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Invictus MD's PlanC BioPharm Acquisition - What it Means for Shareholders

January 18, 2017

 

Today, Invictus MD Strategies Corp. (CSE:IMH; OTC:IVITF; FRA:8IS) announced that it has entered into a binding letter of intent to acquire 100% of PlanC BioPharm, a applicant to become a Licensed Producer in Canada pursuant to the Access to Cannabis for Medical Purposes Regulations (ACMPR). 

 

Deal Terms:

 

  • Initially, as consideration entering into the LOI, Invictus MD will issue 50,000 common shares and CAD 100,000 in cash to Plan C shareholders.

  • Upon signing of the definitive agreement Invictus will pay an additional CAD 100,000 in cash and 50,000 common shares to Plan C BioPharm Shareholders.

  • Within 90 days following the signing of the definitive agreement Invictus is required to place CAD 8,000,000 in an escrow account for the benefit of Plan C - The escrow monies will be used to exercise an option to acquire the property, build a 30,000 square foot facility and for working capital. 

  • Following these, additional stock payments will be made upon the occurrence of milestones 

    • ​200,000 common shares upon closing of the sale (max value CAD 400,000)

    • 300,000 common shares upon Plan C's receipt of an affirmation email from Health Canada (max value CAD 600,000)

    • 500,000 common shares upon completion of pre-licensing inspection (max value CAD 1,000,000)

    • 5,000,000 common shares upon Plan C's receipt of a ACMPR cultivation license (max value CAD 8,000,000)

 

Deal Valuation:

 

  • Assuming a CAD 1.53 stock price and that Plan C BioPharm meets all milestones and obtains an ACMPR license, the total value of the combined cash and stock deal is CAD 9,526,500, or US$7,206,945.

  • This deal gives IVITF the potential for an additional ACMPR license. Back in December, Invictus acquired a 33.3% stake in Licensed Producer AB Laboratories for a total value of CAD 17,250,000 (US$13,046,931) 

  • This values the whole of AB Laboratories at CAD 51,750,000 and based on their 20,000 licensed square feet, comes to CAD 2,587 per square foot of approved space.

  • Assuming a CAD 1.53 stock price and that Plan C BioPharm meets all milestones and obtains an ACMPR license, the total value of the deal is CAD 9,526,500, or US$7,206,945.

  • Comparing the Plan C deal with the AB Labs deal, we find the Plan C deal to be a bargain for Invictus MD Strategies Shareholders,  at a price of CAD 436 per square foot of growing space assuming 20,000 square feet of their 30,000 square foot facility are approved for cultivation.

 

Why the Bargain?

 

  • A possible explanation for the "bargain basement" price is that Plan C founders appeared to be struggling financially with the "arduous" process of applying for ACMPR registration.

  • A January 2016 article in the Boundary Sentinel stated that the LP application process for Plan C "has taken its toll" on the Co-Founder's family "both emotionally and financially".  

  • Since this article over a full year has gone by with little progress towards application approval.

  • Given the costly nature of the ongoing process, we must assume that the financial burdens of the application were weighing on the founders' decision to sell.

 

Shareholder Dilution:

 

  • In regard to dilution of existing shareholders, assuming this deal progresses through all the milestones, a total of 6,100,000 new shares will be issued.

  • The newly issued shares would represent 27.64% of current shares outstanding.

  • Assuming the deal is competed in full, the newly issued shares will represent 21.65% of the company fully diluted. 

 

Market Reaction:

 

As of midday trading, Invictus MD shares in Canada are trading at CAD 1.53 , down just under 4% on higher than average volume.  Given the structuring of the milestones the deal carries less risk for Invictus shareholders than perceived. In the event of the worst case scenario - application denial from Health Canada - the deal structure prevents further investment and thus further loss for Invictus shareholders. 

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