It has been an exciting few weeks for the management of Alliance Growers Inc (CNSX:ACG). Through this period, the firm has continued to scale the heights of the cannabis market, specifically through their access to additional funding as well as receiving approvals, all meant to ensure that they can venture into a new capital-intensive project of developing their all new ultra-modern facility, one which will see them develop different strains of cannabis under one roof through a scalable method as well as enable them to carry out further research and development on these strains to ensure that their product is the best in the market.
This month, the above two have taken center stage in the firm’s announcements. Despite there being positive news, however, the firm’s share price has yet to bounce back in the expected cannabis sector fashion.
Over the past year, they have experienced a bear run in their share price as shown below:
However, this month has seen them bounce back, albeit slowly. Their share price has risen mildly from lows of $.13 earlier in the month to their current price of $.19 currently, a 46% surge in their price. The price action above is shown in the chart below:
In this piece, we evaluate the risks and return parameters associated with the above funding arrangement as well as the real estate/cannabis project they have opted to venture into. Eventually, this will form the basis on which we evaluate the company and assess whether the share price will rise further or stabilize at its current level.
ACG: An Overview
Alliance Growers Inc was founded back in 2014 and headquartered in Vancouver, Canada. The firm has since then focused on achieving its four-pillar plan which is founded on the Cannabis Biotech complex, research and technology, strategic ACMPR investments and CBD oil supply and distribution.
Over time, they have continued to forge partnerships with renown cannabis firms so as to ensure they meet all the objectives. As such, they have currently ventured into a new partnership with Pharmagreen Biotech Inc. This strategic investment will see them develop a biotech complex and thereafter develop their research and development phase prior to the firm supplying their produce to the market.
All in all, it is quite clear that Alliance Growers Inc is working tirelessly towards meeting the above four pillars. The above investment, therefore, seems like the pinnacle of their current investment pipeline, one which would thus need to be reviewed in-depth.
ACG’s Met Funding Needs
ACG has, in the recent past, continued to raise funding for their project. Over this period, the firm has carried out a number of private placements, allowing investors to invest over $2 million in the firm’s equity. These placements have been structured as over 14.2 million shares being offered at a $.14 price. Currently, the firm has raised a total of $1.35 million through the sale of 9.64 million shares with their most recent issue of 5.18 million shares helping them raise $725,880. The shares provide investors with a 1:1 warrant which is exercisable at $.20 in three years’ time.
The firm expects to use the funds raised to complete their two primary projects: The Cannabis Biotech Complex as well as the construction of the BiocannaTech facility in Montreal. These projects are expected to be the foundation on which ACG meets their current and future goals set out in the four pillars.
Currently, the firm has also entered into different agreements with their creditors who they have decided to pay through share allotments of 875,000 shares at $.20 per share. Furthermore, their directors will also be paid through stock options. These options, which were approved earlier this month, total 5.15 million shares at a $.20 price: $1.03 million in total which are set to expire on September 24, 2023, five years from now.
The future, moreover, remains better for ACG. In his speech, ACG’s President and CEO spoke to a more prosperous near future when he stated:
“…we are very pleased with the demand for this recent financing, as it is expected to be oversold. We have commitments for the remaining 5 million units in the coming 5 to 10 days…”
It thus seems that the firm expects their near-term value proposition to have a near 50% impact on their share price – about 16% per annum – no mean feat for them.
The Two New Facility
Over the period since 27th September, the firm has received continued positive news regarding their new facilities. First was the news that they had received the final permits to begin construction of the BiocannaTech facility in Quebec.
This facility will see the firm develop it in three phases: a current 10,000 square foot construction follows by a 17,000 square foot expansion and culminating in the expansion into other provinces.
Second is the news that their look into the 62,000 square foot cannabis biotech center had received a unanimous green light from the Fraser Valley Regional District Electoral Area Services Committee on 5th September. As a result, the firm’s partnership with WFS Pharmagreen Inc which will see them put up the facility has continued to seem more and more fruitful to investors. Currently, the proposal is with the regional planning committee as they seek to receive the same green light.
Despite the above forward move, given that the firm is yet to receive the final green light, the share price is yet to skyrocket as expected. Furthermore, with the project being capital intensive, there are a number of years before it returns the initial investment as well as profits to its investors. Currently, the project seeks patient investors who are willing to wait this period and understand the risks associated with such real estate developments. However, the return from cannabis isn’t expected to reduce in the short or long-term. As a result, the project’s feasibility, especially in the long-term, is clear.
ACG is currently set on meeting all its pillars. Their current outlook has set them on a real estate development path culminating in the production and eventual distribution of cannabis. This is a long-term project with an expected long-term horizon, as such, the firm’s shares are a hold in the short term and a buy in the long term – upon the above projects coming to fruition.
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Disclosure: We have no position in ACG and have not been compensated for this article.