Over the past four years this column has taken a special interest in developments at Quinsam Capital Corp., a Canadian Stock Exchange listed merchant bank that started life as a capital pool company but emerged with a new shareholder group in late 2013.
Part of that focus arose because Roger Dent, a veteran small cap manager, was the key member of the new shareholder group. At the time, Dent was a portfolio manager with Matrix Fund Management. Dent had also worked on the sell side where he was a top rated small cap analyst.
“We will position Quinsam to invest in companies that are undervalued or unloved but we believe have tremendous upside value,” said Dent at the time, adding Quinsam will be “an agile and disciplined investor in the small cap market.”
Quinsam was also different because the shareholder group weren’t getting paid to be employees.
Quinsam, which had a colourful record – two qualifying transactions were entered into but called off before it ventured into mining and e-learning — was an attraction because of some tax losses that were available.
So Dent, after acquiring an almost 10-per-cent stake, and his group, which included John Lewis, its head of corporate development, raised $600,000 via a non-brokered private placement at $0.06 a share, then went to work. They raised additional capital in bite-sized chunks （though a plan to raise $5 million in early 2014 didn’t pan out as hoped）； made investments, and implemented a dividend policy. But given the nature of its business, it’s small, and exists to buy and then sell its investments, and has not attracted any analyst coverage.
This week, Quinsam showed that interest has been worthwhile. The company closed its largest equity financing, a $2.425 million raise where buyers were offered units. Each unit cost $0.15 and gave buyers a share and half a share purchase warrant, and allowed holders to purchase a new share at $0.30 over the next two years. The shares closed Monday at $0.32.
While the financing was done on a non-brokered basis （meaning no firm was hired to raise the capital） Quinsam did pay almost $142,000 in cash finders fees. It’s understood that clients of investment advisers at Canaccord Genuity, Haywood Securities and Industrial Alliance bought the bulk of the units.
Quinsam plans to use the $2.4 million raised from the current offering largely “to purchase financial interests in cannabis companies.”
Why cannabis? Clearly its a growth area, there’s considerable market activity and given the opportunity, Quinsam wants its share of the action.
In an interview, Lewis said, given that governments are legalizing cannabis both for medicinal use and also for recreational use, “we see it as a budding industry, be it as a dispenser, a grower or in any ancillary business that serves the industry. It all comes back to value.”
Adds Dent: “As we look at the U.S. we see a market we think is much like the Canadian market was a few years ago. While there are risks in the U.S. market, we see significant opportunities for creative investors there.”
So far, Quinsam has made three investments in the U.S. cannabis sector: one in a company that’s in the growing, extraction and dispensing part of the market and the other in a company planning on entering the cultivation phase of the industry.
In May, it announced its single largest investment: the intention to acquire High Standard Royalty Co. and to finance the start-up costs of establishing a medical marijuana dispensary located in Maryland — a US$655,000 investment. That deal is slated to close this week.