Canadian Bioceutical Corporation Acquires Highly Profitable Cannabis Operations In Arizona

The Arizona Market:

Arizona has a vibrant and rapidly growing medical cannabis programme with, to date, some 100,000 registered medical cannabis users. Subsequent to the 'no' vote against legalization in November 2016, the growth rate of patient applications has risen considerably. While market dynamics point to continued growth, barriers to enter the Arizona market are substantial, with the current number of operating dispensaries at 95, and the total number of licensees permitted capped at 126.

Source: Accesswire 23 January, 2017 via Yahoo Finance
 

Well-Positioned and Highly Profitable Platform for Growth in the North American Cannabis Market; US$27 Million Fund Raising Completed to Finance the Acquisition and Further Expansion; Company to Start Trading on the Canadian Securities Exchange in Next Few Days

TORONTO, ON / ACCESSWIRE / January 23, 2017 / The Canadian Bioceutical Corporation (the "Company" or "BCC") (CSE: BCC, OTC PINK: CBICF) today announced that, together with its wholly owned subsidiary CGX Life Sciences ("CGX"), a Nevada incorporated entity, and subject to CSE approval, it has completed the acquisition of a group of companies active in the Arizona market for medical cannabis. Concurrent with the acquisition, the Company has completed a private placement for gross proceeds of US$27 million (~CA$35.5 M), and is effecting a listing of its shares on the Canadian Stock Exchange ("CSE").

 

 

Transaction Highlights:

• Arizona operations form strong platform for growth into multiple U.S. states
• Wholesale cannabis extracts brand servicing over 40% of Arizona dispensaries
• Two dispensaries in rapidly growing Phoenix Metropolitan Area with 4.6 million people
• Fully banked
• Strong revenue growth and highly profitable
• 166.5% four-year revenue CAGR - forecasted to March 31, 2017
• FY to March 31, 2016 - US$8.5 million (~CA$11.2M)
• FY to March 31, 2017(E) - $19.2 million (~CA$25.5M)
• 323% y-o-y EBITDA growth anticipated
• FY to March 31, 2016 - $1.6 million (~CA$2.1M)
• FY to March 31, 2017(E) - $6.6 million (~CA$8.8M)
• A growing share, currently at around 5.2%, of the Arizona market, which is anticipated to grow to over US$1.2 billion (~CA$1.6Bn) if adult use is legalized
• Attractively priced at US$25 million - US$15m cash + US$10m promissory note
• Considerable discount to Canadian peers, despite substantially stronger financial fundamentals, significant growth prospects and strong operational history
• Transaction includes attractive option to acquire control position in Nevada cannabis operation
• Wholesale operation with cultivation and sale of Melting Point Extracts ("MPX") and other branded cannabis products to legalized adult use market in Nevada
• Based in Las Vegas, which records 42 million visitors annually

"This transaction, we believe, makes us the most profitable cannabis company listed in Canada," stated Scott Boyes, CEO of BCC. "More than that, it creates a platform for growth in a number of very attractive U.S. markets, which are forecast to reach US$22 billion by 2020.
To create further shareholder value, we are pursuing a two-tier strategy. Firstly, we are expanding the production capacity of our Arizona operations, and will leverage the performance and strength of our brands to drive continued organic growth. We will support this growth through expanded production capacity, as well as the use of innovative technology. Secondly, we will pursue attractively priced acquisition opportunities throughout the U.S. Many operations in the U.S., though profitable, are small and undercapitalized and require a financially strong partner to pursue further growth. The strength of our balance sheet, with growing cash flow positive operations, and our proven access to capital, create the financial fire power required to implement this strategy."

Arizona Operations:

In compliance with Arizona regulations, while not cultivating or selling cannabis products themselves, pursuant to long-term management agreements the acquired entities provide material support to two not-for-profit licensees, which directly own, possess or sell marijuana and marijuana-infused products. Current production capacity of the Arizona entities is approximately 1.6 million grams of dried flower per year and approximately 60,000 grams of concentrate per year.

Under the terms of the management agreement, CGX will support two existing brands in Arizona. Under the Health for Life ("H4L") brand, two licensed dispensaries operate in the Mesa area, which is part of the rapidly growing Phoenix Metropolitan Statistical Area (MSA) with a population of 4.6 million people. The dispensaries sell dried flower and derivative cannabis product to authorized patients.

Additionally, the Company supports the Melting Point Extracts ("MPX") brand, which is focused predominantly on the sale of derivative cannabis products, such as oils, through the H4L dispensaries and through its wholesale business to other Arizona dispensaries. MPX was selected as the Best Concentrate by the Phoenix New Times in September, 2016, and in November of 2016, MPX won the Herer Cup as Nevada's best hybrid concentrate. The quality of the award winning MPX products has facilitated rapid growth of the brand's product sales. Consequently, the MPX wholesale business now supplies over 40% of Arizona dispensaries. The Company anticipates leveraging its brand strength to further penetrate the wholesale market, both in Arizona and in other states.

Having commenced commercial operations in Q1 of 2014, the acquired companies achieved profitability in Q2 2015. Management estimates that H4L and MPX combined, based on 2016 market and revenue numbers, command a market share of approximately 5%. Presently, the Company is expanding its production capacity to approximately 3.2 million grams of cannabis per annum, as well as investing in new equipment to produce extract based products to expand reach and market share of its MPX brand.