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Canopy deal secured, Jetty Extracts makes plans

By Alex Halperin
May 19, 2022
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Courtesy: Jetty Extracts

Canadian operator Canopy Growth has paid $69M for the right to acquire California concentrate brand Jetty Extracts, once federal law permits.

In the time until Canopy can close the acquisition, Jetty CEO and co-founder Ron Gershoni said he plans to prepare Jetty for national expansion. For it’s first nine years, Gershoni says the company has been undercapitalized. Now it gets to spend some money.  

Oakland-based Jetty (a client of WeedWeek advertiser Mattio) launched in 2013 and has been on California shelves continuously since. In California’s very challenging market, the company has seen nine straight quarters of revenue growth and has been EBITDA positive in all of them. It has grown its top line every year except one and is now the fifth largest vape brand in California.

Among other things, Gershoni attributes Jetty’s steady growth to its willingness to experiment with new extraction methods and look to the illegal market for inspiration. After noticing the popularity of unlicensed solventless extracts, Oakland-based Jetty pushed to develop its own.

It released a 0.5 g solventless vape a bit over a year ago and then followed up with a 1 g version. According to BDSA data, it now accounts for 75% of that premium market segment.

The solventless product isn’t cheap at $70 for a 1g cartridge but it has created a “halo effect” for Jetty’s more affordable live resin and distillate offerings, said Andy Lytwynec, vice president of Canopy’s U.S. portfolio.

  • By making its own products and having a competitive offering in each segment, Gershoni said Jetty has largely been able to sidestep California’s disappearing market for mid-tier products.

Until Congress passes a law allowing Canopy to close the acquisition, which could be some time, Jetty can use the proceeds as it sees fit. Gershoni said he has three priorities:

  • Fortify Jetty’s operations. The company’s “lean manufacturing” processes have meant that customers have faced “out of stock” signs more than Gershoni would like.
  • Find strong California edible and beverage brands. Brands, Gershoni and Canopy agree, offer the biggest opportunity for scale and sustainable margin. Of California’s 1,000 or so brands, Gershoni thinks some strong ones have struggled and can be acquired for attractive valuations.
  • Explore new state markets. Jetty may also bringing the brand to Canopy’s home turf of Canada. 

Another U.S. move for Canopy

The Jetty deal is Canopy’s latest bet on American brands as it continues to rack up losses north of the border. Once the world’s most valuable cannabis company, Canopy’s market cap — along with other pot stocks — has plunged from more than $16B in 2019 to less than $2.5B today.

In 2019, Canopy announced plans to acquire MSO Acreage Holdings for $3.4B, once laws permit. The deal price has subsequently been lowered by more than 50%.

More recently, in October 2021, Canopy paid $297M cash for the right to acquire Wana Brands, a leading multi-state edible brand. The upfront payment represented approximately 85% of the total anticipated price for Wana. With Jetty, Canopy’s $69M mostly stock payment represents about 75% upfront.   

NASDAQ-traded Canopy is backed by American liquor company Constellation Brands. Since Constellation CFO David Klein took the helm at Canopy in 2020, roughly 1,600 people have reportedly lost or left their jobs. In late April it laid off almost 250 people, about 8% of its remaining workforce.  

Asked about Canopy’s struggles, Gershoni called Canada a challenging market and said the company has had “some struggles with decisions they’ve made that have not gone well.” But he likes that Canopy is they’re ambitious and willing to try new things.

Crucially, he said, Jetty and Canopy agree on where the market is going. “Both believe brands are the most scalable opportunity and that [the winners] will come out of California,” he said.