- First, Red White & Bloom Announced the Company Inked a Deal to Acquire a 23,572 Sq Ft Active Illinois Cultivation and Manufacturing Operation, Along with Medical and Adult-Use THC Cultivation Center Licenses and the Associated Inventory and Real Estate Assets, Including 2 Acres of Land
- RWB Followed Up the Illinois News By Dropping a Second Game-Changing Press Release Informing Investors That the Company Signed a USD $60 Million Non-Dilutive Credit Facility Term Sheet
Red White & Bloom (CSE: RWB) (OTCQX: RWBYF) made major headlines on Thursday following the release of back to back blockbuster press releases. As a result of the two game-changing announcements, shares of RWB stock surged, reaching a daily high of $0.84 and officially confirming the stock’s breakout from a Bull Pennant chart formation. As we previously alerted our readers, a trifecta of bullish events had RWB stock on the verge of a major breakout. We’re pleased to report, it appears Thursday’s news served as the catalyst to fuel that breakout.
The Illinois Deal
Up first, Red White & Bloom announced Thursday morning that the company signed a definitive agreement to acquire Cannabis Capital Partners (CCP) via an arm’s length Ontario special purpose vehicle. The deal includes the rights to simultaneously purchase medically and recreationally-approved Illinois THC cultivation center licenses, a 23,572 sq ft active cultivation and manufacturing operation, as well as the associated inventory and real estate assets, including 2 acres of land.
The Shelbyville, Illinois-based operation, one of the original 21 state MMJ cultivation center permits, is currently operated by a non-profit entity that employs rehabilitation patients. The operation is in good standing with the Illinois Department of Agriculture and the cannabis cultivation centers state regulator. The 23,572 sq ft cultivation and manufacturing facility is currently selling its product and approved genetics to dispensaries throughout Illinois.
“I think for us to enter a state that has a limited license program and has quickly established itself as one of the largest markets by revenue in the US is a watershed moment for our shareholders. We have become familiar with the Illinois market, have a core of skilled employees in our multi-million square foot facility in Granville, and have the rights to High Times branding in Illinois as well as own one of the top-selling brands in Platinum Vape, all of which can be leveraged for success in Illinois. I believe that these assets, coupled with our commitment to social equity programs and corporate citizenship, will provide us with a great opportunity for growth,” commented RWB Chairman & CEO Brad Rogers.
“We’ve been deeply immersed in the Illinois cannabis program since its inception and are thrilled to have secured this deal with Red White and Bloom in their acquisition of one of the premier cannabis permits in the country. We were focused on working with only industry-leading cannabis MSO’s whose mission aligned with ours regarding social equity and record expungement. Their commitment to these initiatives, along with their proven operating team, played a key role in our decision-making. We look forward to working with RWB on implementing the State’s transformational social equity initiatives while bringing RWB’s premium and trusted product lines to the Illinois market,” added Jeff Field, President of Cannabis Capital Partners.
Per the terms of the deal, RWB will acquire Cannabis Capital Partners, which has entered into definitive agreements to acquire the licensed Illinois THC Cultivation Center and related assets from the current operators, in exchange for up to 22 million common shares (subject to certain resale restrictions) and USD $16.25 million in cash at closing. The $16.25 million cash payment will be due 45 days after the Department of Agriculture approves the ownership transfer of the license, which is expected to happen in Q1 2021 and will come in the form of an 8%, interest-only, 18-month note to the seller. The share portion of the acquisition will be based on certain milestones, including the approval of the ownership transfer of the license and the approval, if sought, of the relocation of the license.
Following the receipt of regulatory approvals and closing of the acquisition, the company plans to migrate the cultivation licenses to RWB’s 3.6 million sq ft Granville, Illinois cultivation facility currently operated by the company’s wholly-owned subsidiary Mid-American Growers.
Over the past year at the Granville facility, RWB has been cultivating premium CBD and novel cannabinoid flower. RWB has earmarked a section at the company’s Illinois greenhouse for its new THC operations, which is almost complete and only required minimal retrofits to convert.
According to the parameters of the cultivation center license, RWB would be permitted to expand its plant canopy to 220,000 sq ft, which translates to roughly 450,000 sq ft of total cannabis operations when including the non-canopy areas as well as processing and manufacturing.
In addition, RWB would also have the ability to launch its Platinum Vape brand and its exclusively licensed High Times brand throughout Illinois. The cultivation center license allows for the processing of cannabis extracts and the manufacturing of infused goods.
