The last few months of activity in Wildflower Marijuana (SUN.C) stock have been equals parts froth, potential, and straight up market herd mentality, in this writer’s opinion. While the Wildflower crew promise big things with their US distribution deal, a cynic could point to there not being a lot of ‘there’ there.
But Wildflower shoved back Tuesday, unleashing a deal that brings them hard into the California market, with an LOI to acquire King Extracts.
Currently, King is in over 50 retail outlets but is poised for growth having recently signed on with one of the largest distributors in California giving Wildflower access to over 600 retail cannabis stores. King has also secured a steady supply of quality, pesticide free oil that can meet the demand of both the King and Wildflower products.
King will receive 500k shares in Wildflower as part of the deal, good for $340k in Canadian currency. If sales of King products hit $180k in any given month, another 500k shares will be delivered, and a further 500k if sales increase 15% in aggregate over six months.
King will get to keep half the net profits of the company until wildflower shares get over $1.25 over ten straight days, or two years have passed, whichever happens sooner. King will also get 250k stock options in SUN.C at $0.64 per share, for five years.
So, in layman’s terms – Wildflower gets into California for no money down. King hands over their company, but gets to keep some profits for a few years, and if they hit all their milestones, they come away with $1 million in SUN stock and a bunch of fairly priced options that will no doubt be in the money, if King does what it promises to do.
Not a bad deal.
Wildflower and I have gone back and forth over the years, with me mocking them for not delivering over a certain time frame, and admitting they were right when they managed to get their stock motoring again, then sitting on the fence when that big deal had some wrinkles that made me think twice.
But this is a good deal. There’s no talk about whether King is making a profit now, though with the deal bumping up if King lifts their percentage of sales, you’d have to assume those sales are starting from a decent number or Wildflower would be silly to add that milestone to the contract.
Additionally, you’d have to assume sales are currently less than $180,000 by a fair amount, given the milestone that pays them nicely if they achieve that stake.
With the above in mind, I’d assume sales are currently somewhere between $50k and $80k monthly, with no idea how that sits profitwise.
I’m also conscious of the fact that the news release announcing the deal says King has “secured a steady supply of quality, pesticide free oil that can meet the demand of both the King and Wildflower products,” which indicates this is a value add play – they’re not growing, or processing, they’re buying oil and attaching a brand to it with their vape pens.
The value here is in the existing distribution, and the potential for that distribution to grow rapidly in the months ahead, but there are unanswered questions, especially in California, where regulations and permit restrictions are changing quickly.
King is early stage, admittedly. Their Twitter feed has less followers than your average Santa Monica homeless guy. But hey.
Wildflower stock is up 7% on the day, and it’s safe to say that after the higgledy piggledy ride that was SUN.C over the last few months, the dust has settled at a base in the $0.60’s, which is a result for CEO William MacLean.
Not a client. But credit where it’s due.
— Chris Parry
Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.