Auxly Cannabis Group Inc. (TSXV:XLY), one of the Canadian marijuana stocks, said it received a $123 million strategic investment from tobacco giant Imperial Brands
SmallCapPower | July 29, 2019: Auxly Cannabis Group Inc. (TSXV:XLY) (OTCQX:CBWTF), one of the Canadian cannabis stocks, announced on July 25, 2019, that it had received a $123M investment in the form of a convertible debenture from Imperial Brands (LSE:IMB).
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The convertible debenture is for a 19.9% stake that converts at $0.81 per common share, which represents a 11% premium to Auxly’s closing price of $0.73 on July 24, 2019, the day before the announcement. The convertible debenture has a three-year term and a fixed interest rate of 4.00% per annum, payable on the last day of December. Imperial Brands will have the right to convert the debenture into Auxly shares at any time during the three-year term. If at the end of the term Imperial Brands has not converted, Auxly will have to repay the debenture in full. The initial 19.9% convertible represents a 1.7x and 5.8x takeout multiples based on F2021E revenues and EBITDA of $373.3M and $106.7M (consensus estimates), respectively. This implies a slight discount to small-cap Canadian cannabis companies with market caps between $200M to $1B, which are trading at 1.9x and 7.7x, F2021 revenue and EBITDA multiples.
Under the terms of the partnership, Imperial Brands will grant Auxly global licences to its vaping technology for cannabis use and access to its vapor innovation business, Nerudia. Auxly is expected to work closely with a small dedicated team from Nerudia to develop a portfolio of new and enhanced vapor products and brands, once the sale of edibles and derivatives products becomes legal in Canada, which is expected on December 16, 2019. In addition, Auxly agreed to nominate for election to its Board of Directors one out of five director nominees and one non-voting observer, each to be designated by Imperial Brands.
Auxly Cannabis isn’t the first cannabis company to receive money from Big Tobacco. On December 7, 2018, Cronos Group Inc. (NASDAQ:CRON) (TSX:CRON) announced that Altria Group will buy an approximately 45% ownership interest in the Company at a price of C$16.25 per share. And, if all warrants are exercised, that stake could increase to 55%.
Shares of Auxly Cannabis ended Thursday’s trading session 24.7% higher at C$0.91. Auxly stock trades at a market cap of C$430.9 million.
About Auxly Cannabis Group
Auxly Cannabis Group is a vertically-integrated cannabis company with diverse international operations. Initially, the Company was set up as an investment company, called Cannabis Wheaton Income Corp., which sought to finance cannabis producers across Canada in exchange for streaming agreements, which allowed Auxly to access a portion of the supply from these companies. Over the past two years, Auxly has progressively developed its strategy from a streaming/royalty business model to a vertically-integrated cannabis business. The Company has an international footprint and assets & operations throughout the cannabis value chain, which include production, extraction, processing, development, and retail.
About Imperial Brands
Imperial Brands manufactures, imports, markets, and sells tobacco and tobacco-related products. It offers a range of cigarettes, fine cut and smokeless tobacco, papers, and cigars; and e-vapour products. The Company sells its products under the growth brands, such as Davidoff, Gauloises Blondes, JPS, West, Lambert & Butler, Bastos, Fine, Winston, News, and Parker & Simpson; and specialist brands consisting of blu, Kool, Gitanes, Jade, Cohiba, Montecristo, Romeo Y Julieta, Backwoods, Skruf, Golden Virginia, and Drum in approximately 160 countries worldwide. It also provides logistics services that include the distribution of tobacco products for tobacco product manufacturers; and various non-tobacco products and services. Imperial Brands is listed on the London Stock Exchange under the ticker symbol “IMB.”
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