Cannex Capital Holdings Inc. (CSE: CNNX) (OTCQX: CNXXF) and 4Front Holdings signed a binding letter agreement to combine in an all-stock deal. The combined company will continue to trade on the CSE under Cannex’s existing name and the ticker symbol CNNX. The stock fell over 10% on the news to lately trade at C$0.98.
According to the company statement, the new combined company will own, operate or manage six existing cultivation and production facilities in Washington, Illinois and Massachusetts and five retail operations in Illinois, Massachusetts, Maryland, and Pennsylvania. 4Front also has licenses or licensing agreements in place that will enable it to open and operate several more dispensaries in Massachusetts, Maryland, and Pennsylvania under the Mission brand, which should bring the total number of related operations to 20 by year-end 2019 within the combined company’s existing asset base.
4Front Co-founder and CEO Josh Rosen will become CEO of the combined company while Cannex’s CEO Anthony Dutton will take on the senior capital markets and business development role. Leo Gontmakher, COO of Cannex, is expected to assume the same role in the combined company.
“This is an exciting and transformational step as 4Front and Cannex come together to realize our common objective of building a premier cannabis business focused on operational excellence and integrity across the value chain,” said Rosen. “The operations and leadership that Cannex has demonstrated in Washington, one of the most competitive cannabis markets in the world, are unlike anything I’ve seen in the industry. Leo and his team have developed an amazing set of skills and capabilities that we look forward to transferring to 4Front’s existing portfolio, as well as using to capitalize on new opportunities we develop together.”
The merger agreement follows Cannex’s November 21, 2018 announcement that Gotham Green Partners’ (GGP) invested $32 million into Cannex. Jason Adler, Managing Member of GGP, noted, “We are excited by the proposed Cannex and 4Front business combination, which is expected to accelerate the deployment of Cannex’s operational capabilities across a broad suite of unique licensed assets. We expect cannabis investors to ascribe increasing value to operational productivity and efficiencies. We believe that 4Front and Cannex have very complementary assets and skill sets, and we look forward to working with them to accelerate their growth.”
Cannex owns two large-scale indoor cultivation facilities and a production and logistics facility in Washington State. Its strategic operating tenant, Northwest Cannabis Solutions, boasts strong cultivation yields and produces some of the top-selling flower and infused-product brands in Washington. It has managed to capture approximately 8% share of the wholesale market in one of the most competitive markets in the country. NWCS employs more than 190 people and currently has an annual revenue run rate of approximately US$40 million.
“Cannex has been evaluating the best platforms to extend our production capabilities into new markets and 4Front is a natural fit given their complementary capabilities, existing portfolio and pipeline, and strong culture,” said Gontmakher.
4Front operates most of its dispensaries under the Mission brand. It has developed a national platform that consists of a multi-state footprint and a far-reaching network of partnership relationships.