The company that hopes to land a contract with the Passamaquoddy Tribe at Indian Township to design and build a marijuana-growing operation on tribal lands is struggling to generate revenue and is carrying substantial debt, according to its latest financial filing.
Denver-based Monarch America Inc., a 5-year-old penny-stock public company, describes itself as a cannabis consulting and management firm, although that is a relatively new business venture for the company. The management consultancy has yet to generate any revenue, according to a quarterly financial report filed in August with the U.S. Securities and Exchange Commission. It also has an affiliated retail business called The Big Tomato, which supplies hydroponics and indoor gardening supplies through a retail storefront and supply warehouse.
The company announced Sept. 1 that it had signed a letter of intent with the Passamaquoddy Tribe at Indian Township to design and manage a “state of the art” marijuana cultivation facility in an existing 35,000-square-foot building on Passamaquoddy Tribal Trust Land in Princeton, Maine.
The company is working on three marijuana cultivation projects, including one with another Native American tribe in South Dakota, but red tape has tied up revenues. For the quarter that ended June 30, Monarch America reported a net income loss of nearly $580,000.
A business deal with Green Sky Inc. to build and manage a marijuana cultivation operation in Denver has been stymied by the company’s failure to get the necessary licenses. A lack of revenue from that project and debt the company is carrying prompted its auditor to claim in its quarterly report that there is “substantial doubt regarding the company’s ability to continue as a going concern.”
The company will need roughly $2.5 million over the next 12 months to continue operations, yet had less than $200,000 in cash on hand and total liabilities of nearly $4.3 million, according to the SEC filing.
“The company does not have sufficient cash to fund its expenses over the next twelve months,” the report reads. “There can be no assurance that additional capital will be available to the company. If the company fails to raise adequate capital, its inability to raise funds … will have a severe negative impact on its ability to remain a viable company.”
SOUTH DAKOTA TRIBE ON BOARD
The company’s stock traded for 6 cents a share Wednesday, down nearly 93 percent from Sept. 9, 2014, when it traded for 83 cents a share.
The company has two other deals in the works that it hopes will provide the revenue it needs to survive. In June, it signed a five-year agreement to provide consulting and management services to FSST Pharms LLC, a company owned by the Flandreau Santee Sioux Tribe in South Dakota, which is building a 10,000-square-foot marijuana cultivation facility and warehouse.
Anthony Reider, president of the Flandreau Santee Sioux, told The Associated Press in July that tribal officials knew of Monarch’s financial challenges, but chose the company because it was willing to sign a short-term deal and sought a smaller share of profits than other consulting firms.
“Obviously, it raised a red flag,” Reider said of the company’s SEC filings. “But … there are so many people in the industry that would be able to step in and help in the event that they were to close.”
Monarch America signed a similar agreement Aug. 1 with Mary JaneCo LLC, which is building a marijuana cultivation facility in Auburn, Washington. In a news release, Monarch said planning, design and construction of the facility would be complete within three months.
Attempts to reach Eric Hagen, Monarch’s CEO, were unsuccessful Wednesday. But Tuesday, Hagen told the Portland Press Herald that the company believes there are significant opportunities to develop marijuana businesses on tribal lands. Besides the Passamaquoddy Tribe, Hagen said the company is in discussions with several other tribes. He said the Flandreau Santee Sioux project is going smoothly and should be open within 30 days, even though South Dakota considers marijuana illegal for any use, including medicinal.
The company intends to help the Passamaquoddy set up an industrial hemp operation. Tribal chief Billy Nicholas confirmed the letter of intent Tuesday, but could not be reached for comment Wednesday.
TRIBES, POT AND LEGAL GRAY AREAS
Kris Krane, president of 4Front Ventures, a consulting company that helps marijuana dispensaries navigate state legal systems and set up retail operations, said he’s seen an increase in the number of consultancies approaching tribes about potential opportunities. The numbers have spiked since the federal government issued guidelines last year, he said.
The U.S. Justice Department issued a ruling that it would treat Native American tribes just like states when it comes to enforcing federal drug laws. The ruling says federal officials should focus on priorities such as preventing marijuana sales to minors and keeping sales from financing criminal enterprises, while leaving enforcement to local authorities.
Krane, who has been working to reform marijuana laws since 2000, said his company has had preliminary discussions with some tribes, but it’s not an area 4Front Ventures is focusing on. The tribes’ exploration of the marijuana business creates some legal gray areas, he said.
“It’s unclear to me – and frankly unclear to everybody – exactly how far these tribes can really push things,” Krane said.
If the cultivation, sale and use of marijuana remain on tribal lands, he said the law seems pretty clear. But as soon as any pot grown and sold on tribal land makes its way off the reservation, there’s ambiguity.
“Right now it’s ‘How does your lawyer interpret this?’ ” said Krane, who was associate director of the National Organization for the Reform of Marijuana Laws from 2000-2005.
He said business deals with tribes are often relationship-driven, and he guessed Monarch America has someone with experience working with tribes.
WORDS OF CAUTION FOR TRIBES
He guessed right. Monarch America lists Robert Shepherd as its tribal relations officer. Shepherd is the former chairman of the Great Sioux Nation of South Dakota and the former secretary of the National Congress of American Indians.
Although Krane wasn’t familiar with Monarch America, he is uncomfortable that its stock is traded over the counter, meaning the company is too small to be traded on an exchange.
“Not all the OTCs are bad companies. There are some that are legit, but most are not and it’s definitely a red flag,” he said.
The Justice Department’s guidance has spurred many companies to explore how to grow and sell pot on tribal lands, Krane said.
“I’m sure they’re getting hit up every which way by consultants,” Krane said of the tribes. “I’m positive that some of those do not have the best interests of the tribe in mind, and I’m positive there are some that do. It’s increasingly on the tribe to do their due diligence and figure out who is looking out for their best interests, who is the real deal and who is trying to take advantage of them.”
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