Last week, Australis Capital Inc., operating as AUDACIOUS (CSE: AUSA) (OTC: AUSAF) reported a major development and announced a binding term sheet to acquire 100% of BW Macaw Group, which a distribution agreement with EAZE through the Herbs brand.
Eaze is California’s largest legal cannabis delivery and distribution company, and we consider this to be a strategic acquisition for Australis. The distribution associated with the Herbs and EAZE relationship is substantial, and we are bullish on the growth prospects that are associated with the transaction. Some of the key reasons for our positive view on the transaction include:
- The assets that are included in the transaction
- The work that Australis has already done to try to lower costs and maximize how accretive the acquisition could be by finding immediate synergies with Herb
- The expanded reach that Australis will have in California
- The valuation and the structure of the transaction
An Acquisition that is Expected to be Highly Accretive
Australis reported to already have two contract manufacturers lined up to commence production of products in California and we find this to be significant. By securing relationships with strategic manufacturers, the company should be able to reduce capital requirements and accelerate the launch of company owned brands in new markets.
We believe the acquisition includes strategic assets that Australis can recognize value through. Specifically, we are most favorable on the retail and business license that are included in the transaction. With the licenses, Herbs provides Australis with the ability to cultivate, manufacture (production of derivatives and edibles), and distribute cannabis products.
The acquisition is valued at $5 million USD and is an all-stock transaction. We are favorable on the terms of the deal and believe it falls in line with Australis’ low-cost expansion strategy. Since the company does not have to pay cash for the asset, it will continue to have the resources that are needed to execute on its multi-faceted low-cost expansion strategy, and we find this to be significant.
Transaction Provides Several Avenues for Growth
The acquisition is expected to have several positive impacts on Australis and consider the timing of the deal to be strategic. From the ownership of a dispensary to the Eaze relationship, we expect the transaction to support the growth of specific verticals of the business and will monitor how the story evolves from here.
The deal supports the company plan to expand its footprint in California following the launch of its LOOS brand. Included in the transaction is a dispensary that operates under the Herbs banner in San Jose (California’s 3rd largest city). Going forward, AUDACIOUS intends to rebrand the dispensary and transform it into a platform for further growth in California.
The Eaze relationship will help Australis accomplish its goal of providing California cannabis consumers with products like LOOS shots and new 1g disposable vape cartridges. The company is working on ramping up the production of its branded products which are expected to be available at both the dispensary and on the Eaze menu.
At current levels, we find Australis’ valuation to be compelling and believe that it has a favorable risk-reward profile. Going forward, we believe the business is well positioned to record growth on a quarter-over-quarter basis and expect the transaction to amplify revenue growth in future quarters.
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