Chemesis International Inc. is a vertically integrated global leader in the cannabis industry, currently operating within California, Puerto Rico, and finalizing an acquisition in Columbia. Chemesis is developing a strong foothold in key markets, from cultivation, to manufacturing, distribution, and retail. Chemesis has facilities in both Puerto Rico and California, allowing for cost effective production and distribution of its products. In addition, Chemesis leverages exclusive brands and partnerships and uses the highest quality extraction methods, to provide consumers with quality cannabis products. Chemesis will add shareholder value by exploring opportunities in emerging markets while consistently delivering quality product to its consumers from seed to sale.
On October 12, 2018 the Company acquired the license rights from Rapid Dose Therapeutics Inc. (“RDT”) a Canadian bio-technology company which provides proprietary drug delivery technologies. RDT’s QuickStrip is an oral fast- dissolving drug delivery system. Under the terms, the Company receives rights to produce, distribute, and sell QuickStrip products, with rights for cannabis markets in California. The Company paid $130,570 and issued shares to settle USD$300,000 (subsequently issued), measured at a fair value of $390,480 and included in contributed surplus.
On November 9, 2018 Chemesis acquired 80% of Puerto Rico based Natural Ventures PR LLC. The company has been operational since early 2017 and currently is expanding to meet its growing patient demand. Natural Ventures is licensed to cultivate 100,000 ft2 of cannabis and has 35,000 ft2 of manufacturing floor space for quality cannabis products. In exchange for 80% interest in the capital stock of Natural Ventures PR LLC, the Company paid USD$2,250,000 cash and USD$1,682,085 of stock valued at $1.00 per common share.
On November 14, 2018 Chemesis entered a multi-year licensing deal with Kevin Smith and Jason Mewes (Jay and Silent Bob) for the development and promotion of cannabis products in the US. The Company will pay an initial fee of USD$50,000 on signing and three payments of USD$25,000 on each of the three-month anniversaries of signing. In addition, the Company will issue common shares worth USD$400,000 on signing and USD$150,000 in stock on each annual anniversary. Additional payments for up to a total of USD$600,000 in stock may be payable on the date certain states in the USA legalize marijuana. All shares are based on the 5-day volume-weighted average prices on the date the shares become payable. The Company will owe a 12% royalty on sales related to the Jay and Silent Bob brand with a minimum royalty of USD$120,000 each year of the license term.
SUMMARY OF QUARTERLY RESULTS
The following is a summary of the Company’s financial results for the Company’s completed quarters since inception:
|Quarter Ended December 31, 2018|
|Quarter Ended September 30, 2018|
|Quarter Ended June 30, 2018|
|Quarter Ended March 31, 2018|
|Period frominception to December 31, 2017|
|Basic and diluted loss per share, basic and diluted||(0.03)||(0.52)||(3,689)||(2,063)||(523)|
On a quarter-by-quarter basis the loss can fluctuate significantly due to a number of factors including first year of operations of a start-up cannabis Company, timing of stock option grants, changes in nature of the business and significant one-time transactions (RTO transaction) .
On February 7, 2019 the Company acquired intellectual property and the physical equipment for an extraction methodology to preserve all the phytocnnabinoids and terpenes from cannabis. The Company will relocate the extraction assets from a licensed facility in San Diego, CA to its extraction facility in Cathedral City, CA. With this transaction, the Company has initial monthly purchase orders in excess of USD $200,000. Under the terms of this acquisition, Chemesis will issue 1,597,633 shares priced at a deemed value of CDN $1.69. The stock issued is subject to a 36-month lock-up/leak-out guidelines.
On February 25, 2019, the Company announced a non-brokered private placement of up to CDN $5,800,000 or 3,152,174 units at a price of CDN $1.84 per unit with New York based Global Emerging Markets and participation from Canadian institutional investors. Under the terms of the offering, each unit will be comprised of one common share and one common share purchase warrant exercisable for one comm share at an exercise price of CDN $2.50 for a period of 24 months from the closing date.
On March 1, 2019 the Company completed a private placement of 1,500,000 units at a price of $1.84 per unit. Each unit is comprised of one common share and one common share purchase warrant exercisable at $2.50 for a period of 60 months.
On March 1, 2019 the Company entered into a $10,000,000 share subscription agreement with Global Emerging Markets (“GEM”). The agreement provides that the Company may, at any time while the agreement is in effect, deliver a draw-down notice to GEM specify the number of common shares for which GEEM will then have an obligation to subscribe up to a maximum of $10,000,000.
The Company has generated cash from operations but is considered minimal to date. The Company has funded activities through raising capital from equity markets and plans to continue to pursue equity and debt sources of cash until operations reach profitability.
The Company has cash of $1,102,844 at December 31, 2018, inventory of $729,236 and $405,540 in accounts receivable. The Company has a working capital deficit of $2,857,221 (working capital at June 30, 2018 – $874,240).
