Golden Leaf (GLH.C) catches its breath and marches forward

In the spring of 2016, the Oregon Health Authority (OHA) announced that unlicensed production of marijuana oils is a Class B felony.

This crime category includes aggravated vehicular homicide, possession of stolen property, tampering with a witness and unlawful manufacture of meth.

The maximum sentence is 10 years in a state prison.

On September 25, 2017 Golden Leaf (GLH.C) announced that it has sold its marijuana extraction and refinement center in Aurora, Oregon for $2.2 million.

Good move.

Not being incarcerated is like having good health.

Everyone so lucky should be in a permanent state of gratitude.

According to Golden Leaf’s press release:

The Aurora Property could not be used for the Company’s intended purpose after the Marion County Commissioners “opted out” of allowing cannabis production facilities in that county, which is where the Aurora Property was located.

Golden Leaf is one of the largest cannabis oil and solution providers in North America. We’ve tracked this company for a long time and have written candidly about its ups and downs.

For the last 12 months, it’s been more downs than ups.

A central part of our critique has been the need to replace the CEO, Don Robinson.

“Robinson has long been his own worst enemy.” wrote Equity Guru principal Chris Parry, “He’s had more than a few issues to work through that weren’t of his doing. Regulators screwing up regulations. Voters voting weed businesses out of town. Partner companies that couldn’t keep their pesticides straight. And a share price that couldn’t find a way up if it had a rocket strapped to its ass…But Robinson didn’t get the markets.”

This summer, Golden Leaf got itself a new CEO.

Mr. William Simpson founded Chalice Farms which became a leading cannabis brand and retail dispensary chain in Oregon. He also designed and installed numerous grows in the Pacific Northwest and started The Green Future Garden Hydroponics.

Hear that rustle?  It’s the wind shifting direction.

Don Robinson was a consumer-packaging and hospitability guy.

William Simpson is a weed guy.

On August 29, 2017, Golden Leaf released financial results for Q2, 2017.

  • Net revenue was $2.1 million as compared to $2.5 million for the same three-month period in 2016. The 9% year-over-year sales decline was largely attributable to supply constraints.
  • Gross profits of $402,000, or 19.2% of net revenue compared with 8.8% of net revenue in the same period of 2016, and 10.6% of net revenue in the first quarter of 2017.
  • Operating expenses for the second quarter of 2017 were $3.0 million compared with $2.5 million in the same period of 2016. The increase was largely attributable to higher legal expenses related to the Company’s M&A activities.
  • Adjusted EBITDA loss was $2.3 million, almost flat compared with an adjusted EBITDA loss of $2.2 million in the same period in 2016.
  • In August 2017, Golden Leaf entered into a private placement transaction with Canaccord Genuity, from which it expects to raise up to C$10 million, as well as C$2 million in bridge loan financing.

Along with appointment of weed entrepreneur William Simpson to CEO, Golden Leaf has been knocking off other milestones including the acquisition of Chalice Farms, the acquisition of a cultivation and an extraction license in Nevada and a definitive agreement for the acquisition of Medical Marijuana Group Corporation which could open Golden Leaf cannabis products to the Canadian market.

“It is a key corporate objective for Golden Leaf to establish a greater retail presence, driven by the acquisition of Chalice Farms,” stated Simpson, “We expect this will deliver higher operating margins for the Company.”

Optimism can be a disease.

If so, we’re sick.

But if you drill down into the bones of this company, it is strategically positioned for growth and profit.

Condensed Geographical Business Overview

  • Oregon: Consolidating its headquarters to the Chalice Farms compound in the Portland, Oregon area, including the construction of a processing facility.  GLH now has five retail dispensaries, with three more under construction.
  • Nevada: Secured state cultivation and production/extraction licenses. Applying for City licenses. The Company will begin sales of its high quality, proprietary cannabis brands to dispensaries in Nevada before the end of 2017.
  • Canada: Expanding sales of branded oils, edibles and flowers into the Canadian marketplace.  Aiming to launch retail operations in Canada in the second quarter of 2018.

GLH has entered into a convertible note repayment agreement relating to the purchase of the Aurora Property.  Golden Leaf will give the secured parties a combination of cash and 7.4 million common shares.  The aggregate debt to be repaid under the Repayment Agreements is $1.3 million.

“We are pleased to complete the sale of the Aurora Property, which is a non-core asset to the Company, as we consolidate our corporate operations in the Portland, Oregon area,” stated Simpson, “This transaction represents a positive step forward for the Company, as we expect enhanced liquidity and a strengthened balance sheet to support the Company’s execution on its long-term growth strategy.”

GLH is not dead.

It’s out of breath.

There are a lot of smart experienced people trying to revive it.

Full Disclosure:  Golden Leaf is an Equity Guru marketing client and we own stock.

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.

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