Given that we now have an expectation of the announcement that the Cannaglobal deal has been sealed and delivered in the coming week, it is probably timely to re-visit the actual agreement regarding the sale of the Derma division.
Most commentary over the last month has been almost purely on how long this process is taking. Most posters I am sure had few doubts that it would take place – but the delay has certainly tested our collective patience. Almost none on the actual deal itself.
So, what do we know so far:
1) Cannaglobal appears to be much like a Cannabis hedge fund located in Canada. They have a policy of aggressive expansion across all areas associated with that industry. They have around 5 or 6 companies under their belt at the moment – mostly quite small enterprises.
2) The Derma division is seen by Cannaglobal as their crown jewel which would tend to indicate that they have plans to expand through greater supply and sales.
3) MXC has a 5 year exclusive material supply agreement - $500k has already been received as down payment. If Cannablobal really does push the Derma division then we should expect further payments as material demand increases. Cannaglobal still needs to shift sufficient product to use up the $500k down deposit.
4) The central part od the deal is that MXC gets a 10% share in Cannaglobal. We don’t know the exact value of that yet but taking ALL the information in from the original proposed deal (linked to Cannaglobal listing on the Toronto exchange) and the second proposed deal (where the 10% had a superior value than the original deal) we have a sweep of $5-12mil. A value of $9-10mil would be a logical guestimate and I can’t see it any higher than that to be honest. At that value then MXC is getting a very premium price for the Derma division. $6-9mil range in my view would be the minimum.
5) Probably very important given the demands on MXC’s available funds at the moment, the Derma division was soaking up $2mil in annual losses. MXC, by focusing back on its core MM business can take this as a major victory. MXC could simply have shut up the Derma shop and got nothing else in return other than not having to save $2mil per year.
6) It gets down to what we thing the Derma division is actually worth. Personally, I have never valued it that highly (I think I have posted that before anyway). Even not having the $2mil in losses and a working 5 year material supply agreement would be a win – any benefit from the association with Cannaglobal is just a bit of icing on the cake – notwithstanding the positive potential in that arrangement including the asset of holding 10% of that enterprise.
So, what do we need to know:
1) Well, everything really
2) A definitive assessment of what the value of the 10% share in Cannaglobal actually is. I think that needs to be very clear and not rubbery.
3) We should get a very sound breakdown of what Cannaglobal is at the moment and what its immediate plans are – at lest for the next 12 months. Where possible, this include any acquisitions it is looking at over that period.
4) What plans do they have for the Derma division – this is central to the supply agreement that MXC has with them so it is important information for MXC share holders
5) Will MXC shareholders get regular health check updates on Cannaglobal. Yes, it is a hedge fund and not obliged to hand out financial information. However, MXC shareholders own 10% of Cannaglobal so there should be some requirement to let shareholders know how their investment is going – and on a regular basis.
So, hoping for an imminent release of the announcement over the next week with a lot more information than has been given so far. If the deal has been finalised then that should happen anyway – no more legal/commercial impediments.
Getting back to the point of stabilisation where the deal has put to bed and we can all just wait for the "good" announcements concerning revenue etc will certainly be a relief from the last 6 months of upheaval.
