Xtraction Services Closes In on $1 Million in Q3 Revenues


Ash Stringer

December 9th, 2019

Exclusive, News, Top News


While criticized by some for slow growth against lofty expectations, the cannabis industry is growing at a pace that most industries can only dream of. Worth $3.9 billion in 2014, the U.S. legal cannabis market was valued at $11.3 billion in 2018 and is expected by the market experts at Grandview Research to keep growing at a 14.9% compound annual growth rate through 2025.

That’s led to an influx of upstart companies competing for their share, most entangled in similar spaces of cultivating, processing, and manufacturing products. A congested market in a downtrend has resulted in capital drying up, putting additional pressure on companies trying to expand and get a competitive edge over peers.

One company this environment isn’t squeezing is Xtraction Services (CSE: XS), a specialty finance company that provides cannabis and hemp companies with leasing solutions for their equipment. The two-year-old company hit a milestone by becoming a public entity during the third quarter and looks poised to be hitting its stride as measured by its financial and operational results from Q3 ended September 30, 2019.

Click here to see the company investor presentation

Perhaps even more importantly is the stage that is set for Q4 and 2020.

Revenue Up, Expenses and Losses Down

Xtraction Services has a diversified revenue model, which includes equipment sales, royalty income, sale-leasebacks, structured lease agreements, and consultation offerings. With the cost of capital rising and conventional financing becoming increasingly scarce, Xtraction Services’ alternative equipment financing solutions for cannabis and hemp companies are experiencing growing demand.

During the third quarter, revenue increased to approximately $960,000 compared to $63,900 in the year prior quarter.

Operating expense contracted during the latest quarter to $620,000, a drop of $1.1 million from $1.71 million for the third quarter last year as the Company focused on streamlining the cost structure of the business.

To that end, realized losses came in at just $410,000, an 82% improvement from realized losses of $2.3 million a year earlier. It is also worth noting that the majority of the expenses associated with the reverse takeover of Caracara Silver and listing on the CSE was realized during the third quarter.

With these expenses behind them, “[XS] should continue to see financial and operational improvements into the fourth quarter,” said David Kivitz, CEO of XS, in the announcement on the quarter.

XS finished the third quarter with $4.93 million in cash on hand and working capital of $2.21 million, leaving them well funded to carry out the business plan.

Click here to see the company investor presentation

Q4 Off to a Good Start

In October, XS amended a lease agreement with Kentucky-based Puritix LLC, that effectively provided Puritix the equipment it needed for its hemp biomass-to-CBD oil processing ahead of schedule. As a result, Xtraction Services was able to bill four months ahead of schedule, at a minimum of $50,000 per month, and bill retroactively for oil previously produced (worth ~US $60,000).

Furthermore, Xtraction Services inked a substantial sale-leaseback agreement with leading cannabis extraction company Halo Labs Inc. (NEO: HALO)(OTCQX: HALO) in November. In the deal, Xtraction acquired a variety of Halo’s equipment for $600,000 (payable over three years) and leased the equipment back to Halo without causing any interruptions to their operations, and allowing Halo to unlock invested capital to put towards their expansion plans.

Sale-leaseback agreements are a staple in other industries, and XS is pioneering the model with the full gamut of cannabis and hemp companies. If they’ve got equipment, regardless of what market segment, they’re a potential XS customer. As banks keep a stranglehold on capital, the sale-leaseback agreement is highly attractive to owner/operators to liberate illiquid capital tied up in equipment investments that can be used for existing operations or expansion.

Seizing the Opportunity

The restrictive financial market is good for Xtraction Services to scale now and build its brand. XS CEO David Kivitz isn’t dissuaded at all by the depressed valuations of companies in the cannabis/hemp markets. In fact, Kivitz, who was previously co-founder of Alta Verde Group, which was awarded the #3 fastest-growing private company in Los Angeles in 2015 and reached over $50 million in annual sales, sees opportunity in today’s market climate.

Management is assessing a number of leasing opportunities in the U.S. that align with its growth initiatives. These accretive opportunities are available because many good companies are in bad financial positions owing to insufficient access to capital that isn’t toxic and highly dilutive. The Company is specific in its targets, which must meet the criteria of “leases to businesses underpinned by recurring, predictable revenues, sound balance sheets, and experienced management teams,” according to a news release.

The passage of the Agriculture Improvement Act of 2018, known colloquially as the Farm Bill, has created new nationwide opportunities in industrial hemp, which also bolsters XS’s customer opportunities and pipeline.

Insiders Want More XS

In October, Archytas Ventures LLC, an investment company controlled by Kivitz and XS CMO Antony Radbod, purchased 274,500 Subordinate Voting Shares of XS. Assuming Archytas converts all voting shares into common stock, it would own 11.43 million shares, or 24% of the total outstanding shares.

Click here to see the company investor presentation

Considering shares of XS are currently trading at C$0.20, the purchases by Archytas speak volumes about where management believes the Company is headed, as stated by Kivitz, “We are committed to building a quality leasing company that provides much needed financial support to the cannabis and hemp industry. We strongly believe in the value of the business and see tremendous growth potential ahead”.

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