I think it's unrealistic to expect no dilution to occur with a new company. Raising capital through stock issuance is necessary and good if it will help to increase shareholder value.
Take for example the purchase of SDC, which I think was necessary and a good purchase. It's essentially an all stock purchase. SDC had already done most of the legwork to develop brands and partnerships that would be immediately recognizable within the segment of the population that utilizes cannabis. It's very difficult to try and position yourself in any premium market as a new company without any legacy brands. You can't simply say our products cost more because it's a better quality. No one is going to pay more simply because you say it's worth it. If the product is backed by people you know, admire, and trust, then consumers are willing to pay more. Obviously, it's going to cost more because you have to pay royalties for that but it's important to generate revenues quickly.
The purchase agreement was also tailored in such a way that 10 million shares of stock issuance (on a pro-rata basis) would be contingent upon the company achieving sales of up to $50 mil a year. Now if they do achieve $50 mil annual sales because of this acquisition, then the company can conceivably be valued at $150 to $350 million ($1.00 to $2.50 pps) with a 3 to 7 multiplier. If this acquisition achieves the desired goal of generating revenue and increasing shareholder value, then I would argue that dilution was a good thing. In addition, a NEW cannabis company that could generate revenues upwards of $50 mil a year would start to raise eyebrows on Wall Street. Analyst would then open coverage on the company and the stock price would start to rise as more investor become aware of the company. Now only time will tell if this strategy would work but I do believe it is right strategy.
