This company’s equity has doubled in the past month, like many other cannabis companies with US operations. I’ve never heard of them until a week ago. The price had been languishing for the better part of a year until just before Xmas:

That was when the broader market took apparently took note of Cansortium Inc ($TIUM) as well.

Their website has an investors and product side…and not much information is there except for press releases. Thanks to a handy CSE listing, we’ve got financials. The CFO departed on December 21st (he got a new job) and they’re currently on the hunt for another. We find out their CEO is a lawyer (sigh), and that he’s been involved in regulatory and legal facets of cannabis for awhile.

Nothing much around commercial experience, but there is reference to design and build work.

That they have a Chief Legal Officer (sigh²) as one of 4 roles listed in the executive. Of course they do.

<I moan a little here because in my experience – when a lawyer runs a shop – it’s often an indicator that dealmaking has a far greater chance of being arcane, and often more difficult to dissemble. I hope that’s not the case here>

That CFO walked right before Xmas. He says he found another job, but during his tenure, presided over a major restructuring of the place. That restructuring had been going on for more than a year(?!?), and a Special Committee struck to oversee it (formed in October 2019) was just disbanded the other day. In a separate announcement, that’s mentioned along with the CEO Robert Beasley being appointed to the Board:

Let’s go look at the undercarriage….everything is in USD unless noted.

To the financials!

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• Cash at $4MM, inventory at $9MM.
• Current liabilities at $66MM(!), current assets $26MM. Although on a cash basis, $11MM is looking very immediate, and a $37MM note is coming due within 12 months.
• Note 13 (Notes Payable) is a rabbit warren. Complex, and entwined with some of their early deals (Fluent Services and Green Standard). More below.

• $100MM in Goodwill & Intangibles, or 60% of total assets. It’s got a hard skew to intangibles,

• $14MM in sales reported in quarter, up from $13.1MM prior. Gross margin before GoB a rocking 66% (or $9.5MM).
• SG&A at $6.4MM (or 67% of GM). Of note: Sales and Marketing (the ‘S’ in SG&A) is 55% of the total. Most shops I’ve seen, it’s usually 20-30%. Perhaps a big sales push. If so, it was also on during the previous quarter, where that ‘S’ was 53% of total SG&A. T absolute level went up QoQ, G&A did go down by $200k though.
• They were being sued in California. $TIUM had outsourced services using a Master Service Agreement (MSA) with an outfit – $TIUM says they didn’t do much and cancelled it. The outfit sued. Case was dismissed due to the court not having jurisdiction (that outfit sued the wrong company).
• There’s the upside to having a lawyer run the place.

• Interest expense at 41% of gross margin.
• $5MM in legal fees so far this year. Great disclosure on G&A and Sales and Marketing.
• They report a loss of $9MM in the quarter. They said they’ve restructured and claimed savings $4MM per year, which means to me, OPEX is out of control.
• 29 companies in their org structure. Looks like there’s placeholders for beverages, several states they don’t currently operate in, as well as an international face – with subsidiaries for Australia and Brazil (these guys were ambitious).
• I say ‘were’ because subsidiaries that had been set up for Puerto Rico and Columbia, a property management sub, a consulting services division, as well as some sort of clean energy company (pushing hemp oil as fuel, apparently fallow since 2017) are all up for sale/sold.
• Note 12 (Shareholders Equity) stretches to 6 pages: it’s intricate, and complex. See below.
• Of course, there’s 9.5MM proportionates (at 10:1), 42MM in warrants, and 13MM in options. While common shares are listed at 105MM, the total with dilution is 276MM.

Ok. I’m done for now. Their disclosure is very good. Fulsome, and referenced. Nice to see. What isn’t nice is the inherent complexity. No segmentation, but since they don’t have anything going outside of FLA, it doesn’t matter yet.

