Golden Leaf (GLH.C) makes a Canadian play, shows they’re in a buying mood

03/14/2017

GLH is still out there swingin’. A deal announced by Oregon-based, Canada-listed cannabis oils outfit Golden Leaf Holdings (GLH.C) Tuesday looks interesting, not just because of the deal proper, but because it shows there’s going to be more to come.

Strategic Fit with GLH

MMGC represents a strategic acquisition for Golden Leaf and provides key benefits to the Company, including:

  • Access for the GLH brand platform into the rapidly expanding Canadian and international marketplaces;
  • An international footprint across North America with access to the global marketplace through Canada;
  • Allowance for GLH to participate in the Canadian marketplace which is anticipated to become fully legalized in 2018; and
  • Leverage for GLH’s growing, extraction, refining, sales and marketing expertise to provide a competitive advantage and head start with cannabis oil and related products in the Canadian market.

The deal, for Canadian late stage weed grower applicant Medical Marihuana Group Corporation (MMGC), adds GLH to the steady stream of public companies who have recently launched into the late stage applicant acquisition space.

For a good year through 2016, late stage applicants fell out of favour, with so many stuck at various stages of the Health Canada approval process and with no real information on where they might sit on the list.

But recently, with full recreational use just around the corner, with the hard-to-explain stock market success of non-licensed Beleave (BE.C), and with fully-licensed entities becoming extremely highly valued and thereby increasingly unpurchaseable, the old forgotten waiting list outfits have been getting pilfered once again.

Matica (MMJ.C) announced this week they’d come back from the dead with a late stage deal, Invictus MD Strategies (IMH.C) announced they’d taken out 100% of a similar deal in February, Kelowna-based DOJA is due to go public soon before achieving full licensehood, Aurora Cannabis (ACB.V) took out Peloton, another late stager, one week ago, and perennial waiting list favourite PUF Ventures (PUF.C) has even had some highlight days in the last few months.

Notable in GLH’s announcement is verbiage that points to this being just the first of many deals going forward.

The Company and its board of directors believes that it can accelerate growth and market positioning through a strategic, targeted acquisition strategy. Among the acquisition targets that the Company will focus on are existing production/processing/distribution licenses in other states, proprietary oil extraction technologies, and existing leading brands. The strategic acquisition program is intended to drive financial and shareholder value by seeking acquisitions that build GLH’s brand portfolio, expand its regional presence and/or add technology and intellectual property.

The market liked GLH’s announcement well enough, but those looking for a reason to by cynical didn’t have to look far. With the company suggesting licensehood won’t show until Q1 2018, the immediate benefit to shareholders is negligible – that said, the risks are also pretty low on a deal wired to be paid out when that license lands.

Pursuant to the Transaction, and subject to adjustment in certain circumstances, shareholders of MMGC will receive an aggregate of C$10 million of common shares of GLH on the closing date of the Transaction and contingent consideration of C$5 million of common shares of GLH in the event that certain gross sales targets of GLH branded products in the Canadian medical cannabis market are met within 18 months of marketing efforts commencing in Canada. […] The Transaction is subject to certain conditions, including CSE and regulatory approval, and will be completed within 5 business days of MMGC receiving the cultivation license from Health Canada.

The deal gives GLH much time to position itself for the financial allocation necessary to complete it, and announces the company as one that is ready to start throwing elbows, rather than just receive them.

As someone with stock in the company currently, I like this newer aggressive GLH. I think the company is vastly undervalued, and has suffered for a long time in being perceived as one that is getting being shoved around by the market, rather than being in control of its own path.

The last time I spoke to CEO Don Robinson, he said the company was looking to shove back, and this is a good first step. If more is to come, that’ll diversify the business in a way that it could have used a year ago, and right at a time when the market is moving in this direction. Certainly with companies like CannaRoyalty (CRZ.C) and Invictus having built significant shareholder value recently by acquiring equity, royalty arrangements, and outright purchase of brands in several verticals, it would appear GLH is ahead of the wave, rather than being sucked under it.

This time.

— Chris Parry

FULL DISCLOSURE: Golden Leaf is an Equity.Guru marketing client, as is Invictus. The company owns stock in Golden Leaf and CannaRoyalty, and has stock options in Matica. 

 

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