If the 15% stock jump over the course of Thursday wasn’t enough to give away the fact that something was up, the press release dropped Thursday afternoon sure was; Golden Leaf Holdings (
CSE:GLH,
Forum), Oregon’s cannabis oil extraction giant that earns monthly revenue that eclipses all Canadian MMPR licensees, has agreed to a
strategic partnership with a Washington State entity that will see them working together to grow into the WA market.
BMF Washington is the company that will be teaming up with GLH to bring the Oregon firm’s products to the larger northern market, as part of a US$15 million deal consisting of $3 million cash and $12 million in GLH stock.
BMF, an existing licensee in the Washington cannabis space that reportedly produces just under 50% of all the marijuana sold in Washington (based on figures from August 2015), will continue to produce, process and distribute a range of cannabis and cannabis oils in the state, but will now be able to benefit from the integration of Golden Leaf’s best practices, branding, capital and machinery in an effort to ramp up their local market share.
In essence, the Washington licensee gets cannabis extraction machinery that would be necessary to expand their operations, as well as experienced GLH employees that are necessary to install equipment, train staff, and produce product, without having to source the extensive capital financing required for such an investment. In return, they become an arm of GLH in that state, and share revenues going forward.
“Washington, in addition to being double the size of Oregon, has a more settled regulatory environment. Through this strategic relationship, GLH has aligned itself with an established producer/processor with an experienced management team that currently enjoys a significant market share of what continues to be a very immature and fragmented oil and derivatives market,” said GLH CEO Don Robinson in a news release.
According to Washington State regulatory data, BMF, which sells under the Liberty Reach brand out of its facility in the city of Raymond, earned $1.3 million in sales through 2014, and
raised that to $5.3 million through 2015.
While those numbers make BMF a giant in the Washington space, and by far the largest producer in that state, they’re dwarfed by Golden Leaf’s own revenues of
$2.95 million in revenues last quarter, which would appear to be likely to be added to if the deal sees them taking BMF’s products back to Oregon.
In contrast, Canada’s leading MMPR company, Canopy Growth Corporation, (
TSXV:CGC,
Forum), earned $2.7 million in revenue in its most recent quarter, with a market cap of $271 million. GLH runs with a market cap of just $41 million at the time of writing.
Golden Leaf investors have been waiting for this news for some time, with the stock having gradually slid over the last few months as the company invested in new extraction machines necessary to supply what has been a rapidly growing Oregon market, and performed due diligence on today’s announced deal.
The BMF arrangement will see some of the machines that had been slated for the Oregon space instead sent to Washington to turbo-charge that operation and help the company expand into existing market demand in that state quickly.
The news release made no mention of whether Golden Leaf’s recent deal with edibles industry leader Dixie Elixirs would extend into Washington State, but that would appear a likely next step.
Meanwhile, Robinson says the Oregon operation has shifted into streamlining and cost reduction mode in a bid to quickly move to break-even. The company says general and admin costs are expected to reduce by 25% over the next quarter, even as sales continue to climb beyond the existing $2.9 million quarterly revenue.
Dundee Capital recently initiated coverage on the company,
setting a $2.00 BUY target. At the close, just before the news was released, stock was selling for $0.77, having opened the day at $0.68.
--Chris Parry
https://www.twitter.com/chrisparry
FULL DISCLOSURE: Golden Leaf is a Stockhouse Publishing marketing client. The author is contracted as a consultant to the company and owns shares in the company that he acquired on the open market.