Xtraction Services Holding Corp. (CSE:XS) provides equipment financing solutions for cannabis companies
SmallCapPower | October 28, 2019: Focused on the U.S. extraction equipment market, Xtraction Services Holding Corp. (CSE:XS) provides equipment leasing solutions to owner/ operators of cannabis and hemp companies, including cultivators, oil processors, manufacturers, and testing laboratories, among others. Xtraction Services provides flexible leasing options to assist cannabis companies in accessing equipment without the of raising equity at depressed prices to purchase equipment. The Company offers both leasing and sale-leaseback options that can be arranged to suit the needs of its clients.
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Xtraction Services addresses the capital constraint issue that the cannabis industry faces by providing equipment financing to cannabis companies. Particularly in a weak capital markets environment, many companies face difficulty accessing traditional banking services due to cannabis classification as a Schedule I substance. As well, the ability to raise significant capital has diminished and companies may not want to dilute shareholder bases and would prefer to generate cash flow instead. XS provides cannabis and hemp companies a ramp over this hurdle. As raising capital in the industry is challenging due to industry headwinds, we believe that Xtraction Services will become a key partner for companies facing capital constraints, which will enable them to build and grow businesses.
Leasing of extraction and related equipment allows businesses to make affordable payments over time instead of outlaying an initial large capital outlay. For companies that already own equipment, XS provides a sale-leaseback option, where these companies can sell equipment to XS, who will then lease it back. This can be perceived almost like a loan to XS’s clients, where these companies will receive a lump-sum payment for their equipment then make lease payments on that equipment. The added benefit for cannabis companies is that unlike a loan, lease payments can be deducted from a company’s income, whereas interest expenses cannot.
Promising pipeline of new customers. Xtraction Services has signed 4 leasing agreements (including 2 royalty facilities). As of Q3/19, the Company is in discussion with 12 potential customers and is in the process of determining the best fit, which is based on a number of criteria, including size, duration and pricing options of the lease terms. Additionally, the Company has 1,200 active CRM leads for potential new clients. Currently, the average size of a financing is within the range of $500K to $1M but part of XS’ growth strategy is to increase the size of financing to the $1M-$3M range.
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