GTEC Strengthens Balance Sheet by Divesting Cannabis Cowboy Equity

gtec-holdings-2019-year-execution

GTEC Holdings Ltd. has strengthened its balance sheet by collecting on a $4 million loan repayment and divesting its 25% equity stake in the Cannabis Cowboy retail business.

The firm previously invested $4 million in Cannabis Cowboy, which initially planned to launch and develop up to 27 recreational cannabis outlets in Alberta. It has now received its investment back in the form of a $4 million loan payment, which will strengthen its balance sheet.

This was made possible by Cannabis Cowboy selling eight proposed cannabis retail stores to ambitious retail chain Fire & Flower Holdings . Three of the stores are in Calgary and the others are in Red Deer, Airdrie, Okotoks, Sylvan Lake, and Olds.

In return for the divestment of its 25% stake, GTEC has received $800,000 worth of shares in Fire & Flower, and a $200,000 Promissory Note to be repaid in cash. This Promissory Note has a two-year term and bears an interest rate of 8% per annum, secured against Cannabis Cowboy’s BC assets.

“This transaction exemplifies our dedication to strengthening our balance sheet with a disciplined and non-dilutive approach while realizing profits from non-core assets,” said Norton Singhavon, founder, chairman and chief executive at GTEC. “This strategy demonstrates management’s commitment to be aligned with our shareholders. We are confident that the strengthened balance sheet will accelerate the development of our core cultivation business and accelerate our transition to profitability.”

The plan is to increase its annual production output from its current 4,000 kg capacity to approximately 9,000 kg in 2020.

We see this as an intelligent move that supports the company’s statement that they will not raise further capital below the latest funding round. By divesting non-core assets and focusing instead on producing premium cannabis, GTEC is better positioning itself to thrive in the years ahead.

2019 has been set-up as a year of execution for GTEC and the additional $4 million of cash on the balance sheet – with the repayment of the promissory note – should help it achieve its ambitious plans.

Fire & Flower’s network of dispensaries has grown to 38 with this purchase. Convenience store giant Alimentation Couche-Tard Inc. bought a 9.9% stake in the business for an initial investment of $26 million earlier this year, and it has been on a major expansion drive ever since, with plans to increase its estate to 135 stores by fiscal 2021.

 

GTEC is a Market Awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Martin Green
Martin Green is an experienced journalist with a strong focus on the cannabis, alcohol, and gambling industries. He is particularly interested in the political issues affecting the global marijuana trade, and he has a keen focus on regulation changes and legal topics. He holds a BA English Literature, MA Creative Writing and a National Qualification in Journalism diploma. He has worked in journalism since 2009 and written for a broad range of newspapers, business titles and magazines, including The Sun, The Metro, The Journal, Livestrong, Drinks Retailing News, Harpers, Sportsbook Review, Vital Football, Essex Live and Surrey Live.

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