If you think all cannabis stocks are crumbling, you’re not seeing Xtraction Services (CSE:XS). Shares of the Los Angeles-based specialty finance company have nearly doubled from a low of 17 cents in November, including advances on Tuesday and Wednesday that have erased losses from Monday.
Xtraction, which provides equipment leasing options to cultivators, oil processors, manufacturers, testing labs and more, has brought the tried-and-true sale/leaseback methodology to the cannabis and hemp markets. Frequently used in other industries, sale/leaseback programs involve a company selling an asset and then leasing it back from the buyer, a tactic that frees up illiquid capital. Bed Bath and Beyond (NASDAQ:BBBY) was in the news this week for a real estate sale/leaseback transaction with Oak Street Real Estate Capital that netted the Bed Bath and Beyond $250 million in proceeds.
The embattled retailer’s new CEO, Mark Tritton, sees the deal as a way to unlock value and help build a stronger company.
In a time where capital is extremely hard to come by in the cannabis market, Xtraction Services offers companies equipment sale/leaseback programs that can foster growth. To keep new equipment on the line and improve operating efficiencies for its customers, the company works with over 70 original equipment manufacturers for a variety of tailored solutions.
On Monday, XS said that it sold some of its non-essential inventory in a non-conventional deal that effectively was a share repurchase. In short, Xtraction sold part of if used equipment inventory to a vendor, former partner and staff in exchange for shares of the company held by those parties.
Assuming conversion of all of the shares, the deal means XS structured a deal that bought-back 13.4% of the company’s outstanding shares, which will be cancelled.
Xtraction is focused on new equipment leases and sale/leaseback transactions, not being an equipment distributor. To that end, off-loading the equipment for XS stock was a savvy way to monetize spare inventory and build shareholder value.
Upon cancellation of the traded shares, XC will have 29.99 million common shares and 12.21 million voting shares (if converted, currently under a 3-year lock up) issued and outstanding. The company also has 3.0 million options outstanding (average C$0.50 exercise price), 13.67 million warrants outstanding (average C$1.45 exercise price) and C$5.72 million in unsecured convertible debentures (C$1.10 average conversion price).
The low float keeps trading of XS relatively thin. On only 14,000 in volume, shares dipped from a high of $0.32 to close at $0.28 with Monday’s news. Apparently, the markets are now re-thinking the initial reaction, with 55,500+ shares trading on Tuesday and another 38,400 trading as of about noon Eastern on Wednesday, erasing Monday’s decline and taking XS up 4.8% to $0.325.
That’s the highest for the stock since September 23, 2019, which was only 7 trading days after the company came public through a reverse merger.