LTYR Logistics provides cannabis logistics services in California.
With the deal for LTYR, SNNVF is adding a major piece to its strategy to vertically integrate its California operations, ‘from seed to sale.’
Target Company & Market
San Diego, California-based LTYR Logistics was founded to distribute cannabis products throughout the state.
Management is headed by Co-Founder and CEO Kevin V. Wilkerson, who was previously a Colonel in the US Army.
According to a market research report by Micro Small Cap, the California cannabis market is expected to reach $3.7 billion in sales in 2018 and exceed $5.1 billion in 2019.
The global cannabis market is projected to reach $50 billion by 2026 of which California could account for $25 billion, according to analysts at Cowen & Co.
The main drivers for this expected growth are the legalization and growing awareness about legal cannabis products.
Acquisition Terms and Rationale
Calgary, Canada-based Sunniva disclosed the acquisition price as 1.86 million common shares valued at CAD$4.26 per share. Approximately one-third of those shares, or 620,657 shares of the total, are contingent upon ‘achieving operational milestones.’
Management didn’t provide a forecasted change on its financial prospects from the acquisition.
A review of the firm’s most recent interim, unaudited financial statements indicates that as of September 30, 2018, it had CAD$3.5 million in cash and equivalents and CAD$37 million in total liabilities.
Free cash flow during the nine months ended September 30, 2018, was a negative (CAD$42.3 million).
Sunniva is acquiring LTYR as part of a strategy to vertically integrate its operations as much as possible, ‘from seed to sale.’
As Sunniva CEO Anthony Holler stated in the deal announcement:
“Over the last six months, we have evaluated several distribution opportunities to complement our vertical integration strategy with the goal of being able to sell all of the products we produce in our California facilities. Our operations and marketing teams have been working closely with the LTYR team analyzing consumer market data, demand metrics and pricing economics to better define all upcoming Sunniva product lines in preparation of our brand launches commencing in the first quarter of 2019. Kevin and his team are proven distribution, operations and execution specialists and we have the utmost confidence in their distribution capabilities as Sunniva ramps up for large-scale production in 2019 from both of our high-tech greenhouse and extraction facilities. Over the past quarter, we have been actively manufacturing and stockpiling inventory for our brand launches and we are excited about achieving significant revenue from all our vertical growth opportunities in 2019.”
In the past 12 months as quoted on the OTCQB, SNNVF’s stock price has dropped 61% vs. the S&P 500 Index rise of 3.8%, as the chart below indicates:
Source: Seeking Alpha
With the deal for LTYR, Sunniva not only will acquire a distribution company with more than 120 licensed retail dispensaries in California but also a sales team.
Sunniva is gearing up for significant retail launch in California in early-to-mid 2019 while announcing in its most recent earnings call the spin-out of its Canadian operations.
Management is pursuing a ‘house of brands’ strategy across the categories of flower, pre-rolls, concentrates, extracts, vaporizers, edibles, vape cartridges, and beverages.
The firm expects its first harvest from its California Campus/Cathedral City greenhouse in Q2 2019 while it continues to expand its focus on retail dispensary additions.
I view the LTYR acquisition as providing Sunniva with a significant wholesale distribution opportunity.
However, management has its work ahead of it, spinning out its Canada operations, seeking to integrate the LTYR deal while standing up its Cathedral City operation with its first major harvest, building out a retail dispensary system, and launching some of its first branded products in the marketplace.
2019 will certainly be an eventful year for Sunniva as it seeks to scale operations in California. Investors who have confidence in management’s abilities may wish to consider watch-listing SNNVF for signs that the firm is executing to plan and beginning to generate meaningful revenues from its California operations.
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