Providing Financing to Medical Cannabis Companies Around the Globe
This profile is part of a paid investor education campaign.*
Redfund Capital Corporation (CSE:LOAN) is a Canadian merchant bank that provides medical cannabis companies across the globe with funding solutions.
The cannabis industry’s annual report for 2017 estimated that $4.75 billion would be spent on medical cannabis by 2018 and $6 billion on recreational cannabis by 2023. Both forms of cannabis will make approximately $24 billion by 2025. However, federally regulated banks in Canada are reluctant to do business with cannabis companies and revenue producing cannabis companies have difficulties obtaining loans from most banks. Additionally, the US federal government still treats cannabis as an illegal substance and banks can be accused of money laundering for assisting cannabis companies.
As a merchant bank for the medical cannabis industry, Redfund provides an alternative source of capital through loans to help cannabis companies finance themselves, build their valuation and grow their businesses without diluting their equity prematurely. Merchant banks predominantly provide international finance services by offering business loans and underwriting. Additionally, merchant banks sometimes provide the same services as investment banks do, but they generally don’t deal with the public.
Redfund’s portfolio consists of 10 to 15 companies that are currently generating a revenue of $2 million or more. Additionally, Redfund expects to have a return on investment (ROI) of approximately $54.7 million by 2019 on five of their initial clients.
As a supplement to its holdings in Canada, Redfund has opened its subsidiary, First Euro Cannabis, to provide financing to cannabis companies in Europe wishing to enter the European markets. First Euro will provide debt financing to companies in revenue or with sales in their pipelines to jumpstart their business plans and organic growth.
Redfund has also launched a beverage division to fill a key gap in the lifestyle-driven infused beverages market as the hospitality and health and wellness sectors start to boom. The company will provide an array of flavored hemp seed, hemp-infused teas and a hemp-based protein powder.
The company has also formed a strategic alliance with the Cannabis Mercantile Exchange (Cannamerx), who has developed a fully-automated B2B international auction platform for cannabis and hemp. Redfund will help Cannamerx finance its business model and build it global footprint.
Redfund’s CEO Meris Kott has been helping companies go public for over 25 years. Additionally, management owns approximately 15 percent of the shares in the company.
- Invest in medical cannabis companies around the world that are currently generating $2 million or more in revenue.
- Nine-step screening process and collateral requirements de-risk the company’s investment in their clients.
- Fourteen percent compounded interest on fixed two-year term loans.
- Loans conversions on valuation estimates on initial loans of approximately $54.7 million by 2019 on five initial clients alone.
- Management holds approximately 15 percent of the company shares.
Redfund’s Solution for a Growing Medical Cannabis Market
Understanding the financing needs for the growing medical cannabis industry, Redfund is providing cannabis companies an alternative source of capital by offering loan facilities without diluting their equity. Redfund invests in companies that are currently generating over $2 million in revenue or have sales in their pipelines. Loans are offered to successful applicants in fixed two-year terms and are compounded monthly by 14 percent.
Successful applicants are also required to collateralize their loan with strong assets that are two to three times more than the value of the loan. Additionally, Redfund has the option to convert the loan, in its entirety or in part, at a 10 percent discount to previous financing and retains the right of first refusal on all financing of debt or equity for the term of the loan. Finally, Refund assists companies wishing to be listed on a public market.
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Redfund’s Application Process
Redfund is committed to investing in medical cannabis companies that are already generating revenue. However, applicants must also pass the company’s rigorous nine-step screening process:
- Each application provides the banking committee with a business plan and current financials for review and approval.
- Once approved, terms are provided.
- Upon signing of the terms, the company provides potential assets as collateral and provides document stating how the proceeds will be used.
- Asset list is reviewed and forwarded to counsel for vetting.
- After review by counsel and a legal opinion has been offered on collateral, the banking committee reviews the materials a second time.
- Upon approval, a promissory note is issued to the company.
- Promissory note is signed by the applicant and is placed escrow with counsel.
- A final review of the assets is done by counsel and closing documents are drawn.
- Closing and funding of the loan is completed with the signing of the contract. Applicants are required to submit a monthly report to Redfund.
The company’s due diligence in their screening process de-risks the investment they are making in the applicants and adds value to the applicant. The applicant’s debt or loan has the potential to be sold off to another bank as well.
Based on materials submitted by clients, Redfund estimates that for its five initial clients it will see a conversion rate of over 200 percent totaling approximately $54.7 million by 2019.
