2024-02-10 06:15:00 ET
Summary
- The past year has shown something we thought to be true about the business when we invested: it is very safe relative to most cannabis lending.
- XS Financial depends on a few different things to generate returns - one of those is increasing how much money it lends.
- The equity markets have been particularly unkind to XS, leaving them in a position of being modestly subscale despite their disciplined and successful loan book.
- We believe that the "acquihire" value of a team which has done the work that XS has done in such a challenging industry is alone worth north of the current price.
The following segment was excerpted from this fund letter.
XS Financial ( XSHLF , CSE:XSF)
XS Financial's business, we believe, has performed well. A simplified overview: XS provides a form of financing to cannabis operators centered around equipment leasing. If MSO A needs to expand in State Y, it can find sale leaseback financing to fund the facility buildout, but often needs additional money to fund the purchases of equipment necessary to make the facility actually run - extraction units, packaging machines, lights, etc. XS provides financing for the latter type of capex spending, usually loaning some portion of the purchase price to MSO A in a fully amortizing lease that is paid off in under five years. XS' current portfolio yield on its leases is around 14.6%....
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Bengal Capital - XS Financial: 'Acquihire' Value Alone Worth North Of Current Price