Kaya Holdings: A Blueprint for Low-Dilution, Low Cost International Expansion

 

Many investors seek out two types of opportunities: Value stocks that generate consistent cash flow at a reasonable valuation and Growth stocks that are more risky, but have the prospect of higher returns. 

 

Perhaps an example of a hybrid of the two is Kaya Holdings Inc. (OTCQB: KAYS), which has Oregon-based cannabis operations that could provide stable income while the Company develops a number of ambitious overseas projects in Greece and Israel. While management’s international ambitions represent a growth opportunity that could unlock significant shareholder value, there are legitimate concerns of high costs of entry, shareholder dilution and diversion of management attention .

 

Kaya Holdings may present a mix between value and growth, and with its experienced management team and their responses to investor concerns, investors in both growth and value stocks should pay close attention.

 

Proven Oregon Model

 

Kaya Holdings opened its first Kaya Shack™ location in Portland, Oregon back in July of 2014, making it the first publicly traded company to “touch-the-plant” . In April 2015, the company began its own medical marijuana grow operations, making it the first integrated producer. With this pioneering spirit it is not surprising that management would seek to innovate strategies when it comes to constructing a sustainable global cannabis enterprise. 

In recent months, the company began refreshing its Kaya Shack™ retail brand in the ultra-competitive Oregon market to prepare for international expansion alongside its international cultivation projects. Kaya Shack™stores will soon feature over 15 proprietary brands of edibles, oils, tinctures and creams. 

 

The company’s success in navigating Oregon’s regulatory framework over the past six years underscore management’s experience while its recent efforts show that it’s only accelerating its presence in the state as it closes in on a positive cash flow.

 

Mitigating the Risks of International Expansion

 

The Biden administration is likely to reclassify cannabis and address Rule 280E, but Kaya Holdings’ management believes that cross-state distribution will remain a key barrier to growth in the U.S. for the foreseeable future. The team sees better opportunities in international markets where global participation is expanding beyond Canadian companies.

 

Kaya Holdings formed Kaya Brands International after five years of “touch the plant” U.S. operations in order to leverage its experience and expand into global markets. In particular, the company aims to develop cannabis cultivation farms and facilities in Greece and Israel and restructured its shares to more efficiently raise capital and advance these projects.

 

Mitigating High Costs of Entry

 

KAYS management did not overburden the Company with debt to participate in the initial exciting round of cannabis legalization in Canada. Rather it estimated that once the first wave passed there would be room for others and at much more reasonable cost of entry.  The Company takes this approach to the high cost of multi-state expansion in the US as well, instigating its international strategies. As reported, KAYS paid $50,000 for its 50% interest in Greekkannabis, a licensed Greek cannabis company. Comparable license sales were once in the millions and tens of millions of dollars. KAYS management says it just waited out the wave. For the Israeli project the Company is seeking its own license as opposed to paying the cost of acquiring one. The license, according to management, should be issued by the end of March.

 

The company’s Greek partnership recently engaged a European investment bank to raise up to $45 million to support the development of a 15-acre cannabis cultivation and processing facility in Thebes, Greece. With 300,000 sq. ft. of anticipated cultivation canopy, the project could become a major European supplier.

 

In Israel, the company’s partners have submitted a business plan to the Israeli Division for Medical Cannabis for approval. The project is expected to have 500,000 sq. ft. of canopy, and when combined with the Greek project, could yield about 600,000 pounds of cannabis per year for sale to European end markets. 

 

Mitigating Shareholder Dilution

 

Unlike the toxic financings that led to problems in Canada, the company has structured its international deals to avoid significant dilution to its own shareholders. The company is raising $4 million in a Rule 506(c) offering to finance its portion of the deals, but the vast majority of the financing is conducted through preferred stock and debt financing in partnership structures.

Originally Published by CFN Media.