It appears MYM Nutraceuticals (CSE: MYM) love for hemp has come to an abrupt end. Just two weeks after closing a 50% purchase of BioHemp Naturals MYM is trying to rescind the transaction after yields look like they’ll be nowhere near what the joint venture partner forecasted.
MYM Nutraceuticals first announced the 50% purchase of BioHemp Naturals back on May 2, 2019. At the time, it was advertising as a licensed hemp producer that was entering its fourth year of operations. Founder Ken Atkinson was to also join the company, in the role of Global Hemp Project Manager.
Cultivating on 450 acres in Saskatchewan for the 2019 season, the two entities had jointly planned to increase the footprint of the operation to 3,000 acres of organic hemp cultivation for the 2020 season. The biomass would then be toll processed through a newly planned extraction plant, which would bring revenues to an estimated $30 million for the 2019 season, and $225 million for next years season – and this was only for biomass.
And the cost to MYM for this $30 million? Well, they acquired access to that revenue through a $2.5 million cash payment, and 3,000,000 shares of the company – valued at $1.53 million at the time of the transaction being announced. Thus, total all in cost for MYM amounted to $4.03 million in cash and common shares, from which they would earn approximately $13.9 million from their cut of profits in the first year of operations, and $70.8 million in the second year, just for biomass. MYM’s website reveals that a further $31.8 million and $154.6 million are expected in profits in 2019 and 2020 respectively from the sale of CBD isolate.
The deal was finalized on July 30, 2019. But before the transaction was even closed, MYM Nutraceuticals was pushing the sales narrative for the joint ventures hemp biomass. On July 23, they announced they had reached a non-binding letter of intent with a consortium of licensed producers, to supply approximately half of 2019’s offtake to the group for $25 million – which is much more than initial expectations. By the time the transaction had closed, MYM Nutraceuticals and BioHemp Naturals had secured $33 million in purchase orders for the 2019 season.
Fast forward two weeks later from the final closing of the 50% acquisition of BioHemp, and there seems to be a problem. MYM Nutraceuticals put out a release this morning, wherein it stated the following.
“It has [been] determined that the amount of biomass anticipated to be cultivated by BioHemp Naturals Growing & Farming Ltd. (“Bio Hemp”) on its Saskatchewan farms will be significantly less than original estimates.
We are currently assessing various options to rescind the transaction, the anticipated effect of which would be that it never occurred. MYM expects to report shortly on the outcome of this process.”
The news of the attempted cancellation of the purchase of BioHemp Naturals comes with a slight eye roll. This transaction was closed two weeks ago, and now the company has determined that yields will not be as expected. Plainly, this is an utter failure of any due diligence process conducted by MYM Nutraceuticals. Yield estimates should not have changed so significantly in a two week time period that would warrant this response, unless by act of God – at which point, insurance should be in place to cover potential losses.
Rather, its unsurprising that this ‘to good to be true’ transaction resulted in this outcome. The notion that $4.03 million can convert to $45.7 million or more in such a short time frame results in severe skepticism, and for good reason.
If it sounds to good to be true, it probably is.
Information for this briefing was found via Sedar and MYM Nutraceuticals 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. The author holds no licenses.
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.