Canadian CBD product maker Radient Technologies (TSXV: RTI; OTCQX: RDDTF) today announced its decision to sell properties for C$20 million.
The company then plans to lease back the same properties in a financing strategy that has become commonplace in the cannabis industry.
Under the terms of the agreement, 2238501 Alberta Limited will purchase Radient’s land and buildings at its three Edmonton facilities which together encompass 112,500 square feet of manufacturing space.
Upon the close of the property sale, the land and building assets will be leased back to Radient’s wholly owned ‘163 Alberta’ subsidiary with a term of 20 years.
Part of the C$20 million price tag will be advanced to Radient prior to the transaction close so that it can finish scheduled construction at its latest Edmonton facility.
Radient President & CEO Denis Taschuk said, “We are pleased to enter into this LOI for a Sale-Leaseback transaction. This cash injection will be non-dilutive and allows us to obtain additional working capital to finance the remainder of the buildout of our Edmonton III facility as we continue to scale up our operating capacity considerably.”
Deal Includes Hefty Interest Rate as Near-Term Liabilities Swell
Cannabis companies have struggled in recent months to secure sources of funding as financial institutions have been reluctant to lend.
Engaging in sale-leasebacks has become a popular, creative way for cannabis companies to obtain cash to fund growth plans.
The Radient sale-leaseback deal will require interest payments of C$2.6 million per year and as such carries an implied annual interest rate of 13%.
This is a rather steep price to pay, but the company is essentially betting it can grow well into the double digits.
Radient had an accounts payable balance of nearly C$23 million as of Sept. 30 which has increased dramatically.
Just six months prior the accounts payable balance was approximately $3.5 million. This heavy debt load includes a large payment owed to Aurora Cannabis for the receipt of a big shipment of cannabis trim.
Radient said it plans to use the property sale proceeds for general working capital needs while it completes its third Edmonton facility as well as to repay long-term debt.
But it’s also quite plausible that a portion of the $20 million will be used to pay off or at least pay down the Aurora tab.
Third Quarter Revenue Guidance Reaffirmed
Radient also reaffirmed its fiscal third-quarter revenue guidance of at least C$10 million. The company uses a proprietary continuous-flow extraction process that recovers as much as 99% of cannabinoids from cannabis plants.
The Edmonton I facility’s extraction and cannabinoid recovery has been consistently above 90%, according to the company.
Similar progress is being made at the Edmonton II plant which awaits approval of additional licenses from Health Canada before operations can commence. The retrofitted facility is expected to be able to process up to 420,000 kg of hemp annually.
Shares of Radient have declined in each of the last 10 months as the company has incurred mounting net losses.
The company will report financial performance for the quarter ending Dec. 31 at the end of next month. The sale-leaseback deal is expected to be finalized by March 30.