There’s a lot of money being left on the cannabis table, but it’s not from the plant itself.
Instead, a few companies have realized that equipment leasing solutions in a capital constrained environment is the key to the market. An oversaturated and maturing cannabis industry needs capital and equipment far more than a further dilution of supply, and
business models based on leasing success in real estate and heavy equipment has started to flourish.
Leading the charge is
Xtraction Services Holdings Corp.(
CSE:XS,
OTC: XSHLF,
Forum). This speciality finance company provides specialized equipment leasing and purchasing solutions for cannabis and hemp companies, fitting a market need that had gone unrecognized. For a relatively new play, Xtraction has already achieved
impressive success and growth. Last week, however, the Company took things to another level.
On Jan. 31, Xtraction announced that it had
entered into an agreement and partnership with
KushCo Holdings Inc. (
OTC:KHSB), premier cannabis ancillary provider and one of most well-known companies in the cannabis industry. Under the partnership, both companies will be able to capitalize on each other’s success, with Xtraction having first right of refusal to provide leasing services to all of KushCo’s customers, and vice versa with KushCo providing products to all of Xtraction’s customers.
In addition to expanding Xtraction’s sales network dramatically, the deal gives the Company some impressive backing. David Kivitz, CEO of Xtraction, commented on how the deal elevates Xtraction:
“KushCo is a recognized and respected cannabis company with a global footprint. As early adopters to the industry and one of the largest ancillary companies serving our vertical, this partnership provides direct access to 1,000s of potential customers for XS, immediately increasing our customer pipeline and providing a distinguished stamp of approval for our leasing services. KushCo’s sales and marketing arm will be an invaluable resource to provide greater visibility for the Company. The ability to partner with a company of this magnitude is a tremendous opportunity for us, and we look forward to the establishment of this cooperative effort.”
For their part in the deal, KushCo also gains a 19.9% minority ownership position in Xtraction. As Nick Kovacevich, CEO and Co-founder of KushCo, commented, this is more than a deal for KushCo. It’s a strong business investment in the current cannabis climate:
“For the past several months, we have been evaluating ways in which we can successfully enter the equipment financing arena, which we identified early on as being another growth driver and margin accretive business that can significantly complement our existing ecosystem of ancillary products and services, After much due diligence and internal review, we realized that an investment and partnership with Xtraction Services—who has already built a robust equipment financing platform including relationships with more than 70 OEMs and distributors across the laboratory, testing, processing, and extraction space—is the best option for KushCo and our customers.”
Investors that were already familiar with Xtraction Services know that this deal is exactly what the Company needed. Its business model was tried and tested in other industries, and the cash-strapped cannabis sector fit the mold of the Company’s equipment sale-leaseback product perfectly. With a big name like KushCo behind it, Xtraction has opened up its path to the market a hundredfold.
(Image via Xtraction Services)
And in the leadup to the partnership announcement, it seems like Xtraction has been as busy as possible. After starting 2020 with a
share buy-back and sale of non-essential equipment (which tracks nicely with the KushCo partnership providing equipment), the Company
began trading on the OTCQB under the symbol “XSHLF”.
Then, Xtraction did what it does best, find leasing opportunities in the emerging market. On Jan. 20, the Company
announced a lease agreement with
Lehua Group USA, a multi-state cannabis LP looking to expedite growth plans, for $140,000 of new equipment immediately and up to $575,000 over the course of the lease.
It followed that up with a Jan. 27 announcement that it was
entering the massive California leasing market with the acquisition of local entity with a California Finance Lenders license. Xtraction had already secured two equipment leases to California based customers before, but it had to turn away from a host of opportunities that the new license allows it to now provide.
Where does everything leave Xtraction Services today? In one word: growing. The Company’s business model was strong before, but with KushCo giving it a stamp of approval, the carpet is laid out for a significant rollout. Xtraction’s sales pipeline was robust to begin with, and now Xtraction will be able to engage with even more potential customers.
The cherry on top is that the cannabis market is in
recovery mode and looking for sound financial plays. Existing operators are seeing where they can streamline operations and find new sources of capital or equipment, and new operators are entering with realistic expectations for what they can achieve, and how they can do it. That’s why KushCo saw equipment leasing as a “growth driver” in the current field. That’s why Xtraction is making moves at the right time and picking up the money left on the table.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.