During the six months ended December 31, 2018:
- The Company received cash from completed acquisitions of $2,725,638; and
- The Company received cash of $122,500 pursuant to the exercise of options; and
- The Company received cash of $3,500,000 pursuant to the issuance of convertible debt; and
- The Company received cash of $250,000 pursuant to subscriptions receipts;
The Company is in the process of closing a non-brokered private placement of up to $10,000,000 at a price of CDN $1.84 per unit. This will be used to fund operating capital needs.
The Company also has access to additional equity financing agreement for up to $25,000,000, with Alumina Partners, LLC, a New York-based private equity firm that has made substantial investments in the cannabis space.
The agreement details the purchase of up to $25,000,000 of units of the Company, consisting of one common share and one common share purchase warrant, at discounts ranging from 15% to 25% of the market price of the Company’s shares, with each equity financing occurring exclusively at the option of the Company, throughout the 24-month term of the agreement. The Company has used $250,000 of this lending facility to date.
If additional funds are required, the Company plans to raise additional capital primarily through the private placement of its equity securities. Under such circumstances, there is no assurance that the Company will be able to obtain further funds required for the Company’s continued working capital requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has commitments with certain rental leases agreements in California. The Company has commitments related to acquisitions of its subsidiaries and newly acquired licenses. Please refer to note 16 and note 11 of the December 31, 2018 financial statements for summary of commitments and acquisitions respectively.
The Company used net cash of $1,802,148 in operating activities during the six months ended December 31, 2018.
The Company used net cash of $2,330,348 in investing activities during the six months ended December 31, 2018. Investing activities primarily consisted of cash received pursuant to acquisitions of $2,725,638; cash spent on leasehold improvements and equipment to be used in manufacturing and distribution of cannabis products of $1,276,283; cash paid of $3,633,419 on the acquisition of Dessert Zen and Natural Ventures PR LLC.
The Company received $3,872,500 from financing activities during the six months ended December 31, 2018. Financing activities primarily consisted of cash of $122,500 received pursuant to the exercise of options; cash of $3,500,000 received pursuant to the issuance of convertible debt; cash received of $250,000 pursuant to subscription receipts.
The Completion of these Transactions will allow Chemesis to process over 500,000 kg of Cannabis Annually within the U.S.
VANCOUVER, British Columbia, April 24, 2019 (GLOBE NEWSWIRE) — Chemesis International Inc. (CSE: CSI) (OTC: CADMF) (FRA: CWAA) (the “Company” or “Chemesis”), has completed a definitive agreement in respect of the previously announced transaction (“Acquisition”) to acquire 100% of a fully-operational extraction and manufacturing facility in Cathedral City, California (“Facility”). The Acquisition will expand the Company’s processing ability to over 500,000 kg of cannabis annually.
The operational and revenue generating, state-of-the-art, Facility is fully licensed, and the closing of the Acquisition is expected to further the Company’s ability to extract THC, CBD and other cannabinoid and terpene products. The Facility utilizes a volatile BHO (‘Butane Hash Oil’) Extraction method that allows for rapid and efficient extraction of cannabinoids from trim. As a result, the Company will be able to provide extraction services for THC & CBD products through both ethanol and BHO extraction processes.
Additionally, the Company has entered into a binding agreement to increase its ownership interest in its flagship manufacturing facility pursuant to which it will acquire the remaining minority 20% interest it does not currently own (“Buy-Out Transaction”). The facility, which is also located in Cathedral City, California, holds a Type 7: Volatile Solvent Extraction & Manufacturing License and is fully operational, compliant with all regulations, and is revenue-generating.
With these transactions, Chemesis will continue to provide third party manufacturing for brands that are in need of high-quality extraction and multiple product types. Furthermore, the Company also offers brands, distribution, and transportation services through its Desert Zen facility which, increases efficiency and reduces wait times. Furthermore, these facilities will continue servicing Chemesis’ brands Jay & Silent Bob’s Private Stash and California Sap.
“Our operations in California have significantly expanded in capacity and capabilities, and the Company will continue to increase its distribution and manufacturing footprint in the state,” said CEO of Chemesis, Edgar Montero. “The state is moving to a regulated market that requires high-quality facilities and extraction processes, and we believe the Company has positioned itself to gain significant traction in a compliant marketplace. The Company also continues to see increasing demand for compliant services that are able to reduce cost, and delivery times by engaging a single operator.”
Under the terms of the Acquisition for the Extraction and Manufacturing facility, Chemesis will issue 4,654,000 common shares and pay $1,000,000 USD within 90 days of closing. To acquire the remaining minority 20% interest in the Company’s flagship facility, Chemesis will issue 1,000,000 common shares. All stock issued through these transactions is subject to 36-month leak-out restriction.