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New Recreational Cannabis JV

This company could become a big player in the rec market.

Photo by LexScope on Unsplash

Aleafia Inc. (TSX: ALEF.V), based in Concord, Ontario, announced this week it’s joined Serruya Private Equity in a Joint Venture (JV).

Aleafia and the private equity firm plan to make the company a major recreational marijuana supplier with joint ownership over new retail stores. The JV also intends to produce a new weed brand.

Furthermore, the JV deal brought Aleafia a $10 million investment from Serruya and International Franchise. That deal foresees the launch of 20 retail stores internationally. Nonetheless, due to weed’s status as illegal at the federal level in the U.S., the JV did not include any plans for expansion there.

Aleafia – future rec market leader?

“In launching adult-use cannabis operations, we will greatly benefit from working with and receiving Serruya’s substantial financial backing,” Aleafia CEO Geoffrey Benic said.

Benic continued, regarding the opportunity in front of his company, “these transactions will see Aleafia immediately assume a leadership role in adult-use cannabis production, supply and retailing, complementing our proven medical cannabis operations.

He continued, “Aleafia will also own 51% of a Brands JV.”

That JV is set to operate under the name Flying High Brands.

Further, the JV’s retail operations will operate under the name One Plant (Retail) Corp.

Although Aleafia will initially only own 9.9 percent of the JV’s retail arm, the company will have the right to increase its ownership in the retail venture to 49%.

In the deal, Serruya will exchange $10 million for 5 million shares of Aleafia making their purchase price $2 per share. Aleafia will additionally invest $5 million CAD of the private placement proceeds back into the JV.

Aleafia to uplist?

Last month, Aleafia said it applied to list on the Nasdaq exchange, a move up from its single listing on the Venture arm of the Toronto Stock Exchange.

When completed, the company will be in the company of a handful of Canadian marijuana stocks that recently uplisted. Aurora Cannabis (NYSE: ACB.N) and Canopy Growth (NYSE: CGC.N), for example, listed on the New York Stock Exchange this year.

Post-legalization headaches

Since recreational marijuana legalization, supply shortages have plagued the industry. Major delivery bottlenecks occurred during the first month post-legalization.

While the reasons for delays aren’t clear, some suggest the provinces underestimated retail appetite for recreational marijuana.

Still, others say the government’s equipment approval and excise stamp issuance caused major headaches and delays for the producers.

At the most recent pot conference in Las Vegas, Aurora CEO Terry Booth took shots at the Ontario government. He singled out that province, which is Canada’s most populated, for running a “sh*tshow” the weeks after legalization.

Written by Jason Bagg

Mr Bagg has over 20 years experience in financial services ranging from Capital Markets to Private Equity. Mr Bagg has helped clients build wealth, reduce taxes and plan for retirement. Drawing on his experience, Mr Bagg has spoken on different panels regarding investing and has written numerous due diligence reports and white papers in this area.

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