed under Reg A IPO securities law guidelines, the Hightimes stock listing amounts to a type of crowdfunding sanctioned by America’s top stock market regulator, the U.S. Securities and Exchange Commission (SEC). Reg A offerings are allowed to take up to two years to sell stock under some guidelines and up to three years for others if certain regulatory hurdles are met.
During this period, people who bought shares early on into an offering remain in limbo in terms of buying or selling their shares, according to Bradley Wyatt, a securities specialist and law firm member at Dickinson Wright.
“Reg A shares are not restricted securities, they can be traded,” he explains. “But the question is where do you trade them? Is there a secondary market? That’s why an OTC listing is critical. You need a market to trade the securities.”
“Do investors easily get their money back if Hightimes doesn’t manage to list its shares? The short answer is no.”
As a practical matter, the current shareholders of Hightimes are stuck at the moment.
“Do investors easily get their money back if Hightimes doesn’t manage to list its shares?” Wyatt wonders. “The short answer is no.”
A source familiar with the SEC confirms that federal securities laws would not require an issuer to return funds to investors due to a failure to list the securities on the OTC or the Nasdaq. One of the reasons Hightimes has yet to qualify for a Nasdaq listing is the requirement to have at least $4 million in stockholder equity. Hightimes currently does not have enough equity to meet the threshold, because of its high debt load.
Major Losses for the Venerable Brand
During the four-year period from 2014 to 2017, the net income of Hightimes declined from $3.4 million to a loss of $24.7 million, which included $8.4 million in stock compensation costs. For 2018, the company’s consolidated net loss totaled $41.3 million, including a $27.5 million loss from operations.
Hightimes owes $18 million to ExWorks Capital Fund LP, an investment pool managed by ExWorks Capital, a Chicago lender. As of July 18, Hightimes continued to run up its debt with ExWorks with an additional $600,000 in funding, according to the latest updates in company filings. To pay back the debt, Hightimes has pledged to issue $18 million in stock to ExWorks once the company goes public.
In another blow over the summer to Hightimes, its chief financial officer Neil Watanabe abruptly resigned on July 29 after just a few months on the job. Levin says the move was not prompted by any dispute over its financial disclosures with the SEC.
Red Ink During the Green Rush
To be sure, plenty of pitfalls typically face any company on the road to a stock offering. While High Times traces its roots to 1974, its current ownership structure has only been in place for a couple of years as the media property attracted interest from Levin and others. Levin, who also runs venture firm Oreva Capital, led the $70 million acquisition of High Times in June, 2017, with backing from Damien Marley and others. (Marley has since severed ties with High Times.)
Despite its authentic 1970s stoner roots, Hightimes resides in the same bucket as many other fledging cannabis companies taking aim at the Green Rush. However, the company is mired in red ink as it attempts to ramp up its events and publishing businesses.
'We’re in a good position with capital structure, the operating business and our roadmap going forward."
Results on those fronts have been mixed. While magazine sales have been flat for years, the hightimes.com site is a top web destination for cannabis enthusiasts, ranking 9.3k on Alexa in the U.S. Their many Cannabis Cups range from steady crowds in Michigan to ticket giveaways in California. The most recent event in Oklahoma City, a new market for the struggling company, was besieged by complaints from attendees who said that it was poorly organized.
Hightimes is currently being sued by Culture, the magazine they acquired in 2018; pulled the plug on another acquisition, Reggae on the River, the festival held traditionally in Mendocino County in August; and failed to complete a deal for Spannabis, the popular pot event in Barcelona in March.
But Levin remains upbeat about the company’s brand legacy and other bright spots such as iHeart Radio’s $10 million in advertising inventory provided to the company in exchange for shares
“No brand is as well-known as Hightimes,” Levin insists. “People are starting to see the value of it.”