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).
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)
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.
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.
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.