Maricann Group Announces $40M Private Placement, Buries The Hatchet

Benjamin A. Smith

After the bell, Maricann Group Inc (CNSX:MARI) (OTCMKTS:MRRCF) (FRA:75M) announced news which finally buries the hatchet once and for all. It’s welcome news for investors looking to move beyond February’s precarious ordeal in conclusive fashion.

Maricann Group announced that it has entered into an agreement with two agents to issue on a marketed, “best efforts” private placement basis, up to $40 million of units of the company at a price of $1.60 per unit. Each unit will consist of one common share, and one common share purchase warrant. Each warrant will be exercisable for a period of two years following the closing date at an exercise price of $2.50 per share, subject to adjustment in certain events. The agents reserve optionality to purchase an additional $6 million up to the private placement closing date, scheduled for August 9, 2018.

The forthcoming private placement offering isn’t just your ordinary, garden-variety financing round. For Maricann Group, it officially signifies how the company has come full-circle from February’s tarnishing events.

To briefly recap, Maricann announced on March 1st that it had received a notice of termination from five separate underwriters—including two agents in today’s deal, Canaccord Genuity Corp. and GMP Securities L.P.— terminating their obligations pursuant to a $70 million bought deal financing arranged on February 2, 2018. Subsequently, it came to light that certain Maricann Directors were under investigation for insider trading (long since dismissed) by the Ontario Securities Commission—including CEO Ben Ward, to which disciplinary action was never applied.

While persistent negative retail investor chatter and lagging peer group valuations continue to predominate, Maricann continues to execute.

Over the past three weeks, the company announced three separate provincial supply deals—all of whom possess targeted or minimum off-take amounts. Just yesterday, Maricann announced that Malta Enterprise (Malta’s official economic development agency) has approved the company’s application to set up a business to manufacture finished dose medical cannabis. This was yet another notch in its developing European strategy, with GMP certification, Vesisorb and existing operations in Germany and Switzerland already present.

Maricann Group CEO Ben Ward recently talked to James West about his company’s outlook

Despite the execution and low-profile since March, Maricann stubbornly sits at a non-diluted market capitalization of just over $200 million. Given the company’s strategic asset portfolio, and 95,000-plus kilograms of annualized capacity coming online in 1H 2019, there’s no question February’s ordeal has dogged the share price over the past few months.

Several Canadian LPs are worth more, while owning much less on the balance sheet.

Final Thoughts

Depending on where you sit, the deal can be looked at from two opposing perspectives. Detractors will note that the private placement is being conducted on a “best efforts” basis, with whole warrants attached (instead of 1/2 warrants, which is commonly issued) as a sweeter. Combined with the stock trading near 8-month lows, Maricann may be perceived as operating from a position of weakness.

However, an equally compelling proponent perspective can be made. The deal gives the company much needed working capital to execute its business strategy—whether funneled into the Langton facility or abroad. The stock issuance and warrants, if exercised, does not balloon the share structure beyond the average Canadian LP. But perhaps most importantly, the private placement officially turns the page on the unsightly February ordeal, where Maricann was essentially quarantined from sector financing. The optics of such predicaments cannot be understated.

It will be interesting to how the stock reacts on Thursday. I will not be in the least surprised if the market reacts favorably to the news, irrespective of dilutive effects and certain sub-optimal components of the deal.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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