23 of their dispensaries are in Florida (both production and sale), one is in PENN (sale only), and claim 3 more under construction in FLA. They also claim to be in Texas (production and sale). TX only allows weed below .5% THC, so there’s always a CBD angle I guess. From my understanding, TX is a wasteland at the moment: it’s got a strong Red culture, and similar to Idaho and Kansas when it comes to dope….a dead zone. They may get there, but I doubt anytime soon. $TIUM states their focus is expansion in FLA and MICH.

As it is, in Texas, $TIUM has a whole 1,900ft² of cultivation space (in 2 sea cans), home delivery only. Yep. Not everything is bigger in Texas.

They have set ambitious guidance:

They’re at $37.7MM for the year, so it’s in sight, albeit needing a strong 4th quarter to hit it. Saying it straight, FLA is all they got.

An interesting event in seen within an ‘Early Warning Report’ filed on the same day that the CFO quit. It describes an officer (current Chief Production Officer and former director…yes, there can be distinctions between officers and directors) of $TIUM ‘surrendering’ a whack of PVS (1.3MM) for a penny each in exchange for SVS. I haven’t seen this thing in a filing before, and regarding the SVS shares he’ll receive, he says he’s got deals set up to dispose of them….and also has plans for the remaining PVS he holds (1.1MM). At 10:1, that disposal represents 13MM shares going out the door for nothing. Nice payday. Another 10.1MM more shares out of thin air to come.

The ‘Columbian Division’ (seriously) reported a gain of $370k on disposal – by ridding themselves of 50% of their holding in it, and $TIUM continuing to hold a non-controlling interest of $1.8MM. Looking at the detail, $TIUM simply took back 4MM shares they’d partially capitalized the thing with, and declared them treasury shares. Another $6MM had previously been written off. A higher equity price at the time triggered the gain. Immaterial and errata, but a good illustration of how paper gains/losses can originate. The hemp biofuel thing was sold for a $1.

This stuff seems awfully out of scope for a company with a grow-op selling weed. I linger on it because it reveals original intent. They appear to have fallen far short of rather expansive dreams.

That ambition seems to have spilled over in domestic dealmaking as well, reflected in an acquisition of ‘Fluent Servicing’ (their operating brand name). Sadly, my suspicions about lawyers making transactions complicated has come true. They’d already owned a chunk of Fluent…..to get the remaining non-controlling interest (NCI), the deal they did had gone way out of the money. They restructured it into this:

It’s complex, and the option stretches the boundaries of my skills in valuation. The liability is reported at $13MM currently. Anyway, I see this sort of thing outside of a large cap (>$5B) financial services company as needless.

Of course, there’s another:

Sigh³.

As to MICH, the Green Standard deal above is the mechanism they have to enter the state. The year end will trigger a re-val on these. I’m interested in seeing the numbers.

You’ll note I’ve gone into a couple of eddys here. It’s a function of trying to get my head around the place. I can’t, at least in totality. Those 2 deals (in Fluent and Green) pinball around the statements, surfacing in shareholder equity, derivative liabilities, and notes payable (there’s $37MM in there that’s related to them).

As to existing operations , there’s looks to be potential, at least in FLA. Can they make market share inroads in Fortress Florida™? Margin is good. But if anything, the restructure appears to have been glacial. They really don’t strike me as operators, although their margin and product array disagree with that. It’ll bear out over the next quarter or two.

Interesting enough of a shop, but the capital structure is a labyrinth. I have little use for something that requires a financial engineer to value – especially if all they do is sell weed. I’ll look next financials to see what’s moving and if they hit guidance. If they do, it might grab yet more attention. It already has attention…demonstrated by almost a doubling share price over a couple of weeks. I wouldn’t want to be holding this thing if they miss, nor if current excitement wanes. Speculation centres around them being a takeout target – and ending up just like Liberty Health Sciences.

In the absolute, I wouldn’t want to hold this thing at all.

They’re going to need a raise. Yet they just shipped out 14MM shares for nothing – at least nothing that I can see made in exchange. Hell of a time to pay off a founder.

Given what the lawyer running the place has done so far, shareholders should hope he doesn’t make a raise needlessly complex too.

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 $TIUM