Australis Capital scaling up its award-winning brands across the US and global cannabis markets

• Focused on building companies through early-stage, opportunistic, and diversified investments in cannabis space
• Spun off from Aurora Cannabis in late 2018
• Terry Booth, who helped build Aurora, now CEO

What Australis Capital does:

Australis Capital Inc (CSE:AUSA) (OTCMKTS:AUSAF) aims to build companies through early-stage, opportunistic, and diversified investments in the cannabis value chain in the US and abroad.

The Nevada-based company’s business and assets include investments in Cocoon Technology LLC, Body and Mind Inc, Green Therapeutics LLC, Quality Green, Folium Biosciences, and land assets in Washington state and Michigan. 

Australis was spun out from cannabis behemoth Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) in September 2018 as its US investment vehicle. Aurora is not allowed to invest in US cannabis assets due to Toronto Stock Exchange and NYSE listing rules. Australis is therefore Aurora’s arm to establish a foothold in the US, before a potential US federal legalization shift.

As part of the new strategy to scale up its award-winning brands across the US and global cannabis markets, the company has acquired a 51% interest in cash-flow-healthy ALPS - the world’s premier design, construction management, commissioning, and post-commissioning consultancy for horticultural crops such as cannabis.

Australis is also seeking 100% acquisition of the outstanding membership interest in Nevada-based cannabis cultivator Green Therapeutics (GT).

But the ALPS acquisition is central to the company’s new growth blueprint, and as such, former Aurora CEO Terry Booth is now Australis’ new CEO, taking over from Dr Duke Fu, who had been serving as Interim CEO since November 2020. Dr Fu now is COO, focusing on driving organic growth.

Booth built Aurora Cannabis from a late starter to a multi-billion dollar cannabis industry leader and is a seasoned entrepreneur, capital market savvy, with a deep grasp of the requirements to be successful in the global medical and recreational markets. 

How is it doing:

Heading into 2021 with $7.6 million in cash, Australis in March 2021 completed its acquisition of a 51% ownership interest in ALPS and named Booth as its new CEO. 

Under the deal, as an initial consideration, Australis will spend $10 million in company shares and $2 million in cash. All told, the final price tag could be between $13.7 million and nearly $26 million. Australis also holds an option to acquire the remaining 49% of ALPS over three years.

Australis noted that ALPS is engaged in a number of projects incorporating innovation and new intellectual property. One such project is with a Scandinavian grower of tomatoes and cucumbers under which ALPS has developed an ultra-precise environment control system, significantly improving propagation success rates and therefore economic output. ALPS retains the rights to the intellectual property developed and will be able to use this technology in the cannabis sector.

With a number of existing customer relationships and significant contracts, Australis said ALPS is expected to bring material revenues to the company and is also anticipated to be immediately accretive to the company’s results.

Australis plans to leverage ALPS’s customer relationships, whereby customers, in return for ALPS developed intellectual property, will also grow Australis’ portfolio of award-winning genetics, selling these back to the company at cost plus a relatively small mark-up. 

ALPS also provides a de-risked and stable revenue stream by servicing diversified sectors (fruit, vegetables, mushrooms, and ornamentals). Contracts in these sectors are being negotiated with a number already signed and projects well underway.

Since the Australis/ALPS transaction was announced in January, ALPS has signed four contracts for combined revenues in excess of $5 million with Cann Group, Australia; Aldershot Greenhouses, Canada; US-based Bluehouse Greenhouse; and US-based Vertical Harvest. 

Australis said that about 64% of the acquisition price is tied to significant top-line revenue and EBITDA targets, reflecting the confidence of the ALPS management team to profitably expand the business. Revenue targets range from $26.1 to $46.6 million with corresponding EBITDA targets of $11.7 to $21 million. 

Meanwhile, the Green Therapeutics transaction is also advancing with definitive agreements being drafted to meet regulatory requirements. The acquisition of Green Therapeutics is contingent on approval by the State of Nevada’s Cannabis Control Board and subsequent local approval by the Clark County Department of Business Licensing. 

Australis said Green Therapeutics continues to turn out exceptional, high-end products. Three of the company’s cultivars, sold under the GT Flowers brand, have tested for high THC potency with exceptional terpene profiles. 

The high quality of these products, due to Green Therapeutics’ science-based approach to cultivation, is reflected in its products consistently selling out in the Nevada adult-usage space in which the company has achieved a 52% penetration rate. The firm operates an 8,000 square foot facility.

Green Therapeutics is also in the process of operationalizing assets in Missouri and Oklahoma. The company has a manufacturing license in Oklahoma and a 25% interest in an extraction and processing license in Missouri.

Australis also recently touted the upbeat performance of Body and Mind Inc (CSE:BAMM), in which the company holds an 18% stake. The group announced record revenues for its fiscal first quarter of 2021 ending October 31, 2020. Revenues were $5.3 million, up 144% sequentially from 4Q of FY2020 and up by 267% year-over-year. 

As Australis pursues its new growth strategy, the company in recent months has taken steps to strengthen its leadership. It has formed a new board and hired Jon Paul as its new CFO. He was previously CFO at PLUS Products, a CSE-listed hemp and cannabis edibles company with operations in California and Nevada. Paul oversaw the PLUS IPO and was a key member of the team responsible for its 15-fold increase in revenue. 

The company has also retained Clearview Capital Consult to assist it with its investor relations efforts. Founded by Marc Lakmaaker, former VP of IR and director of corporate development at Aurora, Clearview brings a deep understanding and network in the cannabis industry and the capital markets.

Inflection points:

• Close on the acquisition Green Therapeutics  
• Positioning for recreational legalization among East Coast states
• Eyeing possible US federal cannabis legalization

What the boss says:

“With the completion of the ALPS transaction, AUSA has now been transformed into a revenue-generating company with a difficult to imitate multi-state expansion strategy in the U.S. cannabis market,” said new Australis CEO Terry Booth in a statement after taking over the top post.

“This transaction puts AUSA in a position where it can pursue novel streaming deals to fuel the scaling up of its high-quality brands across the nation, while delivering a de-risked income stream from a diversified services portfolio. We made a number of promises to our shareholders, and we are delivering on these, rapidly. I look forward to continuing a high-frequency dialogue with our stakeholders as we continue to execute and grow the Company.”

Contact the author: [email protected]

Follow him on Twitter @PatrickMGraham

Story by ProactiveInvestors