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C21 Investments Inc (CNSX:CXXI) Deep Value Play’s Potential for Top Line Revenue

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

C21 Investments Inc (CNSX:CXXI) CEO Robert Cheney updates viewers on the company’s recent activity. Cheney addresses C21 Investments’ US listing and confirms an active US trading symbol is coming soon, but was slowed by the government shutdown. Cheney indicates that revenue from recent C21 acquisitions like Silver State, Phantom Farms, and Pure Green will be counted on the company’s Q1 financials. The company is vertically integrated in Nevada and has the state’s top dispensary, which serves 50,000 customers monthly. The deep value play is starting to garner attention because it has closed key acquisitions, raised almost $15 million during a historically difficult period in the markets, and has the “tightest cap table in the industry.” Based on the trailing revenue of newly acquired assets, C21 Investments has the potential to generate top line revenue going forward.

Transcript:

Narrator:   C21 Investments Inc. is a vertically integrated cannabis company that cultivates, processes, and distributes cannabis and hemp-derived consumer products in the United States. With newly acquired operations in Oregon, C21’s strategy is to acquire existing cannabis operations with management teams in place.

The company’s focus is to expand where it can wholly own indoor or outdoor cultivation operations, processing and extraction facilities, bakeries, branded products, and retail dispensaries with a large distribution network.

C21 Investments Inc. is headquartered in Vancouver, and trades on the CSE under the ticker symbol CXXI.

Robert Cheney: Hey, Ben.

Benjamin Smith:    Now we join Mr. Robert Cheney, CEO of C21 Investments. Robert, welcome to the program.

Robert Cheney: Hey, thanks, Ben. Thanks for having me.

Benjamin Smith:    Great. Now, I want to get right into some of the questions that we have here. Can you tell us what the current situation regarding your US listing is, Robert? I understand that you did have a US listing before, and it is currently not active. Can you tell us the situation with that, and how you plan on regaining listing, if that’s in the cards?

Robert Cheney: Okay. So we’ve filed our 40F registration statement, that’s been accepted. The lawyers are working on activating the trading symbol; it should be very shortly. We were delayed by the government shutdown, so now that that’s over, it should be put in place quite soon.

We’ll start with the symbol activated, we’ll file for DTC, and then we will list on OTCQB.

Benjamin Smith:    Great. Now, pivoting to some of your assets in the US, can you tell us, will the Silver State Relief and Phantom Farms revenue show up on your income statement in the next quarter? And additionally, do you have any plans for additional Silver State dispensaries, which to my understanding are doing pretty well right now?

Robert Cheney: Right, so our financial year-end is January 31st, so we will have the Silver State, the Phantom, the Pure Green, and the Eco Firma revenues in Q1. Our Swell Processing acquisition should close in March, and so part of their revenues will also show up in Q1.

Yeah, in Nevada we have an amazing vertically integrated business, and clearly the value of that business is not really being understood by the market or investors completely at this point. We have two of the finest dispensaries in the state, including the number one dispensary in the state, with 21 cash registers. We’re serving approximately 50,000 customers a month at the current rate; it’s a significant revenue-producing business, and those revenues will show up in Q1.

Benjamin Smith:    Now, you alluded to the fact that you have tremendous cash producing businesses, but you’re significantly undervalued at this stage of the game. Now, it’s my understanding that a lot of people feel that way, anecdotally, at least, that you’re a deep value play. Now, do you – why do you feel that your company is undervalued, and what measures are you taking to remedy that on the marketing side to get your messaging out?

Robert Cheney: Well, I do think investors, because we hadn’t closed our deal, so because of that, we didn’t have any analyst coverage, and we weren’t ranked in any of the rankings because we didn’t own the facilities that we’d signed up. There’s a few key reasons our stock, I think, has started to appreciate. One is that we closed our financing for 14.888 million in, you know, one of the difficult periods historically in the market. We’ve also closed, as I said, our key acquisitions, including the Nevada acquisition. That removes significant uncertainty from the market for investors.

I think investors are starting to understand that we have the tightest cap payable in the industry, so we have no $0.01 shares, no $0.02 shares, no promoter shares. So we have a very, very clean cap table.

The locked up value of the Nevada assets, if we compare it to the November 13th acquisition by GTI of a very, very similar package of assets in Nevada, at today’s share price, they paid $455 million CAD, $340 million USD-plus for package of assets that C21 paid $50 million for. They got 95,000 square feet of licensed cultivation of processing; we got 155,000 square feet. Our dispensaries are clearly the premier dispensaries in the state.

So if you look at the share price and you look at the cap table, investors do not understand this, I don’t think, at this point. We’re expecting to get some analyst coverage now, and I think the fact that we’ll be reporting revenues and EBITDA in the coming quarters, and that we’ll be expanding further with our branded consumer packaged goods, is going to drive investor interest. So, we do think that the share price should start to reflect all of these factors.

Ed Milewski:  Robert, Ed Milewski here.

