Breakdown
C21 Investments Inc. is a recognized corporation in the consumer staples sector. It is a vertically integrated company which cultivates, processes, markets, and distributes cannabis and hemp-derived consumer products. The vertical integration approach of the company has successfully made it into an ecosystem of leading businesses centered on value creation through the optimization of supply chain, quality manufacturing, and consistent brand and retail expansion in strategic markets. It prides itself on its mission: “to unlock the environmental, social and economic utility of cannabis by developing, producing and delivering premium quality and high performing cannabis brands and products internationally.” It produces and distributes different kinds of THC (tetrahydrocannabinols) and CBD (cannabidol) products from cannabis flowers, oils, vaporizer cartridges, and edibles.
C21 Investments Inc. was incorporated in 1987 and is based in Vancouver, Canada. The company, formerly known as Curlew Lake Resources Inc. until the name change in November 2017, focuses on cannabis operations in the United States and has just acquired new operations in Oregon, U.S.A. In June 2018, the company announced plans to effectively delist its common shares from trading on the NEX Board of the TSX Venture Exchange (“TSX–V”) for a full listing on the Canadian Securities Exchange (“CSE”) under the trading symbol CXXI. Its strategy for expansion is to acquire successful and already established cannabis operations with enhanced distribution networks.
The cannabis market is rapidly growing. According to an estimate, Americans spend roughly $40 billion annually on legal and illegal marijuana. This demand is even almost certain to increase. From Mendocino to Vancouver, marijuana companies are springing up, contributing to the increasing expansion of the cannabis space. Pyxus International, New Age Beverages Corp, and Imperial Tobacco Group are some of the publicly traded companies that ventured into the cannabis space themselves in 2018 alone. The rising popularity of the industry coupled with Canada’s legalization of recreational marijuana use in October 2018, a development which is expected to make the industry worth more than $4 billion in Canada alone, has made it an attractive site for investors, and C21 Investments Inc. as a company in the industry is not left out in the growth, too.
2018 was a year of aggressive growth for C21. On January 19, it entered into a definitive agreement to acquire Proudest Monkey Holdings (Eco Firma Farms Oregon). The deal, valued at almost $4 million with future earn-outs and an option on real estate, was eventually closed on June 13 of the same year. It entitled C21 to acquire full legal interest in the property, structures, and leasehold improvements of the farms. On June 21, the company announced its planned acquisition of Phantom Farms in Oregon, a “Clean Green Certified” Cannabis company with products in about 200 dispensaries in Oregon, in a deal valued at $16 million and an additional $8 million investment in real estate plus future earn-outs. In the same month, C21 Investments Inc. continued its Oregon expansion by its accession of three new dispensaries which it followed with the acquisition of Swell Companies, a cannabis extraction and consumer packaged goods company in July in a deal valued at approximately $14.7 million plus future earn-outs.
On the 16th of July, the same month it acquired Swell, C21 showed that it was truly committed to its expansion goal by its acquisition of Silver State Relief in a deal adjudged as the largest investment by any publicly traded Canadian company in the U.S.A cannabis industry. The Silver State Relief deal was meant to create a strategic partnership to establish C21’s competitive position in Nevada’s cannabis market.
On August 13, C21 Investments announced it had signed to acquire Grön Chocolate and Grön Confections in a deal valued at approximately $6.8 million. Also, in November, it announced it had entered into a definitive agreement for the acquisition of Pure Green, a 3,000 square foot retail dispensary located in Portland, Oregon which produces cannabis for both medical and recreational users. The company has further aggressive expansion plans in California, Colorado, Ohio, New Jersey, Maryland, Washington, and New Mexico. C21’s expansion efforts further got a boost when on November 7 it was granted the first CBD license ever issued in Ukraine. The license would enable the company to import high-quality raw CBD extracts and concentrates into the country. If this dedication to expansion is sustained, the company is expected to eventually become one of the major players of the cannabis industry in the world. And for the future of C12 Investments, one word is constant; it is “expansion.”
Management Team
Perhaps, C21 Investments Inc.’s success in making those strategic acquisitions can be credited to its brilliant management team. Robert Cheney, an entrepreneur and investor with a background in media, film, internet technology, and telecommunications, is the CEO, president, and director. He is focused on building exceptional management teams and finding strategic investment opportunities in companies with strong growth potential. Besides, his early training as a corporate securities lawyer made him exceptionally brilliant at executing merger and acquisition transactions.
Will Werden has also brought his vast wealth of knowledge and experience to impact positively on C21’s operations. A specialist in indoor and outdoor grow practices, facilities construction and design, lighting system and practices, temperature and humidity control, and genetic strain selection, Will has over 30 years of experience in global horticulture cultivation. Keturah Nathe, the Vice President of Corporate Development and also a director, has over eleven (11) years of experience in mineral exploration and development, oil and gas, technology, agriculture, and property development having worked with various private and public companies in those fields.
