What You Need to Know About High Times’ Public Stock Offering

By | August 16, 2018

While capital continues to flow into cannabis companies, iconic ’70s stoner company High Times has stepped up with a Reg A+ public stock offering to raise money under the 2012 US Jobs Act.

The deal faces a healthy dose of risk since High Times remains deeply in debt as it seeks to grow its events business and reverse a decline in its magazine and other publishing units.

In an Aug. 3 press release, High Times said it would accept Bitcoin payments for potential investors to buy stock. But in an Aug. 13 filing with regulators, High Times admitted the release was distributed in error and that it would not take Bitcoin as payment for shares. The company did not elaborate on how the mistake was made or why it would not accept Bitcoin.

However, High Times continues to accept checks, credit cards, ACH or wire transfers as payment for subscription to is Reg-A+ share offering.

While High Times is allowed to raise up to $50 million under Reg-A+ offering rules, it apparently has not yet reached its fundraising goal, since it’s extending the offering period for the stock sale until Sept. 12. That’s also the date that a cash payment on roughly $8.2 million is due for purchase notes. If the company doesn’t make the payment, it would have to win an extension from its lenders or face default.

The High Times offering has more than its share of risks. The independent public accounting firm for the Hightimes Group has issued a ‘going concern’ opinion over whether the company could remain viable.”

The first $5 million raised in the company’s Reg A+ offering will go entirely to pay back its lenders, which include private Chicago-based debt firm ExWorks Capital, according to its prospectus filed with the SEC.. Investors typically don’t like this approach; they’d rather see their dollars go toward growing a business instead of fixing a balance sheet.

Founded in 1974 and known for its glossy magazine, website and Cannabis Cup events, High Times plans to list on the Nasdaq if the Reg-A+ offering is successful.

David Feldman, a partner at Duane Morris LLP, says Reg A+ offerings—essentially a form of public crowdfunding—may be used, as High Times is doing, to raise money without an underwriting firm. “It can be attractive if the company has a large customer base and social media following, because of Reg A+’s much broader ability to test the waters with any investor prior to SEC approval of your offering,” he tells Freedom Leaf. “The company can do a splashy Internet campaign, take Facebook ads or even radio and TV ads promoting their IPO.”

The only one other cannabis company to go public through a Reg-A+ offering is Med-X Inc., he adds.

In order to meet the minimum initial listing requirements to trade its Class A Common Stock on Nasdaq, High Times would need to receive a minimum of $14.7 million in net proceeds from the Reg A+ offering, according to the prospectus. The Reg-A+ offering comes as High Times continues to explore a 2017 merger plan with Origo Acquisition Corp. in order to go public.

The independent public accounting firm for the Hightimes Group has issued a “going concern” opinion over whether the company could remain viable. This is a fairly serious comment in the world of finance, which signals a company could face more serious challenges within a year.

Reg A+ offerings—essentially a form of public crowdfunding—may be used, as High Times is doing, to raise money without an underwriting firm.

Under its loan agreement with ExWorks Capital, High Times is carrying $13 million of senior secured debt. The loan matures in 2020. “The Hightimes Group’s ability to continue as a going concern may depend upon its ability to obtain the necessary financing needed to meet such debt obligation when it comes due,” the company said in the prospectus.

High Times plans to meet its capital requirements not provided by income from operations by issuing additional equity or debt securities, but there’s no assurance that such capital will be available when required, the company said.

All told, if High Times Holding Corp. sells all of its 4.55 million shares of Class A common stock at $11 per share as proposed, the company’s share of the proceeds will be $43 million. About $14 million of that would go toward various debt payback requirements. High Times proposes to spend about $16.5 million on acquisitions and joint ventures to grow the business.

Most of High Times’ revenue comes not from its magazine, but from its events. In 2017, total revenue fell slightly to $14.5 million from $14.6 million in 2016, while net loss widened to $24.7 million from $2.9 million. Festival and event revenue climbed to $11 million from $9.9 million, as publishing revenue dropped sharply to $3.2 million from $4.3 million.

High Times is banking that enough small investors will wager on the company’s future, despite its challenging balance sheet and steep losses of late.

Looking ahead, High Times proposes to increase its number of festivals, events and competitions and expand its digital footprint. Hightimes.com counts more than four million monthly unique visitors, of which 74% are male and 60% are millennials (aged 18-34), plus it recently purchased greenrushdaily.com and “certain assets relating to Culture Magazine.”

Also in its corner is Hollywood firm Creative Artists Agency, which it hired to work on various intellectual property opportunities in clothing, merchandise, movies, television, video, music and comedy. It recently announced the upcoming launch of High Times TV on the Internet.

With investor interest peaking as cannabis becomes more mainstream, High Times is banking that enough small investors will wager on the company’s future, despite its challenging balance sheet and steep losses of late.

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