Cannalyst friend Rosy Mondin had been eyeing a $50MM lab and production facility back in July of this year.
Rather than acquisition, the assets became available due to an $11.5MM debenture going into default. Secured by the underlying buildings and property and assets – the owners of the debenture didn’t have any interest in keeping the facilities, and did what lenders often do trying to make the best of a shitty situation: they shop the debt paper around and try get the most they can.
Today’s press release announcing the closing of the deal offers some insights into how intimate the sector can be, and as GoBlue wrote recently, companies talk all the time. The insights? Aphria ($APHA) was the holder of the debenture, and a fund run by the CFO of Canntab Therapeutics is partially bankrolling the deal:
The thing about financial distress…….it’s a mechanism to how a $50MM build is ultimately bought for $0.10 on the dollar. In a limited market for production facilities and a motivated seller…..World Class now has a home.
I know little about Canntab, other than speaking with them at their booth at Toronto Lift in 2019. I’d mentioned them to Cyto, who gave me a couple of relevant science questions I might want to ask about their product. I did. And in response, they asked me to contact corporate, wished me a good day, and walked away – in that order.
Rosy looks like she got some assets on the cheap, $APHA took a lump half the size it might have been, and Wold Class is now pretty much set up. <NB: $APHA might have sleeved the debenture or perhaps it was taken in already factored. I’ll have a look for it in $APHA’s financials this week>.
World Class finally might be able to live up to its’ name, and perhaps offer shareholders more than a composite of retail delivery services.
Either or, this is a good example of how secondary debt markets establish asset prices.
This thought was prompted by a vehicle purchase I tried to make a month or so back. There’s a small business where I live that imports commercial Japanese vehicles. Import rules in Canada permit Japanese cars of a certain age to come in with favourable duties. In my case, the business had imported an actual 1991 fire engine with some 6000km on it. Hoses and all, cherry red, and it has the prefecture’s logo and signage on it. Coolest thing I’ve ever seen, on a commercial transporter frame/drivetrain. It would be perfect for my needs around the farm, and, I made an offer which was rebuffed. The reply I got was that was what it cost, and that’s what it’ll sell for. Fair enough. Yet the market here in Canada for them is priced less than the ask was: I could purchase an equivalent and ship it in for hundreds less without importing.
For the seller, their price is what it’s worth. For me, the market says it’s less.
Which brings us to the point of this story: Something is worth only what another is willing to pay……not necessarily what it cost. The fire engine’s been for sale more than a year now, and likely for many years to come.
For the many other cannabis companies in varying degrees of distress out there, they now have a mark on a facility permitted for cannabis production…..that comes with a Dealer’s License no less.
For $0.10 on the dollar, and less than 2 years into legalization.
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 a position in $PUMP