Cannex Capital Holdings Inc (CNSX:CNNX) Signs Definitive Agreement with 4Front Holdings

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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.

Cannex Capital Holdings Inc (CNSX:CNNX) (OTCMKTS:CNXXF) CEO Anthony Dutton explains that the company’s stock has been halted, per CSE regulations, as a result of the transformational definitive agreement with 4Front Holdings, LLC. The move combines Cannex’s cultivation and processing expertise with 4Front’s retail and regulatory experience. It also makes Cannex an MSO, with holdings in 6 states, as 4Front has operations on the East Coast as well as Illinois and Arizona. Dutton also discusses Cannex’s products and reveals that the company has 7 of the top 10 edibles brands and the top 2 flower brands in Washington State. Cannex is well-capitalized and received a $32 million investment from influential cannabis investors Gotham Green Partners, LLC in November.

Transcript:

Narrator:   Cannex Capital Holdings, Inc. is a Vancouver-based company providing real estate management, financial branding, and IP support to its licensed cannabis business operators domestically and internationally.

Cannex is focused on premium indoor cultivation, extraction, manufacturing and branding of edible and derivative products, as well as retail operations.

Cannex Capital Holdings, Inc. is listed on the CSE and trades under the ticker symbol CNNX.

Howard Glassman: My name is Howard Glassman from the Humble & Fred show. Thanks for joining us. How are you today, sir?

Anthony Dutton:    Hi, Howard. I’m very well, nice to meet you.

Howard Glassman:   Well, it’s nice to meet you. I mean, there’s lots of stuff going on with your company, a lot of things that we’ve wanted to talk to you about, but it turns out that one of the big stories about Cannex, and a lot of the Midas Letter faithful are hoping we would ask you this question – I know you know the question coming up: what’s going on with the trading of Cannex?

Anthony Dutton:    So I think what you’re probably referring to is the trading halt of Cannex.

Howard Glassman:   Yes, sir, lack of trading.

Anthony Dutton:    It was halted on Friday. This is a result of our, what is being defined by the CSE as a transformational transaction with Forefront Holdings, whereby we have a signed, definitive agreement to acquire that company, and as per standard CSE policy, there’s a halt in the stock until all of the documentation has been submitted and reviewed.

I would love to be back trading as quickly as possible, but unfortunately we need to abide by the CSE regulations here.

Howard Glassman:   Okay, well, that’s, that was the number one question we got when people heard that you were coming up on the show. Now let’s get to something that, you know, just happened recently on March 1st; you released the information that you guys have signed a definitive agreement with Forefront Holdings whereby the former security holders of Cannex and Forefront will become security holders in the combined company. So tell us: who are Forefront, and why are you guys joining forces?

Anthony Dutton:    Yeah, this is really a perfect match, as we call it. So Cannex, as you know, is a publicly traded company; we are the dominant operator in Washington State, and Forefront Holdings have operations in Maryland, Massachusetts, Illinois and Pennsylvania, and as of last week, now in Arizona. Their plan was to always access the public capital markets, and they were contemplating a number of ways of doing this in 2019, one of which was to do their own liquidity offering, an RTO or an IPO. And when we started talking to them last summer, we realized that the best way for them to get their own public listing, and the most complementary transaction for the benefit of both their shareholders and our shareholders, would be for us to acquire them.

And the reason for that is that we are very, very good at the cultivation and processing end of the value chain; they are absolutely the best at the retail end and the policy side and the applying for licenses end of things. And so really, by bringing our companies together, we have really created, overnight if you will, a very, very strong multi-state operator that is now in six states. So we see this as a long-term play for everybody, a focus on operations, bringing our complementary skill sets to bear. We really think this is a match made in heaven, as we call it.

Howard Glassman:   Well, you know what? I’m glad to hear you say that, because Anthony, my follow up was going to be, how does this help Cannex. But you’ve outlined some of the ways it’s going to help you guys. I’m just reading some background material, and again, excuse my ignorance: it says Cannex and Forefront are arms’ length parties. Explain that to me, and maybe articulate some more about how this is going to help your company.

Anthony Dutton:    Yeah. So what that really means is that there’s no common shareholdings between the two companies. It’s just two companies – you know, essentially it’s a merger, but because they’re slightly larger than us, this is what it’s referred to as a transformational or a significant transaction, because we are acquiring them by issuing more shares than we currently have outstanding.

So they are going to end up being the larger piece of the pie, if you will, but how it benefits our shareholders is that we now have immediate access to opportunities in five new states, and the opportunity for us is to take our cultivation expertise and our processing expertise is already the best in Washington, and instantly plug it into Forefront’s portfolio of licenses in now five other states. So, for example, Forefront had two dispensaries in Massachusetts; they also have a cultivation and a processing license and an existing facility. But we already have our operational team from Washington, who are literally in Massachusetts as we speak, who are focused on getting the cultivation and processing opportunity and operation in Massachusetts up to the same level of efficiency as we have in Washington.

And what we do in Washington is really quite unique and quite unheard-of, really, if you look at the metrics compared to other companies. We have yields of over 450 grams a square foot. We are processing large amounts of biomass on a daily basis. We have seven of the Top 10 edibles brands in Washington, the Number One and the Number Two flower brands in the state. So we really have some very, very strong operational core competencies that we can instantly now plug into these other states that Forefront brings to the transaction.

And they, in turn, are able to deliver us opportunities for retail distribution, because they have dispensaries in all of the states that we already mentioned.

Unfortunately, in Washington, you’re not allowed to be vertically integrated; so we don’t have direct access to our own dispensaries, we’re a wholesale business. But in Massachusetts, Illinois, Maryland, Arizona, all the states I’ve already mentioned, we are going to be a pure vertically integrated, operationally focused company, and that’s going to be very good for everybody.

Howard Glassman:   It sounds amazing. Anthony Dutton, you know, of course, the wonder wizard that is Ed, Ed, you have a question for Anthony.

Ed Milewski:  Anthony, how are you doing?

Anthony Dutton:    I’m very well. Nice to see you again.

Ed Milewski:  Once this merger, if you will, goes through, and you do start to trade again, how’s your treasury going to look? Are you going to have a big chunk of cash there to work with?

Anthony Dutton:    Well, we already have a large amount of cash. We’ve got $30 million-odd in the treasury; we are a profitable company from our operating base in Washington, and as you probably know, Ed, you know, we went public last year with a financing of $48 million. There were a bunch of warrants at $1.50, those are now all in the money. So we think with this continued increase in our share price, you know, those warrants will be exercised.

As you also know, we were very, very fortunate to get Gotham Green as a large shareholder; in late 2018, they invested $32 million into Cannex. You know, they’re a fantastic partner, if you will. The force behind Cronos and iAnthus and others, and they also have a number of warrants as a part of that injection of capital.

So we think for the time being, we’re going to be very well capitalized. Obviously, growing companies always need access to capital, and that’s why, you know, I think Forefront wanted to become a public company. But for the time being, our balance sheet is very strong.

Ed Milewski:  Very good.

Howard Glassman:   Yeah. Anthony Dutton, the CEO of Cannex Capital Holdings, thank you very much for joining us today, and we’ll be watching it, and good luck and all the best to you, sir.

Anthony Dutton:    A real pleasure. Thank you very much.

Ed Milewski:  Thanks, Anthony. Thank you, very insightful.

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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