Grown Rogue International Inc. (CSE: GRIN) (OTC: GRUSF) is planning to enter the New Jersey market by buying 70% of ABCO Garden State, LLC, pending regulatory approval from the New Jersey Cannabis Regulatory Commission. Grown Rogue also has the option to buy the remaining 30%. ABCO said it has a conditional cultivation and manufacturing license already issued by the CRC and anticipates receiving its annual cultivation license shortly.
“We are extremely excited to announce our partnership with ABCO, accelerating our ability to bring the quality and value of Grown Rogue products to the consumers in New Jersey,” said Obie Strickler, CEO of Grown Rogue. “Over the past two years, we have analyzed many expansion opportunities, and none had the risk and reward profile that New Jersey, and specifically this Facility, offers.”
According to the announcement Grown Rogue has an option to buy 70% of ABCO in two tranches, 49% in the first tranche and 21% in the second, pending regulatory approval. The company said it expects to exercise the first tranche immediately, but the second tranche isn’t expected until two years after the operations begin.
Grown Rogue said it was paying $10,000 per option. A statement read, “At the exercise of its Tranche 1 option, Grown Rogue has the option to pay $1,390,000 at closing or execute a 12.5% interest-only note for 2 years at which time the Tranche 1 Price is due and payable. At the exercise of its Tranche 2 option, Grown Rogue will pay $590,000 at closing. Except for $100,000 going to the current members of ABCO, the remainder of the Tranche 1 Price and Tranche 2 Price will be used to fund tenant improvements or for general working capital at the ~50,000 square foot facility leased by ABCO. In addition, pending regulatory approval and construction needs, Grown Rogue has agreed to loan up to US$4,000,000 for improvements at the Facility.
Strickler added, “To put this investment in perspective, Grown Rogue invested $4,000,000 in capital expenditures in a similar size facility in Michigan and that asset is currently on a run rate of generating nearly $4,000,000 in after-tax operating cash flow. To add, the current average selling price of flower in New Jersey is nearly triple the average price of Michigan. We can’t wait to bring Grown Rogue’s Oregon quality flower and top-notch genetics to New Jersey. We believe we can delight NJ cannabis consumers and reward shareholders due to our battle-tested experience competing in Oregon as the #1 flower producer, and in Michigan as a top 5 indoor flower wholesaler. All expenditures in New Jersey are expected to be done with cash on hand and cash generated from current operations.”
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