On April 24, 2019 Chemesis International (CSI.C) completed a definitive agreement to acquire 100% of a fully-operational extraction and manufacturing facility in Cathedral City, California (pop. 54,261).
The acquisition (previously announced) will expand CSI’s processing ability to over 500,000 kg of cannabis annually.
Over the past few months, Chemesis has been relocating extraction machinery from San Diego County, CA, to the extraction facility in Cathedral City, which is located in Riverside County – between Palm Springs and Rancho Mirage.
Why Cathedral City?
Because it’s a business-friendly city centrally located to the world’s biggest cannabis market.
Chemesis has 4 main branches of operation:
- Cultivation: grow facility in Puerto Rico with 30,000+ lb overall grow capacity. Grow opportunities currently under review in California. Also, a Colombian grow facility in development.
- Manufacturing: extractions, formulations & products, specializing in BHO, Alcohol & CO2 extraction with the current capacity of over 2000 lbs of raw material a day.
- Distribution: with new regulations impacting the California market, CSI aims to be a fully compliant distributor. In Puerto Rico market, CSI serves the entire island from seed to sale.
- Retail: Actively engaging retail storefronts in the California market while working to open branded shops in multiple marketplaces.
CSI’s Cathedral City’s state-of-the-art facility will extract THC, CBD and other cannabinoid and terpene products.
The 2016 Marijuana Business Factbook lists the profit margins of cannabis-infused products – an umbrella term which includes edibles, concentrates like live resin and more – at roughly 32%,” stated Equity Guru’s Ethan Reyes.
Cannabis infused products maintain an 11% lead over the second most profitable consumer good, pharmaceutical drugs.
CSI’s proprietary extraction method will increase yields and reduce operating costs.
The Facility utilizes a volatile BHO (Butane Hash Oil) extraction method that allows for rapid and efficient extraction of cannabinoids from trim. As a result, CSI will be able to provide extraction services for THC & CBD products through both ethanol and BHO extraction processes.
Additionally, CSI signed a binding agreement to increase its ownership stake in its flagship manufacturing facility – also located in Cathedral City.
The “Buy-Out Transaction” will result in CSI taking control of the remaining 20% minority interest.
This facility holds a Type 7: Volatile Solvent Extraction & Manufacturing License and is “fully operational, compliant with all regulations, and revenue-generating”.
The end game here is to provide 3rd party manufacturing for brands that are in need of high-quality extraction and multiple product types.
Deal points:
CSI will issue 4,654,000 common shares
CSI will pay $1 million USD within 90 days of closing.
For 20% interest in the flagship facility, CSI will issue 1 million common shares.
All stock subject to 36-month leak-out restriction.
Yesterday, CSI announced that its affiliate GSRX Industries (GSRX) is “expecting strong 2nd quarter sales from its six operational dispensaries in California & Puerto Rico”.
Chemesis owns 19.9% of GSRX. Daily sales for the first three weeks of Q2 were about 27% higher than Q1 average daily sales.
Projecting from these early cash-register receipts, GSRX anticipates revenues of $3.3 – $3.5 million for Q2, 2019. GSRX recently announced unaudited Q1 revenues of $2.9 million with an increased gross profit of 51.76%.
“With its stake in GSRX, Chemesis has greatly expanded its retail footprint in strategic locations,” stated Edgar Montero, CEO of Chemesis.
CSI’s stock price surged in early 2019, then went sideways.
Through its Desert Zen facility, CSI also offers brands, distribution, and transportation services while continuing to service Chemesis’ brands Jay & Silent Bob’s Private Stash and California Sap.
“The state of California is moving to a regulated market that requires high-quality facilities and extraction processes,” stated Montero, “We believe CSI has positioned itself to gain significant traction in a compliant marketplace.”
Montero is seeing increasing demand for compliant services that are able to “reduce cost, and delivery times by engaging a single operator.”
Earlier we stated that Cathedral City is “business-friendly”.
Legit question: how business-friendly?
Cathedral City’s business page has a dedicated cannabis link, naming its Cannabis Task Force which include, the City Manager, the City Police Department Commander, the City Fire Department Chief, the City Cannabis Licensing Manager and the Director of Planning.
Full Disclosure: Chemesis is an Equity Guru marketing client, and we own the stock.