RWB management, in collaboration with its Ph.D. level cultivators, put together the following conservative financial projections for the 220,000 sq ft of canopy:
- 100,000 lbs. per year (50g./ft x 4.2 harvests/year)
- USD $250 million in annual revenue @ $2,500/ lb. – (current market rate = $3,500/lb.)
- < US $500/ lb. total cash costs
- Multiple opportunities for ancillary revenue through derivative products.
Overview of the Illinois Cannabis Market
- With a population of 12.63 million, Illinois has approximately 8 million legal-age residents and 100,000+ medical cannabis patients.
- Based on November’s combined medical and recreational sales, Illinois’ current market size is estimated to be USD $1.25 billion.
- Illinois has the highest wholesale flower prices and the highest sales per dispensary of any state.
- There have been only 21 cultivation & processing permits awarded in Illinois, and only 14 companies control those 21 permits.
- Future permits in the state will be “craft grower” permits limited to 5,000 sq ft of canopy and will not include a processing & manufacturing permit. As a result, this is expected to further constrain the state’s cannabis supply.
- Illinois currently has 70 operational adult-use dispensaries open with state law allowing for up to 500 retail locations.
Video Source: TCI YouTube
$60 Million Non-Dilutive Credit Facility
RWB followed up the Illinois deal news by announcing the company signed a term sheet for a USD $60 million non-revolving credit facility with an arm’s-length institutional lender.
The 3-year, 7% non-dilutive USD $60 million credit facility will be advanced in two tranches: USD $40 million at closing and USD $20 million upon the closing of the acquisition of the Illinois THC cultivation license and associate assets.
The company said it intends to use the financing proceeds to fund the Illinois acquisition, repay higher-cost debt and improve its working capital position.
RWB Stock Price Action & Chart
In our December 2nd article, we alerted readers that several bullish technical events had RWB stock primed for a major breakout. We’re pleased to report that yesterday RWB broke out of its Bull Pennant chart formation, catalyzed by the release of back to back material press releases.
Shares of CSE listed RWB soared as much as +29.23%, with the stock reaching a high of $0.84 on the day. RWB closed Thursday at $0.71, up +9.23% on the day. Red White & Bloom’s American RWBYF OTCQX listing jumped over +27%, hitting a daily high of $0.65 before closing the trading session at $0.57, up +11.21%.
RWB is very likely in the early stages of a new bull market uptrend, as evidenced by the reversal confirmation in our previous article and further cemented by Thursday’s technical breakout. Despite the recent bullish price action, RWB is still trading at a large discount to its Multi-State Operator (MSO) peers Trulieve (CSE: TRUL) (OTCQX: TCNNF), Curaleaf (CSE: CURA) (OTCQX: CURLF), Green Thumb (CSE: GTII) (OTCQX: GTBIF) (FRA: R9U2) and Cresco Labs (CSE: CL) (OTCQX: CRLBF).
Cannabis investors that missed out on the 2020 MSO run should be taking a close look at RWB ahead of the company’s highly anticipated Q4 earnings. RWB recently announced its Q3 results, which included 300% revenue growth despite only a couple of week’s worth of Platinum Vape (PV) sales being included as well as zero revenue from PharmaCo.
Also, PI Financial analyst Jason Zandberg recently issued an RWB “BUY” recommendation to his list of high net worth clients and placed a $2.50 price target on the stock. As of Thursday’s close, Zandberg’s target represents a current implied upside of +252.11%. The PI Financial analyst also released the following three-year RWB earnings forecast:
- Fiscal 2020: Revenue of $40.3 million and EBITDA of $4.9 million.
- Fiscal 2021: Revenue of $293.4 million and EBITDA of $70 million.
- Fiscal 2022: Revenue of $381.4 million and EBITDA of $125.4 million.
Investors and analysts are already salivating over the blockbuster potential of RWB’s Q4 earnings. With the smart money already positioning in the stock, we expect to see interest in RWB shares accelerate substantially over the coming weeks.
Investor Research Links:
- CDN Listing | CSE: RWB
- U.S. Listing | OTCQX: RWBYF
- Website | IR Website | Investor Deck | RWB Chart | RWB Email Alerts
This U.S. Cannabis Stock Appears to Be Way Undervalued and May Actually Benefit From a Second Wave of the Pandemic
Red White & Bloom is a paid client of The Cannabis Investor. The Cannabis Investor holds a position in RWB.
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