The California cannabis market represents a massive opportunity and during the last year, we have seen a significant increase in the number of companies that are levered to this market. Although we are favorable on this burgeoning cannabis market, it is important to focus on companies that are actually executing on this opportunity.
The recent increase in the number of California cannabis companies has made it more difficult to identify leaders in this space and we want to highlight an opportunity that has been flying under the radar. The opportunity relates to TransCanna Holdings (TCAN: CSE) which is highly levered to the California cannabis market.
Following the completion of two private placements, the company has significantly strengthened its balance sheet and we find this to be significant. When it comes to California cannabis companies, we primarily are focused on companies that are well capitalized and well positioned to execute on inorganic and organic growth initiatives.
Quietly Building a Leading California Cannabis Operation
2019 has been a banner year for TransCanna and we expect to hear about several significant developments during the back half of the year. So far this year, the California cannabis company has announced several significant transactions and we are favorable on the growth prospects associated with these moves. Over the next year, we believe that these acquisitions will prove to be accretive and this is something we are excited about.
Last month, TransCanna Holdings executed a non-binding letter of intent (LOI) to acquire Lyfted Farms, a licensed producer of premium cannabis that has access to more than 50 unique cannabis strains. We are favorable on the way this transaction enhances and expands TransCanna’s portfolio of premium branded products. Lyfted Farms is a well-known California cannabis brand that has been generating significant revenues and we are bullish on the growth prospects associated with this transaction.
One of the reasons we are favorable on this acquisition is related to the ways that each company is able to complement the other. One of the biggest issues that Lyfted has faced is related to the amount of space that it has to produce cannabis. The acquisition solves this problem and provides the necessary space to scale the brands. Currently, Lyfted is one of the top selling brands at the largest dispensaries in the area and this bodes well for future growth.
Shortly before announcing plans to acquire Lyfted, TransCanna Holdings executed a non-binding LOI to acquire the branding asset package of California-based Tres Ojos Naturals, d/b/a SolDaze. This agreement will enhance the company’s leverage to the California cannabis-infused product market as SolDaze produces cannabis-infused fruit snacks. California’s cannabis-infused product market represents a multi-billion-dollar opportunity and we are favorable on the way this enhances TransCanna’s leverage to it. The company conducted significant due diligence before moving forward with this transaction and this is an opportunity we are monitoring.
Similar to the relationship with Lyfted, we see significant growth potential between the two businesses and are favorable on the way that they can benefit each other. SolDaze has recorded strong demand for its fruit-based, organic product line and understands that it needs to expand in order to remain competitive. TransCanna offers SolDaze a platform to expand at its 196,000 sq. ft. facility and provides the necessary capital for immediate growth. We find this to be significant and are favorable on the value that can be created together.
When it comes to the cannabis-infused product market, we are favorable on the plan to create a division within TransCanna’s 196,000 sq. ft. facility to establish a Persuasion Brewing division. This division will produce a variety of different CBD infusion non-alcoholic beers and we believe that this represents a significant opportunity for the company. Under the terms of the LOI, TransCanna has the exclusive right to the private labeled beers that are created at the facility. The LOI also includes a three-year commitment from Persuasion where the compensation is related to the services rendered (to be determined based on a percentage of sales to dispensaries). TransCanna also agreed to pay to have the necessary equipment, including the canning and bottling lines, installed at the facility and we will monitor how this relationship evolves from here.
A Company with Catalysts for Growth
Last week, TransCanna’s wholly owned subsidiary, TCM Distribution, Inc., received a recreational cannabis manufacturing permit as well as a recreational cannabis distribution permit from Adelanto, California. Earlier this year, TCM sub-leased 10,000 sq. ft. of warehouse space and applied for those permits. We are favorable on the issuance of these permits and expect to see a favorable decision in regards to the permanent recreational manufacturing license and distribution licenses that it has applied for and which are pending.
Later this month, TransCanna plans to transfer all revenue generating distribution and manufacturing processes associated with the GoodFellas acquisition to Adelanto once the facility receives its Certificate of Occupancy and its state distribution and manufacturing permits. We are favorable on this opportunity for TransCanna and expect the granting of these licenses to serve as a catalyst for the business.
The purpose of the Adelanto facility is two-fold and we find this to be significant. Initially, the facility will be used as one of TransCanna’s southern California satellite facilities for goods being transported from its 196,000 sq. ft. vertically integrated, cannabis focused facility in Modesto. Next, the company will be able to accommodate the production and packaging of cannabis products and distribute them through a non-volatility manufacturing license.
Last month, the Adelanto city council approved a measure that will reduce the amount of tax on transportation, distribution, manufacturing and cannabis testing lab services from 5% down to 1%. The council also voted to reduce the cultivation tax from $5 per month per square foot to $0.42 per month per square foot. These are significant changes that should make it easier for the company to operate and we will continue to monitor this aspect of the business.
Raises Capital to Execute on its Acquisition Strategy
Last month, TransCanna announced plans to strengthen its balance sheet and appointed Haywood Securities to act as lead agent on behalf of a syndicate of agents for a $10 million private placement offering at $5 per share. The proceeds will provide TransCanna with the necessary capital to execute on the previously announced acquisitions and we are bullish on the growth prospects associated with these moves.
Over the coming months, the name of the game for TransCanna is execution and we are favorable on the management team’s ability to execute. The company is led by a management team that has a proven track record of success in the California market and is focused on creating value for shareholders. We find this to be significant and will continue to monitor how the team is able to advance the fundamental story.
TransCanna has been quietly building a leading California cannabis company and we are favorable on the recent transactions and developments. Over the coming months, we would not be surprised if we saw the company expand into additional US markets and believe that this could be a major catalyst for the business.
When looking at TransCanna, we see a company that has massive potential catalysts for growth and we will monitor how the team continues to execute. To learn more about this emerging opportunity, please email email@example.com.
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