Today FinCanna (CALI.C) closed the final tranche of an oversubscribed placement for total proceeds of $6.8 million, this brings their total outstanding shares to 68,902,842. The stock closed today at $0.29 CAD at a market cap of $19.98M CAD.
FinCanna intends to use the net proceeds from the Private Placement to fund additional royalty investment opportunities and the Company’s ongoing working capital and general corporate purposes.
FinCanna gets paid before everyone else
So far the young company has booked $479,200 USD in revenue (in the nine month period ending January 2018) from interest on their $6M USD loan to Cultivation Technologies Inc. Before dismissing the company for a small amount of revenue, one has to look at the nature of a royalty based business model. FinCanna is acting as the bank. They have designed these agreements to protect themselves from potential poor performance of the ancillary companies they are funding.
FinCanna appears to prefer gross royalties that come right off the top as opposed to net royalties which are paid after expenses. The diversification they have set up across a three companies means that if the companies don’t perform as expected there are still multiple revenue streams for FinCanna.
FinCanna right now
Current Royalty Agreements:
Green Compliance Inc. – Enterprise compliance and point-of-sale software solution (“ezGreen”) for licensed medical cannabis dispensaries and cultivators. FinCanna will provide $3M USD in funding in July/August, 2018 for a 10% royalty on revenue. FinCanna projects the royalty will earn them $3.2M USD per year beginning six months post funding.
Gram Co. – A cannabinoid research and refinement facility based in Oakland, California, focussed on the medical cannabis industry to provide B2B and B2C products and services to licensed medical dispensaries to be operational by end of 2018. This deal is due diligence pending. FinCanna will provide $1-3M USD in funding in July, 2018 for a 7.5-14% royalty on revenue. FinCanna projects the royalty will earn them $2.24M USD per year beginning six months post funding.
Cultivation Technologies Inc. (CTI) – FinCanna provides funding to CTI for its planned, fully-entitled, 111,500 sqft indoor medical cannabis facility to be developed in phases in Coachella, Southern California. They also established an interim medical cannabis extraction facility on the Coachella Property in accordance with CTI’s Conditional Use Permit. This lab is producing and selling licensed medical cannabis products. FinCanna will provide $3M USD in funding in August, 2018 for a 14% royalty on revenue. FinCanna projects the royalty will earn them $1.6M USD per year beginning six months post funding.
There are only a handful of other companies in the cannabis space with similar business models, (notably Auxley XLY.V), making this an underutilized approach. We discussed Auxly and the cannabis royalty model in general back in May.
With FinCanna’s unique business model, combined with its California stronghold (America’s largest market at 39.54 million people), FinCanna has indirect access to more people than the entire population of Canada.
NOTE: An earlier version of this story made a forward looking statement and incorrectly stated that Fincanna is an Equity.Guru marketing client. Fincanna is a former client, but has no commercial connection to EG currently. EG apologizes for the error.
I might be wrong but it seems like the author took the projected revenues from the ‘pipeline’ (all 3 pending deals in the most recent investors presentation dated June 1st) and associated them with the current royalties portfolio (CTI/Green compliance/GramCo). Aside from the GramCo deal whose due diligence hasn’t been completed yet, I believe the projected royalties used in the article are wrong.
I would also like to point out that since the recent closed private placement, the fully diluted market cap is a lot more than one cited in the article.
I’d appreciate a response since I’m a shareholder and I believe in this company.
Thank you EG,
Thanks for reading, Mark.
Our Fincanna share count is correct, as is the market cap. The warrants issued in the financing units are out of the money at the moment, so we consider them non-dilutive. If Fincanna closes above the $0.45 strike price, say hello to another 22M shares (& $10M for the treasury).
The projections being used here are all company projections. We don’t have sufficient information on the businesses being invested in or the terms of the royalties to do our own projections.
OK,
Braden
Thank you for responding.
Hi Braden,
On their website – under Corporate Info – it says 75M shares outstanding as at June 1st. This doesn’t count warrants & options – although some, if not most of those are a much higher price like 1.05$, so no biggie.
They issued 22M shares 22M warrants @ 0.45. Not dilutive at this point, but such a low price that it most likely will be if they have their act together. If they can’t get back to 0.45$ in 2 years, like wtf?
This seems super dilutive especially when its done at a time when the stock is really low. Even just counting the 22M , that’s a 30% dilution if we use the 68M shares quoted in your article. And a 60% dilution if include with the warrants which most likely will get exercised.
Not very impressed giving away the farm at this low price.
It feels like a money grab at my expense seeing as I’m invested.
If they knew they needed a capital raise for future projects, why didn’t they do a larger one at 0.70$ when they did the last one? Maybe they thought it wouldn’t go down so low. Ok. But why give full warrants? Really!?! It just really seems like they’re giving away the farm. Was it an insider who financed?
I had liked the idea and why I had held on, even if my shares were down.
Now not so convinced anymore.
Thanks.
Thanks for reading, Luc.
For the purposes of reporting on market caps and share counts, we draw hard lines around what is and isn’t dilutive. If warrants and options are in the money, they are counted in the fully diluted total. Out of the money they aren’t.
Without commenting on Finncanna’s capitalization strategy or activity specifically, it’s important to note that a royalty company with little current income absolutely needs cash if they’re going to invest in new royalties, and that cash has to come from somewhere.
If the pitch is that this entity is able to multiply capital through their investment in ancillary cannabis businesses then, for believers, the more capital they have the better! In that context, investors ought to expect capital raises. Naturally, as you point out, one hopes they can time them right to get the most value out of them.
Hi Braden,
I’m sure it’s not the first article I’ve read from you. I tend to read quite a few on here. I find the articles in depth and well written.
It’s still a 30% dilution just with the stock. And the warrants will stop the stock from blowing up fast. Non dilutive at this point but also slows down cap gains past 45 cents.
Just saying, that it’s never received well from earlier investors who are down on the project, or at least by me. It comes across as a money grab at this low price and FULL warrants.
Can’t wait to see what project warranted a 30% dilution and a cap at 45 cents and potential 60% dilution. It has to be high returns to justify that.
I paid an average of 58 cents. So for me to at least break even within 2 years, the shares will have to rise enough to offset a 60% dilution. (22M 22M)
I understand they need capital. I imagine they knew this setting up the company. Why not finance even more at the beginning if they planned on being aggressive portfolio wise. If not, then that is even more worrisome as it shows lack of planning.
Thanks,
Luc
We’ll have to see about getting the FinCanna people on a livestream to talk strategy, because that would be interesting.
I doubt they would disagree about preferring to finance at higher prices. The trouble is: the market doesn’t always co-operate.
One can imagine them choking off that initial raise, thinking they’ll be able to get the next one in at a higher price.
For clarity, I’m no FinCanna apologist, just a guy who’s seen this before.
If we get em for a livestream, I’ll put up an announcement post & reply to this thread.