Well not the announcement we were expecting, nonetheless fairly important.
Wonder what caused the asx please explain? As someone else posted it ended up being a real positive as it showed they can validate their claims. The npv etc was probably correct, just not allowed under the rules.
When I first saw the Share Purchase Agreement with Rotogro IP inc and Rotogro Technology I thought the price was very reasonable, though was concerned about the performance shares. Before posting here, I sought some clarification on a few things from the company. They have now allayed my concerns as I'll explain below.
The original IPO issued 40m shares at 20c ($8m) to buy the intellectual property for exclusive rights to medical marijuana from the IP owners. They are now issuing 10m shares to buy exclusive rights to all other uses including Recreational MJ and urban foods. Last sp was 37c, so effectively paying about $3.7m with a possible further $7.4m value for the performance shares.
They also get RotoGro Tech in the deal. Previously Tech was not owned by RGI, they make the machines and charge RGI a price to make them, obviously they do this to make a profit, so now we get the machines at cost. Tech also has the lease to the new premises. I believe Tech make the machines for around $2500, sell then to RGI for $5000 who on sell for $10,000. Those are rough figures however you can see how RGI's profit on machines will now increase by about 50%
Now why all of a sudden did they want to purchase the IP & Tech?
Firstly the Gibio deal came from Rotogro Inc (not owned by RGI), this deal is worth $50-70m over 5 years. They didn't have to pass the deal on, so I suppose we owe them and want to make sure future deals come to us, not them.
Secondly, they are in negotiations with other Urban Foods companies, some of whom want exclusivity over the machines. We can only guarantee that if we own the whole IP. For sure we can supply machines etc for perishables, but can't guarantee exclusivity at present.
The $3.7m sounds very cheap, to get the extra $7.4m they need to sell $10m of perishable foods which means the Gibio deal will be into their second facility (and/or another deal). That means it's a success so well underway to selling the $50-70m over 5 years. When that happens I don't mind issuing the extra 20m shares.
I know it's a bit confusing with all the Rotogro companies, however now the whole thing from manufacturing to the entire IP will be owned by RGI. With recreational marijuana about to be legalised in Canada and an ever increasing part of their business coming from perishable foods it's a good thing to tidy this up.
The last part of the announcement I think gives us a hint as to where the company is heading....
"We are currently in discussions with perishable food growers and partners across Australasia, South-East Asia and Middle East with regards to growing partnerships and offtake agreements." So that's at least 3 groups additional to Gibio.
Also the fact they didn’t announce the expected MJ acquisition, doesn’t mean they’re not going to. It is mentioned in their presentation and was at the top of the list for the purpose of the cap raising funds use.
RGI Price at posting:
34.5¢ Sentiment: Buy Disclosure: Held
