| | | Golden Leaf signs $15M (U.S.) deal with cannabis firm
2016-01-21 17:05 ET - News Release
Shares issued 61,223,736
Mr. Don Robinson reports
GOLDEN LEAF HOLDINGS LTD. ANNOUNCES THE EXECUTION OF AGREEMENT IMPLEMENTING STRATEGIC PARTNERSHIP IN THE STATE OF WASHINGTON AND OREGON OPERATIONS UPDATE
Golden Leaf Holdings Ltd. has executed an agreement in Washington implementing a strategic partnership. The company would also like to provide an update for operations in the state of Oregon including progress in its streamlining plan to increase efficiencies.
Washington: strategic partnership
The company is pleased to announce the execution of the Washington agreement and implementation of a strategic partnership with BMF Washington LLC, one of Washington's premier cannabis companies. The Washington agreement includes the acquisition of certain assets and the provision of certain goods and services to the strategic partner in furtherance of creating a strategic partnership. The Washington agreement does not include any assets which require a licence from the Washington Liquor and Cannabis Board to use or possess. The strategic partner will remain a cannabis licensee in Washington. The strategic partner produces, processes and distributes a range of cannabis oils and flower products in Washington. Under the strategic partnership, GLH and the strategic partner will undertake an integration of best practices, brands and growth initiatives to further drive market share and profits in both the Washington and Oregon markets.
As consideration in connection with the Washington agreement, the strategic partner will be paid a total of $15-million (U.S.) payable within 45 days of the transaction closing date together with the issuance of 300,000 warrants exercisable for a two-year period. Of the $15-million (U.S.) purchase price, $3-million (U.S.) is payable in cash and $12 million (U.S.) payable in GLH stock. GLH anticipates that this strategic relationship will be highly EBITDA (earnings before interest, tax, depreciation and amortization) accretive to its current operations upon completion of the integration.
Washington has an established recreational marijuana market where oil and extracts products are already regulated and available for consumer purchase through licensed retailers. In connection with the Washington agreement, the parties have begun implementing a strategic relationship and have entered into certain agreements whereby GLH will license propriety intellectual property to the strategic partner, provide the strategic partner with services and non-cannabis materials, lease equipment and other property, and also lease employees to the strategic partner.
"Washington, in addition to being double the size of Oregon, has a more settled regulatory environment. Through this strategic relationship, GLH has aligned itself with an established producer/processor with an experienced management team that currently enjoys a significant market share of what continues to be a very immature and fragmented oil and derivatives market," stated GLH chief executive officer Don Robinson.
Certain U.S. states, including the state of Washington imposes a residency requirement for licensed operators and their individual owners. As such, in Washington, the company will focus on providing services to the industry rather than directly owning production or retail operations. In connection with the strategic partnership, the company will not be directly involved in the production or retail operations of the strategic partner but rather will provide ancillary services to the strategic partner.
Washington market:
According to a new study by BOTEC Analysis Corp., Washington's total marijuana market is around $1.3-billion. BOTEC determined that the market looks as follows:
- $480-million medical (37 per cent of market);
- $460-million state-licensed recreational stores (35 per cent of market);
- $390-million illicit (28 per cent of the market).
In December, 2015, the state decided to get more licensed marijuana retailers up and running, and aimed to increase the number of retail licenses from 222 to a total of 556.
Oregon regulatory environment and new product launch
The regulatory environment in Oregon is dynamic and constantly evolving. The company anticipates continued material growth in the short-term year over year in the medicinal market, and exponential growth will be realized once the recreational regulations are set and implemented, which is expected Oct. 1, 2016. The company expects sales to increase quarter over quarter.
With an expanding portfolio of branded cannabis products set to launch in the first half of 2016, GLH is well positioned to continue maximizing short- and long-term growth potential for both the medicinal and recreational markets.
The company will accelerate growth in the medicinal marijuana market with the launch of the following new products in the first half of 2016:
- High THC, solvent-free cannabis oil vaporizer cartridges;
- High CBD C02 hemp oil vaporizer cartridges;
- Artisan Edibles by GoldenXTRX;
- Manufacturing and distribution of Dixie Elixir and Edibles product lines.
Commencing in early 2016, the company is set to launch several new flower-based products focused on the recreational market which include:
- XTRX Farms marijuana flower;
- XTRX Farms pre-rolled marijuana joints;
- Marijuana cigarettes.
Launching these products enables GLH to participate and capitalize on the growing recreational demand for marijuana flower and capture increased overall market share for cannabis in Oregon.
Mr. Robinson stated: "GLH remains very excited about the long-term opportunity in Oregon and is extremely well positioned to take advantage of the recreational market. We are adjusting our business plan accordingly, ensuring we are in a position to maximize the short- and long-term growth potential in both the medicinal and recreational markets."
Operational update: Oregon
GLH continues to identify efficiencies to reach break even faster by streamlining operations. The company remains committed to its model of lowest cost production of highest quality products based on economies of scale and the company's competitive advantage. Management expects general and administrative costs to decline by more than 25 per cent from the third quarter of 2015 to the first quarter of 2016 as the company significantly reduces expenses while revenue continues to increase.
"We have tremendous confidence that GLH represents the leading cannabis model in North America. We believe that continued growth in Oregon, refinements in general and administrative costs, and our strategic relationship in Washington will help accelerate the economic realization," concluded Mr. Robinson.
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