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Invictus MD (GENE.V) sells Future Harvest at loss, but market downturn still profitable for some

Mr. Byron Sheppard, a former director of Invictus MD (GENE.V), is a shining example of how a downturn in the market does not always equate a loss.

Early in 2015, as the Canadian cannabis market was still taking shape, Invictus announced it would be acquiring stake a private company from Kelowna, B.C., known as Future Harvest Development.

The company sells fertilizers and other such products related to indoor growing, boasting distribution across North America and Europe.

Between 2015 and 2016, Invictus purchased 82.5% of Future Harvest shares for an aggregate price of $2.1 million. Mr. Sheppard was also made a director in the company, only recently stepping down for reasons we will discuss later.

For years, Future Harvest’s merits were loudly touted on Invictus new releases sent through the wire. Swelling revenues were attributed to the booming cannabis market’s need for hydroponics equipment, and there were even talks of a spin-out company between 2015 and 2017.

But despite Future Harvest’s profitability–the company earned GENE consistent net income while cannabis sales delivered net losses–Invictus announced it would be selling the company off for $1,425,000, far less than what they initially paid.

The buyer also happens to be a company owned by Mr. Sheppard, who had the forsight to sell some of his shares in Invictus at around $0.94, is most certainly laughing now that Invictus has essentially paid for the privilege of streamlining his business.

“In February of 2016, Future Harvest sold its lighting division to Sunblaster Holdings for about $4.8 million in cash. This represented a 350 percent return on investment in only 11 months. Proceeds from the sale have allowed Future Harvest to more aggressively grow its fertilizer division, and revenues are increasing in step.”

Invictus has been streamlining itself as of late: The company sold its stake of Canandia, also to its CEO, for $3.3 million earlier in October 2019 after acquiring it less than one year prior. Here are the terms of the sale:

a)    

$2.4 million in common shares of the Company (the “First Consideration Common Shares”) at $1.32 per common share. The First Consideration Common Shares will be subject to a 4 month hold period;

b) 

$10 million in common shares of the Company (the “Second Consideration Common Shares”) at $1.65 per common share with the following release schedule:

a.

25% of the Second Consideration Common Shares on the closing; and

  

b. 

25% of the Second Consideration Common Shares every 4 months thereafter.

c) 

$10 million investment (the “Investment”) in cash into Canandia to be used for expansion of the Mission Location and working capital purposes. The Investment will be paid into Canandia over time on an as-needed basis; and

d) 

$7 million in common shares of the Company issued to the Vendors on the date that is within 10 business days of the Mission Location receiving its cultivation license under the Cannabis Act and Cannabis Regulations, valued at the greater of $1.06 per share and the 10 trading days Volume Weighted Average Price (“VWAP”) on the TSXV immediately prior to the License Date.

With the acquisition having closed on the 16th of November last year, Invictus at the very least bought Canandia for $2.4 million in common shares in addition to $7.5 million in shares pertaining to section B of the agreement.

It is likely that Mr. Sheppard, who certainly has access to Sedar, understands Invictus only has $1.6 million in cash as of the second quarter of 2019 and found himself in an enviable position in which to negotiate.

Now, Future Harvest has a thriving business model, plenty of press due to its association with a major cannabis operator and its owner has come away all the richer for the experience with nearly 600 thousand GENE shares to his credit.

Buy low, sell high. Mr. Sheppard imbibes this core tenet of the public markets, and for that we tip our hats to him.

 

–Mr. Millionaire

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