First Euro Cannabis
In October 2018, Redfund opened its subsidiary, First Euro Cannabis. First Euro is Europe’s first medical cannabis incubator and accelerator that provides financing to medical cannabis, CBD and hemp companies. First Euro will help the Canadian merchant bank provide debt financing to companies in revenue or with sales in their pipelines to jumpstart their business plans and organic growth. The company will do this through adapting to the needs and realities of scaling cannabis companies to ensure their successful international launch.
In February 2019, Redfund launched a beverage division with the intent to fill a key gap in the lifestyle-driven infused beverages market as the hospitality and health and wellness sectors start to boom. The company will provide an array of flavored hemp seed and hemp-infused teas as well as a hemp-based protein powder.
“The launch of our own proprietary beverage product-line has been in the works for almost a year. This division will provide the go forward business development advisory services as an added benefit to portfolio clients,” said Redfund CEO Meris Kott.
Redfund has formed a strategic alliance with the Cannabis Mercantile Exchange (Cannamerx), which is the first fully-automated B2B international auction platform for wholesale cannabis, hemp products and genetics. Cannamerx recommends certain products and services provided by each company to their respective customer base. Under the terms of the agreement, Redfund will help Cannamerx finance its business model and build it global footprint.
Over 57 Canadian licensed cannabis companies have joined the Cannamerx platform. Since June 2018, Cannamerx has facilitated the trade of over 25 tonnes of cannabis and over $22 million in bids have been received through its automated auction platform and supply agreement auction process.
“Investing in a working cannabis auction platform in the sector is a game-changer. Cannamerx has the ability to connect European buyers with Canadian licensed sellers and South American licensed producers can with a click of a mouse list their products placing reserve prices to the rest of the world. There are many technology marketing plans to connect the world but Cannamerx have already established themselves as the go-to platform. Redfund recognizes that this is one of our most strategic growth alliances complementing our philosophy of funding entities that have realized revenues and are looking to grow exponentially,” said Kott.
The platform officially launched its international hemp and CBD auction platform in March 2019. The day after the platform launched, Cannamerx reported that 1.5 tonnes of hemp biomass was listed for auction on their site. The company is currently onboarding hemp clients in Canada, the US and Europe. The company is also vetting CBD labs in the US for domestic trade.
Meris Kott — CEO and Director
Meris Kott has been in international Investment Banking and Financial Consultancy with a focus on targeting companies for investment and acquisition purposes for large multinational corporations. Kott has continued providing global bridges for public companies for 25 years and she believes all companies should create global footprints. Presently, she is a managing partner at Ludgate Hill Partners in Vancouver, Canada. Kott has an economics degree from McGill University.
Ryan Cheung — CFO
Ryan Cheung is the founder and managing partner of MCPA Services Inc., chartered professional accountants, in Vancouver, B.C. Cheung serves as a director and/or officer or consultant for public and private companies providing financial reporting, taxation and strategic guidance.
Eugene Hodgson — Director
Eugene Hodgson is an accomplished Senior Executive and has worked in the public sector with both the BC and NWT Governments. Hodgson served on the Board of Directors of various companies including Grandfield Pacific Corporation, Arimex Resources Inc., Sea Breeze Power Corp., Silvermex Resources Inc., Chair of Pacific Cascade Minerals and Director of Timmins Gold Corp. He graduated from the University of Calgary with a BA in Political Science.
Mark Ireton – Independent Director
Mike Ireton is a banker by profession with over 30 years of experience in all areas of commercial mid-market lending. He is versed in both public and private transactions and divestitures in a variety of sectors that include wholesale distribution, manufacturing, aviation, transportation, construction, excavation, post production and oil service.
Amanda de Freitas — Director
Amanda de Freitas is a Toronto based regulatory compliance executive and lobbyist and specializes in Canadian cannabis legislation. She is the CEO of Cannaceutical Canada Ltd, a management consulting firm that focuses on global medical cannabis supply transactions and deal development. Amanda is also President and founder of CannaBizSolutions company, a firm that’s primary focus is on domestic medical and adult use cannabis businesses, helping assist them with their regulatory compliance, licensing, corporate and product development strategies. She is a frequent panelist and speaker at Canadian Medical Cannabis conferences.
Lindsey R. Perry JR — Strategic Investment Advisor
Mr. Perry was born and raised in New England, north of Boston and relocated to South Florida from Nantucket in 2005. Mr. Perry’s family is credited as being one of the pioneering families to develop the Island of Nantucket as the premier vacation destination on the eastern seaboard of the United States. In 2010 Mr. Perry sold his business The Tristram’s Group Inc. to retire and has continued investing in numerous private and public entities. Mr. Perry has a significant background as a disciplined entrepreneur and business owner. He graduated from Bucknell University in 1977 with a Bachelor of Science Degree majoring in accounting and played collegiate hockey and golf for the NCAA Bucknell Bisons.
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