Xtraction Services Holding (XS.C) partnership with KushCo Holding (KSHB.Q) offers value to KushCo’s operators

partnership
01/31/2020

Xtraction Services Holding (XS.C) has entered into a partnership with KushCo Holding (KSHB.Q) to offer equipment financing to KushCo’s network of thousands of compliant cannabis and CBD operators.

The partnership agreement allows the two companies to share joint marketing and promotion campaigns, including public relations, trade shows and co-branding. The partnership works because of KushCo’s network of existing customers in the market for products and services related to equipment financing, such as securing complaint hemp biomass, hydrocarbons and solvents for extraction.

“For the past several months, we have been evaluating ways in which we can successfully enter the equipment financing arena, which we identified early on as being another growth driver and margin accretive business that can significantly complement our existing ecosystem of ancillary products and services,” said Nick Kovacevich, KushCo’s co-founder, chief executive officer, and chairman.

Xtraction’s specializes in providing equipment financing solutions for cultivators, oil processors, manufacturers, and testing laboratories. The company offers consulting services, including assistance with equipment selection and procurement through its network of preferred vendor partnerships with original manufacturers and equipment distributors. They’ll even come to your shop and provide on-site support, offering a complete end-to-end solution for the legal cannabis and hemp industries, which because of the United States government, has lacked traditional sources of capital since inception.

There’s a distinctive amount of money in leasing equipment rather than owning it outright. A company can lease the equipment, offset costs for full support when it breaks down, full training if they decide to do it in-house, and maybe even cut professional and manpower costs if what the leasing company is offering is cheaper than training and paying manpower. For Xtraction, it means machine upkeep and incurring all of the existing costs that the companies leasing are offsetting, but lacks the electrical and real-estate costs of maintaining a large scale operation.

It’s a solid rebound strategy from this summer’s disastrous vaping fallout.

This follows Xtraction Services acquisition of their California finance lenders license earlier this week.

The license lets Xtraction to expand its lending and financing capabilities in California, giving them the opportunity to take advantage of the lack of available Federal government funding for cannabis companies, due to the present political climate. The company expects the license to play a crucial role given the steady increase in inbound requests from customers with business operations in California. And they’re probably right. Funding options having always been thin on the ground for United States based cannabis companies.

“Since 2017, we have been able to leverage our extensive experience in specialty finance, underwriting, and cannabis and hemp oil processing to provide our customers with much-needed equipment financing solutions that can reduce the need for excessive capital expenditures and start-up costs. Whether it’s for extraction, trimming, or testing machines, these customers have increasingly been turning to us to finance and, in some cases, to free up incremental cash to grow their businesses,” said David Kivitz, Xtraction Services’ chief executive officer.

The terms of the agreement include KushCo receiving 19.9% of the outstanding equity interests of Xtraction on an as-converted basis. When the transaction closes, the company will pay Xtraction Services shares of KushCo equal to 19.9% of Xtraction’s market cap, assuming the conversion of the XS shares into subordinate voting shares.

—Joseph Morton

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