GTEC Holdings (GTEC.C) has their hands on a lot of different cannabis grow facilities across Canada, all at various stages of production, construction, and license approval.
What it didn’t have, until yesterday, were the ties that bind all of that potential supply together in terms of R&D, testing, and new product development.
Now it does.
On June 26th, 2018, Health Canada’s Regional Regulatory Compliance & Enforcement Team was on-site for a scheduled licensing inspection at [GTEC subsidiary] Zenalytic Laboratories.
Zenalytic Laboratories’ Dealer’s Licence was issued 17 days later pursuant to the provisions of the Controlled Drugs and Substances Act – Narcotic Control Regulations.
Accordingly, Zenalytic Laboratories is now classified as a Licensed Dealer.
What this means for GTEC is, they can now perform their own analytical testing on cannabis, which will save them money internally and provide for more profit potential from external sources.
That’s all great, in and of itself, but the door this approval has opened has a lot of potential expansion options.
An amendment to that license would allow them to develop new products, engage in testing of novel formulations and dosing, and process natural health products, work with extractions, and more.
Licensed dealers with the proper amendments can also store cannabis derivatives not currently covered under the ACMPR regulations, or look to export flower, oils, and concentrates internationally.
There have been less than 40 dealer’s licenses approved by Health Canada across the country to date. Most are limited to testing.
But not all. And GTEC aims to move into extractions pretty quickly.
“Ultimately what we want to do is grow it in our grow facilities, test it at our testing facility, extract it when we have those approvals, and sell the ensuing products at our Alberta, BC, and Saskatoon retail outlets,” said chairman and CEO Norton Singhavon yesterday.
GTEC is moving hard on the retail front, seeking to develop as many as 30 turnkey retail locations in the next four months.
They’re well on their way: They’ve processed 24 retail applications in Alberta under their Cannabis Cowboy brand, and two locations (one for a storefront and one to serve as an online hub) in Saskatchewan. The company intends to apply for 20 locations in BC.
“The extraction situation will be important. As a dealer, we’ll be able to extract oils at higher levels than a straight LP,” says Singhavon. “But being an independent lab is the biggest thing for us. There’s only one other licensed lab in Kelowna that can test product, which is Valens, and while we know them and like them, we don’t want to be at the mercy of anyone else. We need to control our value chain from A to Z.”
I asked Singhavon how he feels with the large number of new weed deals going public all at once, and he agrees that it’s been tough to see investor dollars pulled in so many directions.
“There are a lot of subpar Howe Street deals with big promotions behind them, and though we went public earlier than most of them, we might have carried through some of that stigma.”
“We believe that with execution, the stock will speak for itself and the price will move accordingly. That’s what we did with Invictus MD Strategies (GENE.V) back when we were working there, and it’s what we’re doing now.”
The Invictus connection goes deeper. A recent deal to develop a 240k sq ft grow facility in Vernon, with F-20 Developments, sees the company executing an arrangement that is Invictus 101.
F-20 has committed to fund the large majority of the Phase 1 project costs up to $9 million with GTEC committing to fund the final $1 million towards the estimated $10 million budget to complete Phase 1.
As consideration for F-20 entering into this arrangement, upon execution of the definitive agreements, GTEC shall issue to F-20 common shares (the “Consideration Shares“) equivalent to $2.5M at a deemed price equal to the 10-day volume-weighted average trading price of such shares, where the Consideration Shares are subject to performance milestones related to the construction of Phase 1.
GTEC will have an option to acquire all of F-20’s issued and outstanding shares of NewCo at a pre-determined valuation metric based on annual production capacity. NewCo will also have an option to purchase the Property at its fair market value pursuant to the terms of its lease subject to a predetermined floor and ceiling price.
Translated: GTEC pays $1m now to line up the deal, $2.5m in stock later, and has predetermined stages to contribute more if they want to buy more – at the originally negotiated price.
This worked nicely for Invictus, which took gradual pieces out of many deals for ‘startup’ prices, even as those deals executed and became worth much more.
“Yeah, we like the deal,” says Singhavon. “We take the risk now, we get the benefits later. It’s worked nicely for us before and will again.”
— Chris Parry
FULL DISCLOSURE: GTEC and Invictus are Equity.Guru marketing clients, and we own stock in both.