In covering publicly listed cannabis companies over the years, TheCannalysts have seen a number of ‘questionable’ deals done within the sector. Some are related party transactions. Some simply uneconomic. Some deals appear as apparent self-dealing. Some are at non-commercial terms. And some – prima fasciae – seem to be done solely for the benefit of the counter-party (not shareholders).

Today, I was skimming a couple of things with my morning coffee, and glanced at Christina Lake Cannabis’ ($CLC) annual financial statements. And boyo – I’ve found a transaction that takes first place of every shitty deal I’ve ever looked at.

It’s not the biggest in dollar value, but in sheer terms of being both unbalanced and uneconomic (and even non-commercial), this gem is worth all the ‘Dive Bar’ accolades one can possibly give.

Late last fall, $CLC was running out of money, down to $360k in cash and packing $360k in payables. In the door walked Leede Jones Grable Inc. with an investor ready to provide $CLC with $2MM. For that, $CLC created a new share class (Preferred B), and issued 2MM of them at a par value at $1 each. Trim.

From there – it gets fun.

Leede Jones Grable took 1MM in common shares (fair value $300k) for finding the investor (natch), was paid $15,302 cash in providing strategic advisory services to $CLC on the deal (heh). What did the investor get in those preferred’s?

Those new shares have a couple of features. One, is that the cash they was sold for is to be repaid:

And two, there’s a 4 year dividend(!):

Yeah, I laughed out loud too. Just when I was drying my eyes, there’s this:

Man. $CLC initially booked this as $2MM to cash, $1.7MM to preferred shares, and the remaining $300k to common stock. And you’d be right if you thought that once the auditors stopped laughing, they might see it a little differently.

It now stands as a $3.6MM liability on the balance sheet, and a $1.9MM loss was booked via the income statement. And, the $300k is now booked as ‘deferred transaction costs’.

In terms of deals, this is an Olympic level Champion. No doubt about it. The only thing I can guess is that $CLC were staring insolvency in the face, and went on bended knee to any/everyone who might be able to put up a nickle. And….this is what they got.

Since then, share price has gone up (thanks to renewed interest in the sector), and $CLC has been able to actually raise ~=$3.6MM. $CLC’s given up 40% of their first $5MM in revenue (!) for what looks to be a preferred share equity bridge (excluding third party product costs of course), and sitting on a 4 year royalty payment.

What in the world but for desperation would lead an outfit to enter this kind of deal?

Anyhow, a takeaway for me is that the sector share price run of the past 6 months – while good for many – is going to be equally unkind for later entrants should the companies that have benefitted from it not survive. It makes me think of a horror movie, where a zombie or creature got away early in the film, and you just know that it’s gonna come back at some point and whack one of the heroes. That’s what many of these companies are right now in my eyes: the zombie that got away.

Hey – I could be wrong about $CLC and its’ prospects, even though at this point I don’t believe I am.

Either or, another takeaway is that just because share prices are up don’t mean shit in the mid-long term. I’ve seen too much chest beating done far too early. The tone and tenor around MSOs, and sell-side excuses that are now making the rounds are testament to how some folks have directional bias baked into their DNA.

I’ve just had 24 hours of driving in the past 2 days, and going to take the rest of today to recover. Before I do, I had to write this up. Without a doubt, this is the most fucked up equity deal I’ve ever seen in the legal cannabis sector.

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 $CLC