Cannabis Retail Operator Receives Funding from Producers

A cannabis operator released a new round of financing involving three Canadian licensed producers (LPs) to increase the reach of its proposed retail network in the country.

National Access Cannabis (TSXV:META) (NAC) announced on Tuesday (October 23) it will undergo agreements with these LPs by way of a subscription agreement.

Each producer has agreed to purchase either C$10 million or C$15 million worth of shares in the company, split in two or three tranches, for a total of up to C$40 million common shares of NAC.

Mark Goliger, CEO of NAC, said the proceeds from both capital deals will be used to finance the existing growth plan for the company’s network of retail stores over the next two years.

The operator holds two different brands for its proposed retail stores: META Cannabis Supply and NewLeaf Cannabis.

NAC must deliver results to receive the rest of the investment. The second and third tranches will activate once the company gets approval for 50 and 100 cannabis retail stores in Canada, respectively.

The first tranche is set to close on Friday (October 26) for a price of C$0.91 per share. The deadline for the second and third tranches will be October 26 in 2019 and 2020 respectively.

However, NAC also gained an option in the deal requesting the LPs to purchase and subscribe to an additional C$5 million in common shares before the deadlines for the second and third tranches.

The retail company will also be allowed to add other LPs into the agreement fo up to an additional C$55 million worth of shares.

NAC also secured a private placement of up to C$35 million shares of the company with Cormark Securities.

All of the shares issued in the LP deal and private placement will get a four month and one day hold period.

Canadian LP VIVO Cannabis (TSXV:VIVO) disclosed its commitment would be worth an initial C$5 million with an additional C$5 million added if NAC meets the marked results.

“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, said in the announcement.

The executive added he believed NAC is “well-positioned to be a dominant player in the Canadian retail landscape.”

Goliger said he expects to gain strategy tips from VIVO’s team to implement the two branded retail stores NAC has planned.

NAC had previously signed an investment deal with coffee retailer Second Cup (TSX:SCU) to develop new cannabis stores — and even reformat existing Ontario Second Cup coffee shops into cannabis stores.

Garry Macdonald, Second Cup’s president and CEO, said the alliance allowed the company to leverage real estate assets and “increase value for our franchisee partners and our shareholders.”

Investor takeaway

As sales for the Canadian recreational market kick off, the retail side has gained popularity from companies and experts for long-term gains.

Despite the initial state of the results, Alcanna (TSX:CLIQ), which owns its own network of cannabis retail shops, announced combined revenues of C$1.3 million from the first five days of legal cannabis sales.

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