Robert Cheney: Hey, Ed.

Ed Milewski:  How many – just remind the viewers how many shares are there outstanding right now?

Robert Cheney: Right now there are 62 million shares outstanding, and we have no, as I say, we have no hidden classes of convertible shares.

Ed Milewski:  Right.

Robert Cheney: So we have a very, very disciplined operation. Our acquisitions have been very disciplined, and the key point here is, our major shareholders, including myself, I’ve never sold a share of this company since the day it was listed. Sonny Newman, my partner in Nevada, my partners in Phantom and Swell, they are my largest shareholders, and they’re working with me day to day to build this into the premier cannabis company in the world. So they’re all long.

Benjamin Smith:    So Robert, are you cashed up and ready for the acquisition arms race that’s going on with producers down south right now? It seems like everybody, you know, you have to have a war chest in this expansionary phase of the cycle to really keep up. Are you cashed up, and if not, what plans do you have to do so?

Robert Cheney: Well, obviously the liquidity in the market, you guys were just talking about the Aphria report, so post-December, the market conditions have improved significantly.

Given that we now have a large revenue and cash-producing business in the United States, we’re exploring debt facility opportunities because our team, which is a very, very professional team, is focused on building a business. We’re not doing a stock promotion. So as I’ve constantly said to people, we will be disciplined, so I want to protect my cap table. So we’re focused on debt opportunities, but we’ll also look at equity opportunities if they’re strategic and they make sense.

In acquisitions, we do not blow our brains out. So we look for strategic acquisitions, we look to get them at a fair valuation that will reflect value to my shareholders and investors on a long-term basis.

Ed Milewski:  Hey Robert, Ed here again. So if you, are you allowed to comment as to what you think the revenues will be, say, over the next 12 months approximately? Can you give a range, or are you precluded from doing that?

Robert Cheney: Yeah, we’re not really allowed. In our news releases, we given you, given investors the trailing revenues for the businesses that we’re acquiring. So if you look at the trailing revenues, you know, we will be doing somewhere in the range of, you know, $50 million to $70 million CAD in top line revenue, assuming the markets stay consistent.

We are looking for expansion opportunities obviously, and we are expanding our Oregon brands into Nevada currently, and building out a stronger brand presence in Nevada. We are also actively developing plans to expand our brands into California, and we’re looking at expanding CBD brands as open-market brands now that the hemp Farm Bill has passed.

So there are significant growth opportunities in front of us; the key is, we have a disciplined team, we have great brands that can be leveraged when we have exceptional proven expertise in the business. These guys have been running these businesses for 10 years; they’re not newbies. And I think if you take an analyst like John Kaga, who spoke recently about the importance of vertical integration, companies like C21 are starting to be really sought-after and appreciated, because vertical integration gives you margin protection. It gives you brand presence, brand consistency, and proven management means you don’t blow your brains out.

So I think investor focus is turning to consumer packaged goods, brand value and proven management teams, and C21 has all of those.

Ed Milewski:  Yeah, certainly it would appear that, based on the number of shares you have and your market capitalization, yeah, your sales look, you know, and I’ve looked at a number of companies in the marijuana space; it looks like you’re about as low as there is. So it’s quite an inexpensive company.

Robert Cheney: Yeah. I think, Ed, if you look at revenue per share at 2019, I would be surprised if C21 wasn’t the number one company in the sector. We are going to generate a lot of revenue per share; I’m very, very disciplined on costs, so you won’t see lawsuits over private jets or anything in C21. We run a very, very tight team. We’re focused on creating value for shareholders. I put my money into this company at $1.00 a share, and I’m not selling a share. So the value is there, the team is there, and as you pointed out, there’s more revenue per share in C21 than any company in the sector, I believe.

Benjamin Smith:    And Robert, finally, getting back to your financing question, you mentioned that you’re open to procuring banking financing or a debt facility to expand your operations. Now, this week I believe we saw Village Farms and another small operator receive a debt facility as well, which was sort of a first in the industry. It had been basically reserved for the top-tier companies in the space.

Now, the question is, can you receive that debt facility? Do you think you can attain it now, or do you have to wait for banking reform in the US to pass in order to try to get that debt facility?

Robert Cheney: There have been some fairly large debt facilities done in the US already, primarily with family offices. But the landscape is changing very, very rapidly, and we are seeing Federally regulated institutions looking seriously at the space. So we believe it is a near-term opportunity. We’re working on it now, and we think it’s realistic in the current environment.

Somebody in the United States will front-run the market, just like the Bank of Montreal did in Canada, and we’d love that to be a C21 transaction. So that’s what we’re working on. So, hopefully news coming.

Benjamin Smith:    All right. A terrific update. Thanks for joining us, Robert, we look forward to following your story going forward.

Ed Milewski:  Thanks, Robert.

Robert Cheney: Well, thanks for having me, and you know, I hope all of your viewers and listeners will take a look at C21. We’re a great company.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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