Wayland Group (CNSX:WAYL) (FRA:75M) (OTCMKTS:MRRCF) CEO Ben Ward explains the company’s LOI with ICC International Cannabis Corp (CNSX:WRLD.U). Under the terms of the agreement, Wayland will sell 49.9 percent of its international assets (valued at USD $258 million), to International Cannabis Corp and will receive 300 million shares in ICC. Ward explains that the deal completes Wayland’s vertical integration strategy and gives the company broad distribution. As part of the agreement, Wayland will supply Cosmos Holdings with 10,000 kilograms of EU GMP-certified product per year. Crucially, Wayland now has access to over 27,000 pharmacies in Western Europe, which reach an estimated 390 million people. By pairing assets with ICC, Wayland has achieved a distribution footprint other LPs have achieved through outright purchase, but at a fraction of the cost.
James West: Ben, that was quite the awesome press release you guys put out January 15th where you have sold 49.9 percent of your international portfolio of assets to International Cannabis Corp., valuating the entire European at US $258 million. What is the compelling reason for selling half of your business to another company?
Ben Ward: Selling half of the business to ICC gets us a broader framework and completes our vertical integration that we’ve been seeking across all the aspects in the value chain. So we now have a EU GMP compliant pharmaceutical manufacturing facility in Greece, a federal license in Denmark, which we’ll be developing to give us certainty of product for the EU outside of Canada, and then it also gives us broad distribution. We signed, as part o the agreement, a 10,000 kg supply agreement to Cosmos, and as part of ICC, now that brings us up to about 39,000 kgs over three years, with distributors in Europe where we get a higher margin for the product.
James West: Wow, interesting. So is the revenue split from the business essentially going to emulate perfectly the ownership split?
Ben Ward: Yeah, the revenue split will equal the ownership split, and the profit will be split that way. What awe will have is the ability to receive a base cost for our product in Canada that we ship into Europe, and then we’ll have a profit share on that with ICC. So it’s looking a little better on the Wayland side.
James West: Sure, okay. What are the hurdles that have to be crossed for this deal to close?
Ben Ward: We’ve already done the due diligence in Greece; we’re impressed with the facilities and the operations there, and we’ll be moving ahead with due diligence in Bulgaria, Denmark, and then in Poland, as well. Those are the places that we have yet to see. Our team was in Colombia last week, so there is really little left to do on the diligence side of things.
James West: Okay, and so will this, will it take a shareholder vote to complete the transaction, or regulatory approval?
Ben Ward: No, it won’t. it’s not a fundamental change for ICC, it’s a minority position, and so there’s no shareholder approval required.
James West: Right. Okay, so ICC’s issuing 300 million of their own shares to you. How has the effect been on your shareholders? Are they generally very excited about this transaction, I would imagine?
Ben Ward: Yeah, our shareholders are excited about the transaction, and they see a lot of value. And by splitting the commercial developments of the business with ICC strictly focused on international medical wellness cannabis, and then the Canadian division focused on production and then the rec market, it makes a lot of sense of people to have the split naturally that way.
James West: Okay, so then, this is a case where you’re basically gong to have a whole other management team to help you with the rollout of the European sort of development, which comes with its obvious sort of synergies and accretive benefits. Do you see that the relationship with International Cannabis is going to be accretive in other ways to the entire relationship?
Ben Ward: Yeah, we’re taking our management team in Europe, Morton Brands, we’ll be leading the charge for ICC, and our current GM for Germany, Josef Spaeth, will be running operations. And then we pick up some great extraction and isolate areas within the Polish operation and Serbian operations of ICC. So it’s a natural fit for us, and then our Swiss team in cultivation will be able to assist and help the groups in Denmark, Poland and in the other places where they’re working, and bring some of our efficiencies. So we really gain rationalization of the business. We can take and set out purchasing bulk supply of CBD for others in some of the other contracts that have been put in place; we can now supply that to ourselves. So instead of purchasing from another group in Serbia, we can provide our own product that we have in Germany already that we had from our harvest last year.
James West: Interesting. Can you elaborate a bit more on the distribution channels that you have access to as a result of this combination?
Ben Ward: We now have access to over 27,000 pharmacies thanks to Cosmos’ existing distribution network. So that gets us into almost every shelf across Western Europe.
James West: Wow, that’s fascinating. So those pharmacies are all in areas where cannabis has been licensed for medical use?
Ben Ward: They have some distribution in areas that cannabis has not been licensed for medical use. They have distribution over 60,000 pharmacies total; I’m just quantifying the ones that are within the population centres and the countries where we’ll be working, which is around 390 million people.
James West: Wow. So it sounds like sales are really going to, or at least the potential for sales to really take off are substantial with such a distribution.
Ben Ward: We’d have to look at purchasing a distributor if we wanted to gain the same type of opportunity. Aphria purchased CC Pharma in a $72 million deal; other groups have partnered with other groups who are wholesalers, and they’ve ended up giving up more significant margin than we would hope to. So we see this as an opportunity to pair assets, pair companies where there’s not a lot of overlap, and to join them together and gain significant distribution.
James West: Interesting. So Ben, tell me about how that affects the North American operations? What’s the sort of upside for the North America assets?
Ben Ward: The upside for the North American assets is 10,000 kgs more going to Europe a year at a higher margin than we’re able to get from the provinces, and then in addition to that, what we gain is focus and management focus on the recreational market in Canada and then future opportunities in the United States.
It’s tough to be everything to everyone; if we look at the Canadian market the way it’s gone, it’s basically a tobacco industry now, or similar to the tobacco industry in Canada. The 4only similarity it has to alcohol is the sales distribution channel. So when we look at that business being shaped that way, we have a lot of talent of the pharmaceutical side, we’ve developed talent on the extraction, isolate side, product formulation, and in Canada we’re still at a very early stage I product development, only allow raw extract, all natural extracts, no isolates. So we can take our existing learning, our ideas, and our learning, take that to Europe and the really be able to amplify that and use the expertise that we’ve developed in the organization.
So five years of learning, transplant that to Europe, tae our existing management team in Europe who’ve existed and worked in life sciences pharmaceutical sector, and move through that process. Canada is somewhat of an anomaly in the recreational legalization of cannabis from a federal standpoint, and in some areas where Canada has developed and moved ahead with recreational legalization, that’s been great for people to have that decriminalized in areas. But to be legalized completely in Canada, and the real point of this is, legalization in Canada is a dried flower market, it’s an all natural extract market, and so there’s not much more opportunity within the regulations now where they are, to really be world leaders in that stage, unless we have a different platform.
So we’re taking that platform to Europe to create value for all Wayland shareholders, but we’re just moving beyond what is a Health Canada proscribed business model. We can’t exist and remain in that time of business model; we have to continue to push forward like we have been, and have a rational business with different cost centres all over the world.
James West: Wow. Well, it sounds like you’ve really evolved this whole international opportunity in your thinking, Ben. It’s an intriguing transaction, and it sounds to me like it could be extremely accretive to the bottom line for Wayland Group. So we’re going to follow this story very closely, and we look forward to visiting some of your assets here in 2019 with our crew in Europe and in Canada.
So, wishing you the best of luck, and thanks very much for the update.
Ben Ward: Great, we look forward to having you, and showing by your great videos all of the assets and what we’re doing here.
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