Analyst Welcomes The Sale Of Green Growth's CBD Business

Green Growth Brands Inc. GGBXFGGB reported Monday that The BRN Group Inc. will acquire its CBD business. The company has already completed a “stalking horse” asset purchase agreement with BRN’s partner in regards to the CBD business purchase.

The company plans to continue to hold up to a 20% carried interest in the CBD business upon the finalization of the transaction.

"With high-potential in the future comes material overhead costs and other obligations in the near term. These near-term overhead costs and other obligations, together with constraints on liquidity, have posed significant challenges that have hindered us from growing the CBD Business to its full-potential," GGB CEO Peter Horvath stated.

Investment Thesis

Cantor Fitzgerald's Pablo Zuanic supported the company's recent determination to sell its CBD business and concentrate on its MSO business segment.

Nevertheless, Zuanic examines the company's power to raise cash for further business operations, referring to the company's "convertible bond maturities pushed out by four years; raising $10Mn in equity but price discount not disclosed; minimum bid price for CBD unit not provided; current negative working capital is at -$133Mn."

The analyst also commented on the company's latest quarterly financial results.

"But despite the 'beat', we remain concerned, see further dilution risk (or worse)," Zuanic wrote in a note.

Without separate EBITDA results provided, Zuanic believes the "MSO unit broke even while the losses were all generated in CBD."

The analyst estimates Green Growth's MSO assets could attract consolidators, but said "the company plans to raise equity to fund the MSO growth, so a sale is not in the books apparently."

Zuanic reiterated an Underweight rating on Green Growth's stock, which was trading 30% lower at 22 cents per share on Tuesday.