Quick Take
Kalytera Therapeutics (OTCQB:KALTF) announced it has agreed to acquire a majority interest in Oregon 01 for $3.5 million.
Oregon 01 is doing business as ‘Clean Bi Design’ and will operate a hemp-based CBD extraction facility in Amity, Oregon.
Kalytera is developing CBD-based therapeutics, including for the prevention of Graft Versus Host Disease and the treatment of pain, uveitis as well as psoriasis, and intends to use Oregon 01’s operations to supply the company’s CBD needs.
Target Company
Amity, Oregon-based Clean Bi Design was founded to develop a hemp-based CBD extraction facility in Amity with an anticipated production rate of up to 600 kilograms of CBD isolate per shift, per month.
As a comparison, in April, Eureka 93 announced the debut of a new CBD extraction facility in Montana with an expected production of up to 100 kilograms per day by Q3 2019.
Company management is headed by Zac Simma, co-CEO and CFO.
Investors have invested at least $250,000 in the company, according to an SEC filing.
Market & Competition
According to a market research report by Market Study Report, the global Cannabidiol Oil [CBD] market was valued at $270 million in 2018 and is projected to reach $3860 million by 2025.
This represents a CAGR of 39.5% between 2019 and 2025.
Vendors that provide CBD extraction include:
- Westleaf (TSXV:WL)
- Valens GroWorks (CSE:VGW)
- MediPharm Labs (TSXV:LABS)
- Neptune Wellness Solutions (NEPT)
- Indiva Limited (OTCQX:NDVAF)
Source: Sentieo
Acquisition Terms and Financial
Laytera disclosed the acquisition price and terms as $3.5 million in cash for a 51% interest.
The firm didn’t file a form 8-K or provide a change in financial guidance as a result of the proposed transaction.
A review of the firm’s most recent financial report indicates that as of March 31, 2019 Kalytera had $142,000 in cash and $53.17 million in total liabilities, of which $44.76 million were listed as ‘Other Liabilities.’
Cash flow from operations for the three months ended March 31, 2019, was a negative ($835,000).
In the past 12 months, Kalytera’s stock price has dropped 72.9%, as the chart below indicates:
Source: Seeking Alpha
Commentary
Kalytera is acquiring Oregon 01 to continue its strategy of vertical integration.
As Robert Farrell, president and CEO of Kalytera stated in the deal announcement,
With the acquisition of Clean Bi Design, we will become a vertically integrated industry player, with both development programs for CBD pharmaceuticals, as well as a CBD production facility capable of providing GMP quality CBD for U.S. and international markets. Most importantly, this transaction provides Kalytera a near-term path to revenues. We have the necessary relationships with growers and customers in place to enable start of operations within six months, and we expect to report initial revenues from CBD isolate sales by Q4 2019.
The cannabis industry in the U.S. is undergoing a period of consolidation as companies seek to secure their supply chain amid an initially fragmented regulatory environment.
Furthermore, Kalytera is expanding into the consumer CBD business and the deal for Oregon 01 will provide supply for this initiative in addition to its medical operations.
With the acquisition, Kalytera plans to launch CBD isolate sales by the end of 2019, so it will be interesting to see how quickly management can ramp revenues from the new addition.
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