World Class Extraction (PUMP) takes over $11.5 million HydRx debenture at 43% discount

07/29/2020

In one of the most unlikely deals we’ve seen in some time, World Class Extractions (PUMP.C) boss Rosy Mondin has announced Cobra Ventures, a 50% owned subsidiary, has purchased an $11.5 million debenture with HydRx Farms from a ‘leading Canadian licensed producer’ – for $5 million.

The deal shifts HydRx’s debt over to PUMP, which currently does business building extraction machines, running extraction for partners, and operating the fast growing Pineapple Express cannabis and liquor delivery service.

Okay. So why would PUMP spend money taking over someone else’s debt?

Couple of reasons:

  1. They expect HydRx, which operates as Scientus Pharma, to suddenly get into the money and be able to pay the debt off, leading to a nice profit on the deal. That’s unlikely, or the previous owners wouldn’t have sold it.
  2. They expect the company to default, which would essentially hand over the facility to World Class Extractions to sell, liquidate, or operate.

If you’re wondering who the ‘leading Canadian licensed producer’ is, it’s not hard to figure out. Aphria did a deal with HydrRx for $11.5 million in 2017 during the ‘we got cash for anything and everything’ era of former CEO Vic Neufeld.

Assuming that’s the same debenture, the deal “has a two-year term, bears interest at the rate of 8%, paid semi-annually, is convertible into the common shares of Scientus Pharma at the rate of $2.75 a share and is secured by a first charge on all of the current and future assets of Scientus Pharma.

Brothers and sisters, I think PUMP is going to have it’s own grow going forward. And for cheap.

Tell ’em what they’ve won, Bob!

HydRx owns and operates a 45,000-square-foot manufacturing and distribution facility in Whitby, Ont., built to GMP (good manufacturing practice) and GPP (good production practice) standards. HydRx holds numerous licences issued by Health Canada under the Cannabis Act to cultivate, produce and sell cannabis products, including the extraction of cannabis resin for use in formulations including cannabinoid-based oils, capsules and other derivative products. HydRx also holds a cannabis drug licence and is a licensed dealer under the Narcotics Control Act. HydRx is one of a limited number of Canadian licensees authorized to conduct research and development and fully handle cannabinoid products with the ability to wholesale, buy, process and sell cannabinoid derivatives, from and to other producers licensed under the Cannabis Act, as well as to international markets.

45k sq ft is about equal to the three production facilities operating at GTEC Holdings (GTEC.C), which has a market cap of $16 million.

The founders spent over $50m building the Scientus site. WCE effectively got it for half the debt, and 10% of the build out costs.

The deal is expected to close in 60 days.

— Chris Parry

FULL DISCLOSURE: World Class Extractions is an Equity. Guru marketing client.

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