Michael Kidd, a chartered accountant with more than 10 years of experience at the executive level as Chief Operating Officer (COO) and Chief Financial Officer (CFO) and an additional 15 years of experience in the Forest Industry, is the company’s Chief Financial Officer (CFO). Randy Torcom is in charge of international brand strategy which ensures the delivery of the company’s compelling, high-quality products in styles that ordinary individuals can have meaningful connections with. Torcom has more than 18 years of experience in brand identity and consumer perception enhancement. He serves as the Vice-President of Marketing.
Revenue & Share Structure
C21’s operational strategy of making strategic acquisitions and consistently expanding its retail base enables it to be able to capture revenues at every stage of the entire value chain. Its aggressive expansion of existing operations and the strategic acquisitions of accredited businesses in the US are positioning it for increasing profitability. In 2018, C21 was projected to have annual revenue of USD 70 million — almost that of Canopy Growth ($30.9 million), Tilray ($20 million) and Aurora ($31.9 million) combined. For 2019 and 2020, the projected revenues are expected to be up between $70 million and $130 million USD. Although the company has an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of $23 million, Tilray despite its just over $20 million of sales is worth $12-15 billion.
Canopy Growth, Aurora, Aphria, and Cronos are the foremost highly valued cannabis companies. Canopy Growth, with a market capitalization of $16.22 billion and 342.73 million of outstanding shares, does trade as high as $63 on the stock market. Aurora, with its market capitalization of $1.08 billion and 371.1 million of outstanding shares, has a unit share price of almost $10. Also, both Canopy and Aurora recorded impressive sales growth in their last quarters of 2018. Aurora with a market share of 20% of consumer sales and recreational cannabis sales totaling CAD 21.6 million had a year-over-year net revenue of 363%. Canopy Growth’s recreational sales were even more impressive; the company generated CAD 57.7 million in sales, and had its revenue soar 283%. This picture shows one thing: the cannabis industry is fiercely competitive; C21’s aggressive acquisition strategy of expansion, vertical integration, and expert leadership should however help it stave off competitive edge and contribute to its long term profitability.
C21 has been active in the capital markets, too. On January 29, 2018, the company announced its intentions to apply to list its common shares on the Canadian Securities Exchange (“CSE”), and to delist from the NEX Board of the TSX Venture Exchange (“TSX–V”). On the same day, it also announced its plans to complete a change of business subject to approval of the majority of the shareholders. It intended to complete a non-brokered private placement for gross proceeds of a minimum of CAD $7,425,000 and up to CAD $40,000,000 which was to be raised by the issuance of an aggregate principal amount of up to CAD $40,000,000 of secured convertible debentures with a maturation period of 24 months. From the date of issue until the maturation date, the debentures were to be converted to common shares at the option of their holders.
The company was anticipated to have 50,000,000 common shares both issued and outstanding. On June 26, 2018, it rolled out a grant of stock options to certain eligible directors, officers, employees, and consultants to purchase a total of 1,940,000 common shares exercisable in whole or in part on or before June 25, 2021 at an exercise price of $2.80 per share. On February 6, 2019, C21 announced that it had granted incentive stock options to certain employees entitling them to purchase an aggregate of 710,000 common shares at an exercise price of $1.11 per share for a 3-year term expiring at close of business on February 5, 2022. To finalize the acquisition of Eco Firma Farms deal, the company agreed to issue 50,000 shares to a debt holder of the farms at a deemed price of CAD $2.75 per share pursuant to a debt and profit sharing agreement between the farms and the debt holder. As a result, C21’s total share obligations to the vendor of Eco Firma Farms were reduced by over 3.7 million shares.
On July 9, 2018, the company increased a CAD $5,000,000 financing it had earlier planned to up to CAD $5,500,000, a step that would culminate in the issuance of up to 2,200,000 shares at a unit price of CAD $2.50 per share. The proceeds of the financing would be used for handling acquisition expenditures and for general working capital purposes. As part of its financing efforts, by February 2019, C21 had completed the second and final tranche of its previously announced upside brokered syndicated private placement of units which grossed total proceeds of CAD $14,888,000. C21’s current market capitalization is valued at approximately USD $90 million, with more than 63 million shares outstanding.
On September 10, 2018, C21 declared it had been listed on the Frankfurt Stock Exchange under the ticker C6QP. “Our listing on the FSE (Frankfurt Stock Exchange) will expand our profile internationally, and make it easier for European investors to participate in our rapid growth,” said the CEO, Robert Cheney. Its Frankfurt listing was followed by the registration of its common shares for trading in the United States, and its addition to the CSE Composite Index. Of this development Robert Cheney said, “We look forward to receiving our U.S ticker symbol and making it easier for American investors to trade our stock.”
C21 Investments Inc.’s stock is undervalued. The undervaluation may come as a surprise because of the company’s sound fundamentals. However, it should be observed that despite its rising strength, there is still a huge disparity in the capital market performance of the different companies in the cannabis industry now. In some cases, this disparity, the undervaluation of some stocks and the overvaluation of some others, can be attributed simply to the fact that investors are not just paying attention to the undervalued ones. Despite its diversification and vertical integration growth strategy and impressive earnings, C21 is undervalued because it is not well known to investors at the moment, making it an ideal investment opportunity for the futuristic investor.
