Grow Group PLC, the medicinal cannabis supplier, said it expects to "make lots and lots of money and help lots and lots of patients" thanks to its launch of an innovative new trade finance structure, which also is making backers extremely happy with interest rates of 20%.
The company, which says it is the leading medicinal cannabis distributor UK, has been using the new approach to fund purchases of medical cannabis to build its inventory faster as it expands supplies to its core markets of the UK and Ireland, keeps up the pace in fast-growing Germany and eyes moves into new markets elsewhere in Europe and Australia.
Grow, which was founded almost six years ago by former commodities trader Ben Langley, has so far carried out eight trade finance deals and is looking for new sophisticated private investors.
"The bigger we can get this pool from investors the more money everyone can make," he says.
Having tapped 10 existing investors, some of which are also former commodity traders, the company is starting to widen its net.
"The next step, we are talking to some of the some of the largest commodities people in the world to supersize it."
Frustration at the recent dearth of capital available for cannabis-related deals led Grow Group to this unconventional approach.
But now it's working, Langley is confident that revenues that grew to roughly £7mln in the past year, pre-audit, from £5.1mln the year before, can be more than doubled in the current year.
"We've begged and borrowed from friends and family and crowdfunded to get us to where we are. We've raised £12mln over the years, that's funded us for six years, which for a fast-growth company is a relatively low burn rate."
He argues this prudence with cash has taught the team discipline.
"But if we had more cash, now we've got this operational leverage we've got a massive opportunity to make lots and lots of money and help lots and lots of patients.
"We've built the platform, learnt the discipline and we've proven everything and now we just want to scale."
But he says talks with some equity finance people in the City, "the terms are terrible and it doesn't really reflect the success and opportunity of our business".
So he felt it was better to approach to use debt "to be in and out relatively short term and use that to fuel the business".
"And most of what we want to do is get funds for working capital – we're not talking about capex or investing in tech programmes which may or may not work, we're talking about buying inventory that we know sells. So the more of that we buy, the more money we make."
Pretty simple then.
How the debt finance works
An example deal goes like this.
A brand of medical cannabis was planned to be launched in launch in Germany, which already has got a track record of selling in the UK and the company is on good terms with the producer in Macedonia.
"So for our first shipment into Germany, we wanted to buy I think 30kgs at a price of around €3 a gramme, so it's a €90,000 deal."
Grow raised essentially 100% loan to value from two of its existing high net worth investors, split 50-50.
"It's a simple sort of unsecured loan agreement but the differences are twofold," he says.
"First, the maturity of the loan agreement is when the last gramme of that shipment has been sold to a pharmacy or direct to patients. So at that point, our investor gets the principal back plus the interest. And the other difference is that the interest is the greater of either 10% or 20% of the gross profit on the trade."
He says "the good thing" about these trades is that they tend to make roughly 50% margin.
For the two funders of the transaction, if all goes to plan they will get 20% of the €90k, so get €18k.
"And if you're also getting that within six months, which is when we expect it all to sell, obviously the annualised interest rate is essentially an annualised interest rate of close to 50%. If you follow my maths."
What's more, Grow provides detailed reporting on the progress of the deal to keep investors up to date.
"We make people sort of partners in the trades," says Langley. "So initially we went out to some of our shareholders and said that we've got an opportunity to finance a purchase of some medical cannabis and we'll give you monthly updates.
"So: where it is in the shipping cycle, if it's in customs when it's got through, what the packaging looks like, what it looks like when the first shipment to pharmacies is made, what's sold per month, all this sort of stuff."
He says this level of reporting was not 100% necessary, "but because cannabis is quite emotive we thought it would be good to make the funders of the transaction a real part of the story so they follow the trade through".