Golden Leaf Holdings (GLH.C) improves its cash position by selling off underperforming subsidiaries

01/06/2020

Golden Leaf Holdings (GLH.C) sold two of its Canadian subsidiaries, Medical Marihuana Group (MMG) and Medical Marijuana Consulting (MMC), to global cannabis consumer packaged goods company, Sensi Brands, today.

By selling both MMG and MMC to Sensi Brands, the company was looking to strengthen its cash position as well as royalty and distribution deals so they can sell their Chalice Farms products in the United States market, and Canadian market once Health Canada gives them the nod.

“This transaction was a proactive move that better aligns the company with the strategy defined by our new leadership team and puts us firmly on a growth trajectory for 2020. We will continue to focus on growing our brands, launching new products, expanding our geographic footprint in North America while driving towards profitability. By retaining the option to launch Chalice Farms products in Canada, we will be able to apply the proven model that we have executed successfully in California to the key Canadian markets,” said Golden Leaf Holdings’ CEO Jeff Yapp.

The operations sold for $3.4 million, including $1.8 million in cash received at closing, $200,000 in an unsecured loan and $1 million in secured vendor takeback loan, and included the outstanding mortgage debt of $400,000. The transaction closed on Dec. 31, 2019.

Strategic reassessment

The hard and cold fact is that MMG didn’t make any money in Q3 of 2019 while consuming $475,000 cash in this time, and the board needed to turn it around, so now they’re looking towards the U.S. markets to accomplish this aim. The sale of the Canadian subsidiaries give the company the chance to strengthen its balance sheet and focus its resources on its markets in the U.S, which include Oregon, Nevada and California, and what they hope are new markets in the coming year.

“We are excited to acquire MMG and MMC and to enhance their operations. They provide Sensi Brands with a solid platform for executing on our strategy of introducing and developing strong cannabis brands in Canada and international markets,” said Tony Giorgi, Sensi Brands’ chief executive officer.

The company has 50 new SKUs already in circulation after a successful Q4 launch, and the company believes that the cash coming from this sale, when coupled with their available on-hand funds will be enough to finance the company’s continuing operations, and let it achieve its objectives for fiscal 2020.

The company is banking on having a much better year than they did last year. The company was reduced to paying out their December 31, 2019, interest payments for their convertible debentures in 38,218,946 common company shares, instead of cash. This dilution saved the company $1,146,568 in cash. It’s probably a fairly smart bet on Golden Leaf’s part, because not only do you want to avoid paying off the loan with the loan money you’ve taken, but raising cash has been getting progressively harder as the cannabis industry slowly eats itself.

subsidiaries
Source: stockwatch.com

Elimination of underperforming subsidiaries and a better cash position, even if it cost them some dilution in their stock, is better than nothing for this company as they start out 2020 with some measure of positivity. But that stock chart suggests more than the standard malaise presently affecting the cannabis market, and may point to a deeper sickness within. Yeah.  You don’t have to go far to find proof of that. Just ask the train of CEOs they hired and dumped last year.

—Joseph Morton

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