Gaia Grow (GAIA.V) sells hemp, buys cannabis stores

March 3, 2020

Gaia Grow (GAIA.V) had a busy week, first buying three pre-licence retail cannabis stores, and then announcing the sale of 15,000 kilograms of milled hemp powder to CannGroup.

Let’s talk about the cannabis stores first.

The deal proposes that Gaia will acquire “all of the share capital of 1202465 B.C. (Nelson store) and Patriot Cannabis Brands (2 Powell River stores) from Blackhawk.

The Nelson Store, located at 306B Victoria Street in Nelson, BC, has an Approval in Principle (AIP) issued by the BC government to operate a cannabis retail store.

Nestled in the West Kootenay region, Nelson is a surreally beautiful city that had the foresight to preserve its cowboy history.

With 350 heritage buildings, a fully restored operating streetcar and a thriving small business community, Nelson is “a combination of storybook charm and cosmopolitan sophistication.”

Back in the 1970’s, Nelson was an off-season refuge for tree-planters. That subculture is recounted in a brilliant best-selling book, “Highballer: Tales from a Treeplanting Life (Harbour Publishing, 2019) written by Equity Guru’s own mining wizard Greg Nolan.

An AIP with BC government does not guarantee you’ll get a greenlight to sell recreational cannabis, although the odds are good.

“We have seven AIP applications,” recounted Kamloops, BC City Business License Inspector Dave Jones last year, “they are pretty well guaranteed a store now. It’s up to those store owners to do their renovations and get everything set up so the Province can come in and do its final inspection.”

The two Powell River Stores both have applications in process to operate licensed cannabis dispensaries at the premises located at Unit No. 3, 4296 Joyce Avenue and 6239 Walnut Street in Powell River, British Columbia.

“We believe these cannabis stores could add significant shareholder value,” stated Frederick Pels, CEO of Gaia Grow, “We look forward to updating our investors over the coming quarters as we work to build, grow and monetize these assets.”

The aggregate purchase price for three stores is $1.5 million, paid through 30 million shares of Gaia, valued at 5 cents/share.

After the transaction, Blackhawk will own about 12.9% of Gaia.

Frederick Pels and Marc Lowenstein are directors of both Gaia, and Blackhawk, however “the Proposed Transaction is not considered to be a related party transaction”, and it has been approved by the independent directors of each of Gaia, and Blackhawk..

The last three months, the market has been applauding Gaia’s business strategy:

On March 2, 2020, Gaia Grow signed an agreement with CannGroup for the sale of 15,000 kilograms of milled hemp powder to CannGroup for processing into cannabidiol oil and distillate.

Milled hemp powder is an ideal feedstock for the production of CBD oil and distillate, and is produced by separating the CBD-rich elements of the hemp plant (such as flowers and leaves) from the low-CBD elements (such as stalks and branches) and grinding them into a powder.

CannGroup has agreed to pay $110 per kilogram, so the total proposed deal is worth $1.65 million – about 8% of Gaia’s current market cap.

Starting this week, Gaia will deliver 1,000 kilograms of milled hemp powder to CannGroup every week until the aggregate 15,000 kilograms have been delivered.

Gaia is a licenced hemp producer under Canadian Industrial Hemp Regulations with 4.2 million pounds of hemp biomass from its 2019 harvest and the capacity to mill one tonne of hemp biomass into hemp powder per hour.

Both Gaia and CannGroup expect to increase output over the coming months, and the company will provide additional information as it becomes available.

“The alignment we have with CannGroup is incredible,” stated Pels, “Our mutual success, product quality and organic growth are the fundamental goals we share. This is just the beginning.”

Gaia has 1,494 acres growing in southern Alberta, an area equivalent to 1,100 football fields. The agricultural challenge is to simultaneously keep the CBD content high and the THC content low (they tend to creep up together).

In this August, 2019 Equity Guru podcast, Frederick Pels, the CEO of Gaia Grow, spoke with Equity.Guru’s Guy Bennett about crop insurance and the development of off-take partners “to ensure a successful sale and extraction process of the harvest.”

Full Disclosure: Gaia Growth is an Equity Guru marketing client.

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