Bottom Line: BevCanna Enterprises (CNSX: BEV; Q: BVNNF) has completed its acquisition of Carmanah Craft Corp., a firm that specializes in cannabis genetics. BevCanna will now have access to Carmanah’s library of over 50 strains of cannabis as well as over 25 types of seeds.
BevCanna made the deal to acquire Carmanah at the expense of current shareholders which would see their shares diluted by almost 20%.
BevCanna’s expectations for yield per acre seems way too optimistic. And even if they manage to hit their production targets, the demand may not be strong enough to accommodate the huge increase in supply that would become available.
Shareholder Dilution
BevCanna issued 8,941,176 common shares at a price of $0.425 per share to acquire Carmanah. This is bad news for shareholders as it further dilutes the stock. The nearly 9 million issued new shares would increase the amount of shares outstanding by a whopping 19.5%.
The management team at BevCanna seems to think that this deal is worth it though, as they target to increase their cultivable land area to almost 300 acres and use the acquired strains and seeds to amp up their outdoor cannabis grow operation.
Are BevCanna’s Yield Expectations Realistic?
From its almost 300 acres of land, BevCanna targets to produce a yield of about 769kg/acre. This is certainly an ambitious goal as it puts BevCanna in the high end of production targets compared to some of its peers.
However, as history has proven, the planned yield put out by the management team can be wildly optimistic. Looking back on the planned versus actual yield of various cannabis cultivation companies in the past, the realized yield has pretty much always come in at the extremely low end of the planned range or more often than not, fallen wildly short of management’s expectations.
Planned vs. Realized Yield of Cannabis Cultivators
Demand May Not Be Strong Enough to Accommodate BevCanna’s Plans
The annualized sales figures for the Canadian cannabis market suggests about 175,717kg was sold in Canada in 2019. If BevCanna realizes its goals of producing 769kg/acre on almost 300 acres of land, they would single-handedly produce 225,000kg of cannabis, which would be more than the entire market’s demand. Thus, it can be shown that BevCanna is likely being way too ambitious and optimistic about its yield.
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