Ventura Cannabis to acquire California pot company
2019-05-08 12:15 ET - News Release
Mr. Jacob Gamble reports
VENTURA CANNABIS (VCAN) EXECUTES BINDING PURCHASE AGREEMENT TO ACQUIRE A VERTICALLY INTEGRATED CALIFORNIA CANNABIS COMPANY IN LOS ANGELES
Ventura Cannabis and Wellness Corp. has executed a binding purchase agreement for the assets of a California company (Cannastar) for stock and cash with a statewide California licence to distribute cannabis and licences to cultivate, process and manufacture products in its existing start-up cannabis facility in Los Angeles, Calif., with $750,000 in projected annual revenues and $150,000 in projected annual EBITDA (earnings before interest, taxes, depreciation and amortization). Licences for delivery and dispensing in the city of Los Angeles come with the acquisition as well.
Cannastar recently launched a vape brand it manufactures in the facility to a limited local area; currently has equipment in the facility to produce a limited amount of cannabis vape products; and is operating at less than an estimated 6.25-per-cent capacity utilization, or $750,000 annually.
The facility, at full production, which would require an additional capital expenditure of approximately $550,000, can produce an estimated $12-million in annual revenue with projected 50-per-cent gross margins at today's market prices for vape products in California.
With this agreement and subsequent closing, Ventura Cannabis is finally a vertically integrated cannabis company and can cultivate and process cannabis as well as produce vape products and oil for other concentrates on site in an existing manufacturing facility. Products manufactured in this facility can be distributed for sale across the entire state of California.
Total consideration for this transaction, assuming all earnout provisions are reached and the required capital expenditures are made to bring the facility to full production capacity, is expected to total $4-million in cash, with at least 28 per cent of the overall purchase consideration in common stock of Ventura Cannabis. The seller will receive consideration of $1.3-million in cash and $268,000 in Ventura Cannabis stock upon closing. Assuming certain revenue milestones are met, the seller will receive an additional $1.9-million in cash and $1-million in common stock over a one-year period. Ventura Cannabis plans to expand capacity by investing in equipment and improvements that will cost about $550,000 in capital expenditures to reach capacity. This transaction can be closed, once regulatory approval has been obtained, using the current balance sheet and projected cash flow and requires no additional financing.
"This is a landmark deal for Ventura Cannabis," said Jacob Gamble, chief executive officer of Ventura Cannabis and Wellness. "With this deal, we are now vertically integrated and can move to develop vape products and oil for other concentrates tailored to our four identified segments, focusing on products that are discrete and products that have accurate dosing. None of our market segments are sufficiently addressed in the California market, leaving seniors, middle-aged professionals and addiction sufferers to use the same products as all other cannabis users. We plan to invest in products that are tailor-made for these segments."
"We are excited about welcoming our new partners and shareholders to our team," continued Mr. Gamble. "They built a great platform for growth and needed a strategic capital partner to realize its full potential. They needed both capital and a strong dispensary channel to optimize their revenue and profit opportunity. We are building out our dispensary channel with our unique owner-operator model, which the seller found highly attractive."
Ventura Cannabis continues to work to: (1) close the acquisition of dispensaries under contract; (2) move identified potential acquisitions to final binding agreements; and (3) build its dispensary acquisition pipeline for distribution of the product from this facility.
As part of this planned acquisition, Ventura Cannabis has also invested in marketing specialists to finalize the development of product design for vapes and oil for other concentrates tailored to its four identified segments in the California market:
Seniors (over 65 years of age);
Upwardly mobile female professionals (aged 40 to 55);
Upwardly mobile male professionals (aged 40 to 55);
Opioid addiction sufferers.
Under the terms of the purchase agreement, Ventura Cannabis will acquire the assets of the arm's-length selling party, including, but not limited to, licensure to cultivate cannabis, process and manufacture cannabis, and statewide distribution of cannabis.
Closing the transaction is dependent upon regulatory approvals and lease satisfactions.
On May 1, 2019, the management team outlined its three most pressing milestones:
Securing, through acquisition or application, three types of state-issued and city-issued licences: a manufacturing licence, a distribution licence and a cultivation licence in California -- partially completed (edible licence remains to complete);
Closing this and the previously announced remaining binding purchase agreements, which include dispensing licences, totalling an additional estimated $2.1-million per year in annual cannabis revenues -- partially completed*;
Divesting the two in-patient (detox) addiction treatment centres while retaining the rights to supply cannabis to patients in order to generate additional cash to invest in cannabis assets.
* Closing is dependent upon regulatory approvals and lease and other satisfactions.
"Since our conference call last week, we have made significant progress towards reaching our three stated milestones to build value for our shareholders," continued Mr. Gamble. "With this binding agreement, we have accomplished a huge portion of our first milestone, being a vertically integrated cannabis company based in California. We continue to look to apply for or acquire edible licences.
"As we work to complete our remaining milestones, our team is pressing on with the next two significant steps in our plan: building out our network of dispensaries with an owner-operator model and developing a manufacturing facility and our product lines for launch into the market, with particular focus on our identified segments."
The company will not be proceeding with the previously announced acquisition of Herbal Grasslands dispensary in Salem, Ore. Management may consider the acquisition of the Herbal Grasslands dispensary on different terms in the future.
We seek Safe Harbor.
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