International Investors Reap Quick $88mm Paper Gains in U.S. Cannabis Investment

Chrystal Capital BCCWe wrote last week about The Canadian Bioceutical Corporation (CSE: BCC) (OTC: CBICF) acquiring Arizona cannabis operations and an option to acquire a Nevada licensed cultivator for $25mm USD, with $15mm USD in cash and the balance as a promissory note. When the deal was announced, the company had indicated that it had raised $27mm USD by selling 181.68mm shares at $0.20 CAD and indicating that the “US$27mm private placement was facilitated by London based Chrystal Capital Partners (www.chrystalcapital.com), and has brought in some influential funds and individuals to the shareholder register.” According to its website, Chrystal Capital, based in London, helps companies raise funds by tapping into its network of family offices that have assets under management typically exceeding $250mm and institutions involved in alternative investing.

In its Form 9, filed on January 26th, BCC disclosed that Chrystal Capital earned a cash fee of $2.43mm and 15.9mm compensation options at $0.20 per share for selling 177.4mm of the shares sold. More interesting was the disclosure by jurisdiction the number of buyers and the amount invested. Only 3.2% of the capital raised came from Canada, where BCC is listed, and only 10.0% was raised in the United States, where the assets BCC purchased are located:

BCC Investors

Not surprisingly given that Chrystal Capital is based in London, 41.3% of the capital raised was from UK investors. The second largest source was United Arab Emirates, where 4 investors kicked in an average of $2.7mm CAD, representing 30.4% of the deal.

Prior to the recent capital raise, BCC had 41.95mm  shares outstanding, 2.61mm options with a weighted average exercise price of $0.07 and 12.68mm warrants with an exercise price of $0.10. After the transaction closed, it granted 19.08mm options to the sellers of the U.S. assets, including 12.08mm at $0.20, 3.5mm at $0.60 and 3.5mm at $1.00. The basic shares outstanding of the company are now 224.49mm, with a fully-diluted share-count of 276.82mm.

Before the deal was announced, the stock last traded at $0.105 when the company voluntarily halted trading in January 2016, valuing the company at less than $5mm. The company delisted from the TSX Venture exchange on January 17th before relisting on the CSE on January 27th. The prior business had minimal revenue, large operating losses and a small amount of assets on the balance sheet that were dwarfed by liabilities. The stock had not performed well prior to the halting of trading in early 2016:

bcc historical stock prices

Source: www.TradingView.com

Trading on Friday produced large gains, with 180,779 shares trading between $0.48 and $1.03 before closing at $0.84:

BCC 011717

Source: www.TMXMoney.com

The stock closed at more than 4X the price of the capital raise at $0.20, giving buyers of the private placement, which has a 4-month lock-up, paper gains at the closing price of $116mm CAD or $88mm USD and the company a market cap of $232.5mm CAD on a fully-diluted basis. Chrystal Capital’s compensation options ended the day with intrinsic value of $10.176mm CAD. With fewer than 0.1% of the shares trading, it’s not clear that the rally will be sustainable. If it is, we should expect to see more transactions similar to the BCC deal, with Canadian listed companies acquiring U.S. cannabis assets.

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Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online communities 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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