Earlier this year, we highlighted TransCanna Holdings Inc. (TCAN.CN) (TCNAF) as a burgeoning California cannabis company and this comes after we had a great meeting with the team in Vancouver.
TransCanna has been laser focused on the California cannabis market and recently started trading on the Canadian Stock Exchange (CSE). The company is in the early innings of a major growth cycle and has significant growth prospects.
Currently, TransCanna Holdings provides branding and design services and expects to launch distribution, transportation and sales services by the end of the first quarter of 2019. The company specializes in helping its clients find matching customers based on their place in the cannabis value chain. Today, we have issued an update on TransCanna Holdings after the company reported several significant developments in the last month and believe that this is an opportunity to be watching.
Announces Private Placement to Fund Growth
Last week, TransCanna announced a $10 million brokered private placement, whereby Haywood Securities will act as lead agent on behalf of a syndicate of agents to sell up to 5,000,000 units at $2.00 each. Each unit will be comprised of one common share and one half of one common share purchase warrant. Each warrant will entitle the holder to acquire an additional common share at a price of $3.00 for a period of 36 months from the date of closing of the offering.
TransCanna plans to use the net proceeds to partially fund the previously announced acquisition of a 196,000 sq. ft. cannabis facility and for working capital and general corporate purposes. The company still expects to look for a commercial lending facility to secure the full purchase price for the facility and the completion of the offering is conditional upon the company being able to complete the acquisition.
The acquisition that this financing is directly related to is the real estate option that TransCanna accepted from CEO Jim Pakulis. Under this agreement, the company will acquire 6.5 acres of land, an asset package that includes an existing 196,000 sq. ft. facility, and cannabis packaging and processing equipment for $15 million in cash.
Over the last two years, there has been approx. $8 million in tenant improvements made to this facility, creating a vertically integrated cannabis facility. The intended purpose of the facility includes divisions for transportation/distribution, extraction, manufacturing, bottling, and cultivating. The facility is located in an area zoned for cannabis in northern California and we are favorable on the leverage to this burgeoning cannabis market.
Subject to the property being acquired, TransCanna expects to lease space to a third-party laboratory testing company. The property will provide the company with significant room to expand and we are favorable on this. TransCanna has completed preliminary architectural drawings for the additional acreage that includes approx. 400,000 sq. ft. for a fully enclosed two story grow facility. A facility of this size will be able to generate massive revenues in the California cannabis market and we are closely monitoring how the team executes on this.
Enhances Position in California by Acquiring GoodFellas
In January, TransCanna announced that it had signed a non-binding letter of intent to acquire GoodFellas Group LLC, a full-service advertising and marketing agency for the cannabis and hemp industries. The company has a pre-existing relationship with GoodFellas and recently entered into an agreement to acquire 23 exclusive branding & design contracts that are at various stages of their business development.
We are favorable on the terms of the acquisition and TransCanna will be acquiring the company for a combination of cash and stock. The acquisition of GoodFellas will be completed at a price that is two times the previous 12 months revenues, at the time of execution of definitive agreements, as set forth in the audited financial statements. Under the agreement, 60% of the acquisition price will be paid at closing and the remaining 40% will be paid 12 months following the closing of the deal.
The acquisition of GoodFellas plays a key role in the company’s long-term strategy and we are favorable on the growth prospects associated with this deal. Through GoodFellas, TransCanna will have immediate access to a majority of the successful dispensaries in California as well as retailers throughout the United States.
We expect this acquisition to quickly prove to be accretive as it will allow for TransCanna to offer distribution, transportation, marketing, and sales to its new manufacturing clients, pending receipt of appropriate licenses and permits and completion of final payments under the acquisition agreement. TransCanna plans to create a distribution network throughout California where any client in the state will be within an approximately three-hour drive from one of its hub facilities. After creating a successful platform in California, the company plans to replicate its success in other cannabis markets in the United States and we are bullish on this opportunity.
Laser Focused on the California Market
During the last quarter, TransCanna has significantly advanced its fundamental story and we are favorable on the growth opportunities as a result of this progress. Last month, the company reported a significant development and TCM Distribution, a non-profit entity managed by TransCanna, received its temporary distributor license from the state of California. On December 31st, TCM submitted its permanent distribution license application and we are favorable on the quick turnaround time to be approved by the state.
This approval was announced only a few months after TCM Distribution received a formal approval from the City of Adelanto regarding the transfer of its city issued medical cannabis transportation and distribution permit. The permitted facility is located on a parcel of land in which the landlord is scheduled to build two, 20,000 sq. ft. cannabis related facilities.
TCM is currently in negotiations with the landlord to lease one of the facilities and we are monitoring this process. Due to this, TCM is no longer looking to build its own facility in Adelanto and we are favorable on this decision. Leasing a facility will be a much less cost intensive project and we prefer this approach to building its own facility.
An Opportunity that is Flying Under the Radar
TransCanna Holdings has been nothing short of an execution story and we are favorable on the recent developments. The company is in the middle of a major expansion and is focused on the opportunity in California which is the world’s largest cannabis market.
2019 is already proving to be a banner year for TransCanna Holdings and we are barely two months into the year. Through organic and inorganic growth initiatives, the company has significantly advanced its fundamental story and has several major potential catalysts for growth.
Over the next few months, we will be monitoring how TransCanna Holdings executes on these initiatives and are confident in the company’s ability to create value. The company is led by a management team that has a proven track record of success and this is an important aspect of the story.
To learn more about this burgeoning United States cannabis opportunity, please contact email@example.com.
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