The cannabis sector isn’t going away anytime soon, but the “hot play” has changed.
Throughout the year, investor sentiment towards moves in the cannabis market ebbed and flowed with the market. First it was growth at all costs as the market soared, but once it reversed course the focus shifted towards calculated investments in the future, including cannabis extracts and CBD.
Now, with the full extent of a slow retail rollout and too-rapid growth being felt by cannabis operators, the investment community is putting a premium on more sophisticated models. That’s why experts are looking beyond the plant for big plays before the resurgence of cannabis.
The spotlight now is on companies like Xtraction Services Holdings Corp. (CSE:XS, Forum), which provides specialized equipment leasing and purchasing solutions for cannabis and hemp companies. Given the current predicament of rapid overexpansion and restricted access to capital facing most of the cannabis market, Xtraction is standing out to investors like a beacon of light.
Stockhouse previously covered the Company’s robust offerings, paying particular attention to the perfectly-timed benefits of the sale-leaseback offering. In addition to traditional equipment sales, procurement, and leasing, Xtraction introduced the offer of selling equipment to the Company to unlock working capital and then leasing it back via monthly payments.
The sale-leaseback model is extremely popular in real estate and heavy equipment financing, and it’s easy to see the attractiveness for cannabis companies. When the next “move” was in cannabis extracts, operators quickly purchased the necessary and expensive equipment in lieu of better options, and now are saddled with expensive assets and a lack of capital.
For Xtraction, that has meant a new and stable source of revenue. The Company already has a network of diversified companies and clients it has sold equipment to or assisted through consulting, and now it is able to capitalize on those relationships one step further.
Some investors are undoubtedly curious as to whether Xtraction has been able to start delivering on its value promise, but the results speak for themselves. On Nov. 28, the Company released its Q3 2019 fiscal results, with increased quarterly revenues quarter-over-quarter to US $0.96 million, a reduction in quarterly operating expenses to US $0.62 million from US $1.71 million, and improved gross quarterly profits to US $0.12 million from a gross loss of US $0.18 million.
(Image via Xtraction Services)
David Kivitz, CEO of Xtraction, commented on the Company’s rapidly improving financials:
“We are pleased to report our Q3/19 financials which show increased revenues, improved results and a reduction in operating expenses as a result of streamlining the cost structure of the business. With the majority of costs associated with the RTO transaction realized in Q3/19, we should continue to see financial and operational improvements into the fourth quarter.”
And as the market mood towards cannabis soured over the last few months, Xtraction’s ability to work with partners has improved. Just a day earlier on Nov. 27, the Company announced it had entered into a sale-leaseback agreement with Halo Labs Inc. (NEO:HALO, OTC:AGEEF) for a variety of existing extraction, processing, and operational equipment for US $600,000 payable over a 3-year term.
In the announcement of the agreement with Halo Labs, Xtraction’s CEO David Kivitz commented on the strength of the new partnership:
“We are very pleased to be working with Halo, a globally recognized and leading cannabis extraction company. Given its strong value proposition and blue-chip executive team, we feel Halo is well-positioned amongst its peers. With capital being extremely limited in the cannabis and hemp sectors, we continue to see a very robust pipeline of financing opportunities. XS is uniquely suited to provide flexible solutions to companies even in the current volatile environment.”
The key that Kivitz is alluding to is the flexibility of Xtraction’s business model in any business environment. Far from being a play only in difficult times, equipment leasing is a tried-and-true business model in most industries because it works on a grand scale. When companies are expanding, they need equipment and they need it now. When companies are struggling, they need to free up capital.
And to their credit, the team at Xtraction isn’t getting lazy and taking up any potential client. Leasing is a business that requires razor-sharp due diligence for long-term profitability and success. You need to have a thorough understanding of the client’s business model, and Xtraction has an impressive eye for success. The Company’s target leasing opportunities are underpinned by recurring revenues, sound balance sheets, and experienced management teams.
If investors are looking for the next “hot play” in cannabis, they should look where market activity is picking up steam. Right now, it’s in providers like Xtraction that are staying impressively active in a relatively down market.
Once you shift focus towards the long-term, the spotlight shifts to companies that provide services that have been proven successful in other industries and that the cannabis sector has been lacking. Once again, you’ll find it pointing at Xtraction.
xtractnow.com
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.