Exclusive Interview with XS Financial CEO David Kivitz and COO Antony Radbod
Cannabis operators have access to a number of financing options, including real estate and corporate debt. XS Financial (CSE: XSF) (OTC: XSHLF) is focused on a largely overlooked financing opportunity in the industry, according to CEO David Kivitz. The company provides CapEx financing, touching on the wide array of equipment that cannabis companies need to cultivate, extract, manufacture and package their products. Kivitz and XS Financial COO Antony Radbod spoke with New Cannabis Ventures about the company’s financing solutions, its relationships with OEMs and its pipeline. The audio of the entire conversation is available at the end of this written summary.
Leadership at XS Financial
Radbod has a background in private equity, and Kivitz comes from an institutional background. The pair previously worked together in the real estate investment space. After exiting that business, they launched Archytas Ventures, a company designed to invest in the cannabis industry. Through that company, they made seven to 10 investments in the industry, including an investment in XS Financial. At that time, XS Financial provided equipment on a royalty model. Kivitiz and Radbod saw an opportunity and stepped in to lead the company.
Today, XS Financial has a fairly simple model for offering companies of all sizes access to its financing solutions. The company funds the different CapEx that cannabis operators need while removing a lot of friction from the process, according to Kivitz. While other lenders may require covenants or additional security, XS Financial funds specific pieces of equipment and files UCCs against them as collateral. The company provides all-in rates with no hidden fees.
The company provides financing in all state-legal markets in the United States with a focus on growth CapEx financing. XS Financial does not fund early-stage businesses. Rather, it looks for companies that have a proven track record and are looking to expand. Typically, the XS Financial team looks for companies that are profitable or trending toward profitability. There is no deal too big or too small for its platform, according to Kivitz.
Thus far, XS Financial has not seen a lot of direct competition. Rather, it competes against a wide variety of financing sources available to the cannabis industry. Most companies it works with will have a variety of financing, such as a senior lender, equity financing and specialty financing. XS Financial strives to provide value with its focus on CapEx financing, its rates and its long-term strategy. The company aims to go a step beyond providing capital and to become a partner for growth.
Working with OEMs
As a part of the company’s mission to partner with its clients, XS Financial has developed relationships with more than 200 OEMs. Initially, this strategy was born from wanting to understand the underlying collateral. The team wanted to know that the equipment they were financing was reputable. That understanding of the equipment and direct relationships with OEMs has proven valuable to XS Financial and its customers, according to Radbod.
For example, XS Financial as a partnership with urban-gro, which provides facility design and equipment for cannabis operators. Through this partnership, urban-gro is able to offer its clients those design and equipment services and financing, streamlining the process.
The XS Financial Portfolio
XS Financial works with large MSOs, such as Ayr Wellness, Columbia Care and PharmaCann. It has also provided CapEx financing to single-state operators, like SKYMINT in Michigan and Maggie’s Farm in Colorado. The company’s relationship with a number of its clients has grown significantly from its initial commitment to today.
While XS Financial will provide financing in any legal U.S. market, it does consider the dynamics of each individual state, particularly if it is underwriting a single-state operator, according to Kivitz.
To date, the company has generated more than $44 million in gross receivables. Last year, it raised more than $76 million, and it committed to fund $108 million in new leases.
XS Financial Investors
Last fall, XS Financial raised $43.5 million to support its growing pipeline. That unsecured convertible debenture was led by five private equity firms, one of which committed $35 million, according to Kivitz. In additional to capital, those investors have sent the company deal flow and shared their insight into the industry. 2021 marked XS Financial’s transition from high-net-worth friends and family fundraising to a more institutional approach. The new institutional investors are providing not only financial backing but also support in sourcing new customers.
Pipeline and Outlook
XS Financial is in conversations with a number of single-state operators and MSOs that fit its credit parameters. The company expects to add a significant number of new customers in 2022. The possibilities in its pipeline represent another few hundred million in commitments, according to Kivitz. Plus, the company is set to have organic growth with its existing customer base. In a well-capitalized position, XS Financial is prepared to handle more volume.
As XS Financial grows its portfolio, the team will be challenged to deliver the same level of service to its customers. The ultimate goal for the company will be to build more of a name for itself in the cannabis industry. Kivitz would like to see the company reach a point where its reputation attracts customers more than outbound business development.
To learn more, visit the XS Financial website. Listen to the entire interview: