Xtraction Services Piles Up More Partners, Gives Cannabis Companies Buying Power
October 3rd, 2019
Exclusive, News, Top News
The legal marijuana industry is on a sharp upward trajectory; there’s little denying that. Forecasts about just how big the market will be in the next decade vary dramatically, though, from $50 billion to $130 billion. One of the caveats is the United States, where cannabis remains a Schedule I drug at the federal level. Federal prohibition creates a myriad of problems for companies throughout the entire supply chain.
The Schedule I designation hurts companies in a lot of ways, including limiting basic banking services, loans and lines of credit. The problem is simple: upstarts struggle greatly in drumming up growth capital.
Enter Xtraction Services Holding Corp. (CSE:XS), a provider of equipment leasing solutions to owner/operators of cannabis and hemp companies in the U.S. Xtraction Services has brought equipment leasing to the cannabis industry and stands without any peers when it comes to the broad spectrum of services it offers to help companies free-up cash to expand operations.
The fast growing company is making its presence felt in the industry with its “win-win-win” strategy that is good for XS, owner/operators and vendors.
Bringing the Wheel to Cannabis
Equipment financing and leasing is ubiquitous in business, making it a trillion dollar industry. XS isn’t re-inventing the wheel here with their equipment leasing business model. What they are doing is pioneering it in the legal cannabis industry, an industry that desperately needs the type of options that leasing provides.
Through equipment leasing, companies can save valuable cash to invest in other aspects of their business. Generally speaking, no down payment is necessary and lease payments are tax deductible. Because cash flow isn’t deeply affected, the lessee has more purchasing power. Companies can also stay on top of the latest technology through upgrades of its leased equipment.
Xtraction Services works with all types of cannabis and hemp companies, including cultivators, oil processors, manufacturers, labs and more. If a company needs equipment – and they all do, – they are a potential XS client. In addition to the leasing solutions, Xtraction’s team is diverse, allowing the company to sell its consulting services spanning all facets of the business, such as operational best practices, product formulations, staff recruitment and more.
A flagship of Xtraction Services is its sale-leaseback program. Again, this is a commonly used practice in other industries that XS has brought to cannabis as a type of financing. In this case, XS buys the equipment from the owner/operator and then leases it back to them. Through this, the operator gets access to capital by selling the equipment, keeps the equipment and doesn’t take on any debt or give up equity as it would in traditional financing choices.
As the Partner List Grows, Sales Should Follow
Xtraction Services’s end-to-end services are undergirded by their expansive network of preferred vendor partnerships with original equipment manufacturers (OEMs) and equipment distributors. These partners are effectively extensions of Xtraction’s sale team. At the same time, XS’s services are a serious value-add for its growing list of partners.
In fact, the list just got a little longer, with Xtraction Services saying that more than 20 preferred equipment vendors have recently joined the program, including Elevated Equipment Supply, one of the biggest equipment distributors on the West Coast.
Saying he expects the leasing option from XS to provide a boon to sales, Elevated Equipment Supply CEO Joseph Lifschutz commented, “The best part is XS’s process makes it easy and seamless for our customers – they fill an application on our website and XS handles the rest.”
To that point, every additional vendor in the program is an opportunity for XS to grow its revenue.
Lifschutz also said that he expects to see an increase in transaction size, an interesting tidbit to mull over with respect to what that means to Xtraction Services. It would make sense that if a cannabis company is strapped for cash (as most are), purchases would be as frugal as possible. Learning that there is an option to lease could tip the scale into making a larger purchase to get better machinery or additional pieces of equipment; these larger deals could grow XS’s top line as well.
The OEM partners are now starting to offer the sale-leaseback to their existing customers. The plan for most is to offer the program with discounted pricing on new equipment purchases. This sales strategy not only encourages repeat business, but could actually shorten the time between purchases as a company grows.
New to the public markets, Xtraction Services only started trading on September 16th. With the partnerships starting to gather tailwinds, investors will surely be watching closely going forward to see how it all parlays to the books for this unique company.
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