Operational Updates. The LOI is currently in its early stages and no specific terms (such as consideration to be paid to Elephant Extracts) have been agreed upon. However, the company has indicated in the associated press release that Elephant Extracts will reserve the right to redeem RavenQuest’s majority interest at such a time that Elephant Extracts receives an ACMPR license to produce. If exercised, the controlling interest of RavenQuest will be removed and RavenQuest will receive a 15% royalty on the gross revenue from Elephant Extract’s production facility in perpetuity. The practicality of execution of this addendum is uncertain and it may not be featured in the final agreement between the two parties. On June 6, 2018, the company announced that it had entered into a binding LOI with WAL and 0929476 B.C. Ltd. (“NumberCo”) to acquire WAL, and a 15-acre land package held by NumberCo. The binding LOI comes as an advancement of a previous MOU between RavenQuest and WAL. WAL is a late-stage ACMPR applicant that is developing a 125,000 square-foot production facility in Port Mellon, B.C. We assume that the 15-acre land package held by NumberCo is the land upon which the WAL facility will be built. ▇▇▇ also owns 23.75% of Atlantic Cannabis Corp., which intends to build a 50,000 square-foot facility in Nova Scotia. Terms under the binding LOI include all stock consideration to WAL of 4.34 million shares of RavenQuest at a deemed price of $0.85 per share, valuing the transaction at $3.68 million. This is lower than our estimate of $4.40 million, which we had provided in our most recent note on the company, which covered the WAL acquisition. Our CAPEX estimate for the WAL facility is $35.21 million. This is based on a blended CAPEX per-square foot of $282, which is an average of the initial and expansion build-out costs exhibited by the company’s AGB and Bloomera facilities. The CAPEX table for the company’s current projects is as below. Note that the minority interest in Atlantic Cannabis Corp., which intends to build-out a facility in Nova Scotia, is not included in our models as we do not have sufficient details. $ 29,000,000 $ 8,839,437 $ 40,940,845 $ 5,729,577 Bloomera AGB Fort ▇▇▇▇▇▇▇▇ (30%) WAL $ $ $ $ - - 5,729,577 - In a historic milestone on June 19, 2018, the Canadian government moved to legalize cannabis for recreational use with the passing of Bill C-45, with an expected launch date of October 17, 2018. With uncertainty regarding the possibility of cannabis legalization now put to rest, investors are now concentrated on the structure of how legal recreational cannabis will be distributed and sold, with each province having proposed different retail channels. The below snapshot provides an overview of the recreational cannabis market by province:
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Sources: Supply Agreement, Supply Agreement