The cannabis sector continues to generate lots of “buzz” as this multi-decade growth story continues to unfold. What has changed in recent weeks are the optics.
After the inexplicable (and frustrating) pullback of Canadian cannabis stocks to close out 2018, valuations for many of these companies have been bouncing back since the start of 2019. Consequently, cannabis investors are once again paying much greater heed to developments in the sector – looking for budding opportunities.
One Company that may look particularly intriguing to cannabis investors at present is Wayland Group Corp. (CSE: WAYL, OTCQB: MRRCF, Forum). On January 16, 2018; WAYL announced a letter of intent (LOI) with respect to the proposed sale of a 49.9% interest in Wayland’s “international portfolio of cannabis assets”.
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The proposed purchaser on the other end of this LOI is International Cannabis Corp (CSE: WRLD.U). Under the terms of the deal, International Cannabis Corp (ICC) will issue 300 million shares as consideration for its 49.9% interest in Wayland’s international assets. WRLD.U is currently trading at $0.43 on the Canadian Securities Exchange.
Concurrent with this transaction are the additional following terms:
- Wayland will provide ICC with a 3-year supply agreement, consisting of 10,000 kilograms per year of EU-GMP certified cannabis
- ICC will gain access to Wayland’s German advisory board, to facilitate production, distribution, branding, and additional market penetration in the EU
- The (new) international business unit will be held as a subsidiary, jointly owned by Wayland and ICC
- ICC shares will not be distributed Wayland shareholders for a period of not less than 6 months from the closing of the transaction
Those additional terms are all self-explanatory, with the exception of the final clause. Further illumination is found at the bottom of the following paragraph:
The current intention is to spin out the 300,000,000 ICC shares to WAYL shareholders at the appropriate time after the six-month holding period.
Investors (obviously) like to see the share prices of their holdings appreciating – as most cannabis stocks are doing at the moment. But investors appreciate when management look to return shareholder value whether in stock price or undertake a strategic review and return to shareholders in the form of a corporate split or spin-off.
For management, the incentive for going through the time and effort of spinning out a new entity for shareholders is generally always the same, “unlocking value” with respect to internally held assets for which a company doesn’t feel the market is attaching sufficient value.
Wayland’s CEO, Ben Ward, expanded on this reasoning within the news release:
“The proposed transaction would provide Wayland and our shareholders with exposure to an unparalleled portfolio of international assets to address the ever-expanding global legalization of medical cannabis with operations in countries with a total population of just over 390 million people and access to international markets that exceed a billion people. This transaction ascribes value to our international assets that is in line with our expectations as the value of our international assets is now greater than the entire company’s present market capitalization. The transaction also provides an opportunity at the appropriate time to fully integrate our international operations with ICC’s to cover all aspects of the value chain, including medical plant production, extraction, active pharmaceutical ingredient isolation, finished dose manufacturing, and distribution.” [emphasis mine]
For current shareholders, there are several takeaways from this deal, including what has already been explained above. ICC already has an international focus to its cannabis operations, so it sees the Wayland assets as being highly accretive to its existing business model.
For potential investors evaluating this transaction, the fact that ICC is making this major commitment for a 49.9% interest in these assets (leaving the controlling interest in Wayland’s hands) is a vote of confidence in both the quality of the Wayland assets as well as management’s capacity to manage and leverage these assets.
Cannabis stocks are once again blooming. For investors looking to participate in this upward momentum and position themselves for a potential “bonus” in the form of a spin-out, Wayland Group may be a nice fit for such portfolios.
www.waylandgroup.com
FULL DISCLOSURE: This is a paid article of Stockhouse Publishing.