Cannabis Strategies Acquires Strong Portfolio, Set to Trade as New U.S. Multi-State Operator Listed in Canada
January 10th, 2019
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Most public companies in the cannabis industry began as small businesses that organically grew their footprint or as defunct public companies that acquired cannabis businesses. Organic growth may be a sound strategy, but it can take a long time to reach scale. On the other hand, defunct public companies provide the ability to instantly achieve scale, but these shell companies often come with limited disclosure into their new businesses and baggage in the form of cap structures.
Cannabis Strategies Acquisition Corp.’s (NEO: CSA) founders took a different approach by forming a special purpose acquisition company, or SPAC. Since it’s a newly minted company, there’s no messy cap structure. The company is free to make acquisitions to quickly scale into the market and there is significant detail about the businesses that are coming together to form the new company. These acquisitions are expected to provide immediate, EBITDA-positive revenue and profitability, and support long-term plans to scale across the United States.
In this article, we will take a closer look at the company’s five target acquisitions and the management team behind executing the larger strategy to scale into the U.S. market.
Five High-Quality Acquisitions
Cannabis Strategies Acquisition Corp. spent 2017 and 2018 searching for potential acquisitions before arriving at its anchor portfolio of five cannabis companies. These companies have had positive EBITDA in 2018, and operations that span both the east and west coasts of the United States. Between 2018 and 2019, management expects revenue from these companies is projected to grow from C$105 million to between C$240 million and C$260 million.
The anchor portfolio of five companies are expected to include:
Sira Naturals: A producer and seller of medical cannabis products in Massachusetts with one cultivation facility and three dispensaries.
- Washoe Wellness: A cultivator, producer, and distributor of cannabis in Nevada, with a license to dispense medical and adult-use products.
- Canopy NV: An operator of two dispensaries in Nevada, including one location in Reno and another location in the North Valley.
- LivFree Wellness: An operator of three dispensaries in Nevada with a license to operate additional facilities (two production and two cultivation).
- CannaPunch NV: A manufacturer and distributor of cannabis-infused products in Nevada and Colorado, including beverages, gummies, edibles, and more.
After making these acquisitions, the company will seek to expand into new markets to build its footprint in existing markets with limited licenses and add to its brand portfolio. The focus will be on companies that add material EBITDA within 12 months, especially when enhanced access to capital is required to realize the full potential. Management also prefers sellers that take a significant portion of the consideration in equity to help align interests with existing shareholders.
Exceptional Management Team
Cannabis Strategies Acquisition Corp. has an exceptional management team at the helm, which is extremely important when the business isn’t organically grown. These individuals have experience in both the cannabis industry and in global finance, which helps on both the mergers and acquisitions (M&A) and operational levels of the business.
The management team includes:
CEO Jonathan Sandelman: A 30 year veteran of banking and finance with a history of generating shareholder value. In the past, Mr. Sandelman was President of Bank of America and was instrumental in building its capital markets businesses in the early 2000s. He also founded Sandelman Partners and grew it into a multi-billion dollar asset management company.
- COO Jennifer Drake:A proven business leader in large blue chip institutions and lean startups. In the past, Ms. Drake was a Managing Director at Goldman Sachs with extensive M&A expertise, as well as an integral part of several asset management firms where she institutionalized their businesses.
- CCO Chris Burggraeve: An award-winning global business marketer and active cannabis entrepreneur with over 30 years of experience at P&G, Coca-Cola, and AB InBev where he was global Chief Marketing Officer.
- EVC Mark Smith: A proven world-class cannabis operator that helped build a large network of Colorado-based dispensaries (Tumbleweed), a line of premier edible brands, and leading manufacturing capabilities in the Western U.S.
In addition to these executives, the company will have more than 300 employees across its portfolio. Many of these companies are located in the same state—Nevada—which opens the door to potential synergies in cultivation, production, manufacturing, retail, sales, marketing, and other areas. The expertise in Nevada could also help the business in Massachusetts when recreational legalization goes into effect.
Cannabis Strategies Acquisition Corp. (NEO: CSA) provides investors with a strong portfolio of already-EBITDA-positive companies spanning the cannabis industry. After filing its preliminary prospectus in December 2018, the company is expected to close the anchor portfolio transactions in Q1 2019 and begin trading as a new U.S. multi-state operator listed in Canada on the NEO exchange. After the anchor portfolio acquisitions have closed, management has said that its goal is to expand to states clustered around the anchors in the eastern and western United States. Investors have the opportunity to buy the stock ahead of its five anchor acquisitions and potential expansions from there, which could provide to be a strong catalyst in 2019.
For more information, download their investor presentations from SEDAR.
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