Well, this is not a surprise.

Sonny Newman – CEO of C21 Investments ($CXXI) – was facing a problem challenge. 6 weeks from now, $2.4MM of convertibles are coming due (Dec 31, 2020), followed by another tranche of $15.2MM (January 31, 2021).

The challenge? C21 only has $2MM in cash. It’s been run as a breakeven shop for 3 quarters now, preserving cash to keep Sonny’s payments to himself whole. So, a raise was required…..via capital, or debt. Or renegotiation. Or whatever. Suffice to say, something had to move. And move it did.

What I said in our last Structure about the convertible debt:

Sonny is gonna get paid, that was never in doubt. The $15.2MM tranche is what’s still owed to him for the two Silver State dispensaries he sold to C21 – and somehow (somehow) he was able to drive the hard negotiations with himself that saw the debt owed to him restructured over 30 months – with reduced payments. Amazing he could get that done. Spectacular really (I’m being sarcastic. It was never in doubt).

The December tranche was part of the trick. Sonny didn’t want to roll that into his debt (otherwise he would have), which implies that he doesn’t have or want to infuse much more cash into the business. So, he turned to his advisors (who have been faithfully advising him over the past 18 months) to see if they would be willing to step in to help. They were. The cost of that help?

For a combined cash infusion of up to $8.2MM, Sonny and the Advisors will get 10.2MM shares at a slight discount to a 3 month average as well as 6.2MM warrants (3 year tenor at a $1 strike….I value them at $0.39 each, or $2.5MM in free optionality granted). That’s a pretty good wine for all involved. Indeed, Sonny was able to get the Advisors to buy out a third of the convertibles that were owed to him.

The water that Sonny needed to add was his own participation – and ended up buying more equity by going the long road. Now some will say that a CEO buying more stock is a good sign. In most cases, it can be. In this case, I think it’s less clear.

This deal goes to prove that while all shareholders are equal, some are more equal than others (especially if you own the shop). Minority shareholders will be required to approve this deal, as it will be a related party transaction. And they’ll be told that the CEO is showing confidence in the company, and now there’s a clear path ahead without any nasty business about having to pay off debt. Besides, if they vote against it….Sonny could just pick up his toys and call it a day.

This story (absent Sonny’s hammer) has been peddled for months, and the whole narrative has been ‘under construction’ since the Advisors first set up their desks in Sonny’s office. I first heard the pump begin at the end of July, and the pillow fluff has worked out – likely very much as planned. The reality is that the two cows C21 has in Reno is all C21 has. To gain more producing assets will take either money to acquire, or money and time to build.

Cashflow will be improved by this deal, and we’ll see to what extent in a couple of quarters. I still don’t see where growth will come, as while those 2 cows are great producers, and as a public company….it’s underwhelming. The story on the other hand will sound fantastic to many, which, is why it’s been crafted and staked so well.

Nevada is opening up the permitting process again, and Sonny’s hegemony in Reno is on the clock. Shareholders should hope he’s got a plan to expand the asset base. Within all of this, absolutely nothing fundamentally has changed with respect to C21.

The only thing minority shareholders are in all of this is along for the ride. Sonny – and now the Advisors – are pretty much guaranteed to make out just fine.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $CXXI