While most cannabis companies issue shares like it’s Monopoly money, Canadian operator C21 Investments Inc. (CSE: CXXI) (OTCQX: CXXIF) is choosing to work against further share dilution instead.
The vertical cannabis company, which has operations in Nevada and Oregon, announced that it had negotiated the cancellation of 78% of its earn-out share obligations with regards to its purchase of Swell Cos. with select individuals.
“We believe the cancellation of the obligation to issue 4.7 million earn-out shares is a smart use of the company’s funds,” said Chairman Bruce Macdonald. “Reducing the potential dilution of our outstanding shares is consistent with C21’s commitment to deliver value for our shareholders. The board recognizes our CEO, Sonny Newman, for being flexible in facilitating this transaction.”
According to the purchase agreement for Swell, some of the purchase price payable to the vendors by C21 was to be paid by the issuance of the Swell earn-out shares. The statement said, “The delivery of which was dependent upon the occurrence of certain events, including share price targets as well as any change of control. Up to 6 million Swell earn-out shares could have been deliverable to the vendors pursuant to the Swell purchase agreement.”
Instead, the company said in a statement that it has entered into agreements with the cancelling vendors to extinguish the company’s obligation to issue an aggregate total of 4,699,800 earn-out shares in exchange for a one-time cash payment of $564,000.
C21 said that by ending its obligation to issue the earn-out shares, it reduces the potential dilution of the company’s common shares by 3.6% on a fully diluted basis.
Additionally, an agreement was reached to defer the March 1, principal payment on the company’s senior secured note to facilitate the payment to the cancelling vendors. As of Feb. 1, the remaining balance of the senior note was $1.5 million.