C21 Investments (CXXI.C) has been on a tear, snapping up value-adding acquisitions on its quest to become the cannabis industry’s Coca-Cola (KO.Z).
With a series of buys already under its belt in Oregon and Nevada, C21 has established itself as a serious contender less than a year after the company changed tack and entered the cannabis sector.
Toward that end, the Vancouver-based cannabis roll-up announced today that it had restructured the definitive agreement it recently signed for the acquisition of Nevada-based Silver State Relief and Silver State Cultivation (“Silver State”).
The deal will go into effect Jan. 1, 2019 and is expected to close, pursuant to approval by Nevada Department of Taxation which is anticipated to arrive later that month.
Originally the transaction called for USD$20 million cash payment to be paid upon closing with an additional 2,500,000 common shares granted once completed.
What’s the new deal?
According to the news release, those goalposts have moved to USD$39 million and 12.5 million common shares on closing.
With USD$6 million in deposits already in the hands of Silver State, C21 has promised to pay another USD$3 million on or before Dec. 31, 2018.
C21 will follow up that payment with a USD$30 million promissory note bearing 10 percent interest per annum. The note will be payable in quarterly installments to be amortized over the period ending June 2020.
When this deal is done, it will make the owner of Silver State, Sonny Newman, C21’s largest investor with 22 percent of the issued and outstanding shares of C21.
As a result of today’s announcement, the previously negotiated USD$14 million three-year convertible note will be shredded and tossed into the bin.
Looks like the deal got sweeter for Newman and Silver State, but considering Silver State brought USD$39 million in annual revenue to C21’s portfolio, the increased price tag remains comparable as it makes C21 a serious player in Nevada’s legal cannabis market which generated USD$529.9 million in revenue for the fiscal year ending June 30, 2018.
C21 president and CEO, Robert Cheney commented on the transaction, saying “This is the first transaction in a larger plan by C21 Investments to expand significantly in the cultivation, processing and wholesale and retail distribution of branded products throughout the State of Nevada.”
Not just another roll-up
Too often, roll-ups are misguided attempts by questionable management teams with no related industry experience, hoping to capitalize on the general lack of investor knowledge in fragmented emerging sectors. Not so with C21.
So far C21 has been razor-sharp and discerning, only inking accretive deals with revenue-generating industry players like Phantom Farms, Silver State, Eco Firma Farms and Swell Companies.
The company has also branched out internationally and has been awarded the first CBD license handed out in Ukraine. Stemming from the shores of the Black Sea, this vibrant Eastern European hub is the home to 42 million people.
But wait, there’s more.
Not only does C21 get first mover status in a nascent Ukrainian marketplace, but it also gains access to the remaining EU where multiple member states have already legalized CBD.
With a combined population of over 700 million, the EU is twice as populous as the US and has the potential of becoming a massive marijuana market.
It’s no surprise then, that the company announced at the beginning of November that it had entered into a brokered syndicated private placement led by Industrial Alliance Securities, with Canaccord Genuity and Sprott Capital Partners.
The aforementioned private placement is expected to generate anywhere between $20 million and $45 million in gross proceeds. That’s a sizable war chest for a company with a market cap of $38 million.
What’s next?
In a recent BTV interview, Cheney said C21 deals with 100,000 cannabis consumers per month on a company-wide basis.
2019 looks like it might be a good time for C21 and its investors, which begs the question, WTH is up with its ridiculously cheap market cap?
–Gaalen Engen
FULL DISCLOSURE: C21 Investments is an Equity.Guru marketing client and we own stock in the company.
Correction: This article originally stated that C21 Investments had a market cap of $1.7 million based on a short form Yahoo finance snapshot. It has since been changed to reflect the correct amount.
Can you clarify how you calculate a market cap of $1.7m on CXXI?
Thank you for your comment, the correction has been made and clarification provided at the end of the article.