4 Cannabis LPs Invest in National Access Cannabis

On Monday (October 29) it was revealed which cannabis producers will invest in the retail plans of National Access Cannabis (TSXV:NAC).

Following an initial announcement of a subscription investment agreement deal from NAC last Tuesday (October 23), the company closed the first round of financing.

The full list of producers consists of established public players Aphria (TSX:APH), CannTrust Holdings (TSX:TRST), VIVO Cannabis (TSXV:VIVO) and upcoming public producer Zenabis.

VIVO Cannabis was the first licensed producer to confirm its initial C$5 million investment with a possible extra C$5 million if NAC meets marked quotas attached to its retail plan last week.

Zenabis disclosed it signed up for up to C$15 million common shares of NAC with an initial C$5 million purchased during the first tranche, which closed last Friday (October 26).

Rick Brar, CEO of Zenabis, said his company sees this investment as a way to develop a relationship with a company looking to set up the “most widespread” retail network in Canada.

Zenabis is set to become a public producer by way of a reverse-takeover with Bevo Agro (TSXV:BVO) performed through Sun Pharm Investments.

The first tranche NAC announced provided the company with gross proceeds of C$20 million.

Mark Goliger, CEO of NAC, indicated the company expects to set up a footprint of over 200 cannabis retail shops in the next 18 months across five Canadian provinces.

In a statement to the Investing News Network (INN) Peter Aceto, CEO of CannTrust said NAC is “poised to transform the cannabis retail landscape.” Aceto added CannTrust will make available product the company’s adult-use brands to the eventual stores.

Details of investment transaction

The producers acquired stock of NAC at a price of C$0.91 per share. The total number of shares from the retail operator as part of the first tranche was approximately 22 million.

The second and third tranches of the investment deal are attached to specific goals: reaching 50 and 100 store approvals in Canada respectively.

The second and third tranches will close on October 26 in 2019 and 2020. However, NAC holds an option with all these producers to request the purchase of the subscribed stock agreed before the deadlines of the second and third tranches.

Adult-use cannabis became legal in Canada on October 17, allowing for the setup of physical retail shops, as per each province’s guidelines.

“We believe that the retail side of the industry has great potential and with our strong cash position, we chose to make another strategic investment in a leading cannabis retailer,” stated Barry Fishman, CEO of VIVO Cannabis.

NAC attracted attention to its retail play thanks to a deal with coffee retailer Second Cup (TSX:SCU) for a network of cannabis shops in Ontario.

Second Cup has even announced plans to retrofit existing coffee retail locations in favour of cannabis stores.

Investor takeaway

Shares of all the public cannabis producers in this deal took a sharp decline during Monday’s trading session.

At market closure on Monday,NAC shares dropped 1.23 percent reaching a price point of C$0.80. Aphria, CannTrust and VIVO took declines of 17.35, 15.43 and 8.57 percent on Monday.

Outside of a negative reaction to the investment deal, shares of cannabis companies have been taking a beating following Canadian legalization in what is seen as a sell off from investors.

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Editor’s Note: This story was updated to include a statement from CannTrust. This story was updated to correct the name of Rick Brar, CEO of Zenabis.

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.