The Public Partners of Westleaf

Westleaf Inc (TSXV: WL) is a $300 million company in which we can almost guarantee you have never heard about. Distinctly western in nature, it pulls at our prairie roots here at The Deep Dive, enticing us to look deeper at this firm that is new to the public markets scene.

Debuting on the TSX Venture on January 9, perhaps the most distinct item about this vertically-integrated company is its complete lack of hype. Social media awareness is all but non existent for the firm – almost zero mention on Twitter, and Stockhouse has only eight posts on the dedicated board – only one of which actually pertains to Westleaf. Other boards such as CEO are entirely devoid of any actual chatter on the company, which is in a stark contrast to other recently debuted equities, such as Cannara Biotech.

In short, Westleaf is essentially non-existent to the average retail investors. The volume on the equity over the last two weeks makes this glaringly obvious, with one trading day seeing fewer than 40,000 shares trade hands between investors. This is hardly enough volume to support the firms current market cap. With that, we’re here to graciously raise some awareness to the firm in an effort to support fellow prairie brethren. Particularly, we’re focused on the three well known producers that have already partnered with this growing firm.

The Partners of Westleaf

1.)  Westleaf & The Tilray Investment

We’re starting with perhaps one of the most interesting investments made in Westleaf – a $2.9mm influx from that of market giant Tilray Inc. This investment came as a portion of a $20 million subscription receipt offering that closed on December 4, 2018. Under the terms of the offering, each share was purchased at a price of $0.85, and came with one half warrant which is exercisable for up to two years after the date of closing at a price of $1.30. Additionally, the warrants are subject to an acceleration clause should the equity exceed a ten day volume weighted average price of $1.80.

Westleaf Prairie Records
Westleaf Prairie Records

Although Tilray did not comment on the investment, nor did it issue a press release, Westleaf identified the investment when announcing the closing of the offering. The firm noted that it views the strategic investment as a validation of their business model and the perceived success that their retail banner will see in the coming months. It should also be noted that this investment is identified on the latest edition of the Westleaf investor presentation, wherein it states that Westleaf will have access to Tilray’s “diverse portfolio of adult use cannabis brands”. It also identifies that there is to be collaboration between the two firms on “retail branding and merchandising opportunities.”

The recently filed annual information circular by Westleaf stated on the matter, “The Corporation received a $2.9 million strategic investment from Tilray Inc., a global leader in the cannabis industry, pursuant to the RTO Financing. Concurrently, the Corporation and High Park Holdings Ltd., a wholly owned subsidiary of the Tilray Inc., entered into a collaboration agreement whereby the parties will collaborate to align their respective competencies and objectives including supply agreements, cooperation regarding promotional matters and support for the Corporation’s retail banner, Prairie Records.”

Based on the dollar value for the stated investment, it is believed that Tilray owns approximately 3,411,765 shares of Westleaf, and approximately 1,705,883 purchase warrants. This would represent 5.1% of the currently outstanding shares of Westleaf on a non-diluted basis. Note that this does not take into account common shares currently subjected to escrow agreements.

2.) VIVO Cannabis’ Strategic Investment in Westleaf

The second strategic investment into Westleaf that we need to address is that of Vivo Cannabis’. For those of you who are struggling to recall whom this is, its the rebranded Abcann Global whom changed their name back in early August 2018.  The firm gave a cash injection to the tune of $5 million to Westleaf on October 3, 2018 due to the differentiated approach they have taken to customer engagement by pairing music with cannabis.

The terms of the investment are identical to that of the subscription receipts in which Tilray took part in. Priced at $0.85 a piece, Vivo purchased 5,882,353 shares of Westleaf for a total purchase price of $5 million. Attached to those shares are half warrants, entitling Vivo to a further 2,941,177 shares of the company at a price of $1.30 each should they choose to exercise. Much like the Tilray purchase, these warrants are also subject to an acceleration clause should the VWAP exceed $1.80 over a ten day period.

As a part of the strategic investment, Westleaf and Vivo Cannabis have entered into a supply agreement whereby Westleaf will stock multiple Vivo brands in its Prairie Records dispensaries across the country. Additionally, there is also the option available for Westleaf to effectively white-label Vivo’s cannabis products should it want to.

Vivo Cannabis currently owns 8.7% of the outstanding common shares of Westleaf on a non-dilution basis. Note that this does not take into account common shares currently subjected to escrow agreements.

3.) Westleaf’s Relationship with Delta 9 Cannabis

By and large the most strategic relationship that Westleaf has is with Delta 9 Cannabis. The Winnipeg-based license producer has a large involvement in the business of Westleaf, and has ties to both facilities in which Westleaf is establishing across the prairie provinces. First and foremost, there are two joint venture entities between that of Westleaf and Delta 9. First, is “delta West”, the firm established to build a cannabis production facility in Calgary, Alberta. The second is “Delta West Limited Partnership”, a second firm associated with the project created for the purpose of a loan facility required for development of the production facility.

Westleaf Battleford Facility
Westleaf Battleford Facility

Back in April of 2018 the partnership was formally established when the two parties elected to enter a joint venture for the purpose of developing a large-scale cannabis production facility. Each company owns a 50% interest in the project, and each has contributed $3 million towards the advancement of the development of the facility. At completion, the facility will be 60,650 square feet and consist of production, cultivation, extraction, and research of cannabis. The application for licensing was submitted through the joint venture Delta West. Additional costs have been borne by Westleaf, including the initial purchase of the facility for $6.9 million in May 2018.

In addition to the joint venture between the two parties, Delta 9 has had further involvement with Westleaf. In particular, Delta 9 has assisted Westleaf with its ACMPR facility in Battleford, Saskatchewan which is currently under development. In total, the partnership agreements between Westleaf and Delta 9 is summarized in the annual information circular as:

i) collaboration on obtaining distribution in Manitoba;

(ii) utilization and leverage of Delta 9’s existing security clearances, standard operating procedures, and relationship with Health Canada;

(iii) access to Delta 9’s portfolio of cannabis genetics;

(iv) an opportunity to access Delta 9’s existing medical distribution channel; and

(v) allows Westleaf to access the privatized market in Canada.

In total, Delta 9 has 250,000 performance warrants which are subject to certain clauses in relation to receiving ACMPR licensing at the Battleford facility. These units have an exercise price of $0.50, and are valued for two years from the date of issue subject to the performance target being met.

 


Information for this analysis was found via Sedar, TMX Money, Sedi, Tilray, VIVO Cannabis, Delta 9 Cannabis, and Westleaf Inc. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.

Jay

As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive's stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.