CannaRoyalty Secures Revenue Royalty and Product Distribution Agreement through 2024 with Leading California Licensed Medical Cannabis Distribution Company
CannaRoyalty Corp. (CSE:CRZ) (OTCQB: CNNRF) is pleased to announce that it has entered into a binding term sheet (the “Term Sheet”) whereby CannaRoyalty will invest a total of US$5 million, in two tranches, in exchange for a royalty equal to 2.25% of the net sales of River Wellness Inc. (“River”) until the US$5 million advance is repaid, and then 1.75% of net sales for the balance of the royalty term ending December 31, 2024. River has also agreed to a US$15 million purchase commitment for CannaRoyalty’sproducts in California over the term of the royalty agreement.
River was the first company in California to receive a permit for medical cannabis wholesale logistics, distribution and transportation. The company has built a leadership position whereby it represents over 20 leading cannabis brands, supporting over 100 cannabis farmers and manufacturers, and has relationships with over 400 retail collectives throughout California. River’s fiscal 2016 revenues were US$26 millionand are expected to grow rapidly over the almost 8 year term of the agreement. ArcView estimates thesales for the California medical cannabis market in 2016 were US$2.7 billion and will exceed US$6.6 billion in annual sales revenue by 2020, with a 5-year projected CAGR of 20%.
River will also support the launch and expansion of CannaRoyalty’s brands and products by agreeing to a preferred distribution arrangement of such products by way of a distribution agreement. The arrangement includes a commitment from River to acquire US$15 million of CannaRoyalty brand products over the term of the agreement.
“This is a milestone investment for CannaRoyalty. We expect to earn a significant and stable royalty on the growing revenues of a dominant distribution company that is already a leader in the compliantdistribution of medical cannabis products in California, the largest medical cannabis market in the world. Over and above this, we’ve obtained a distribution deal to expand the reach of our brands to the California market,” said Marc Lustig, CannaRoyalty CEO.
River serves the medical cannabis community in California and provides safe storage and transport of medical cannabis products throughout California. The company maintains a qualified sales force to grow revenue for each of its brand partners and ensures the safety and quality of the product to their retail partners by way of product testing with third party cannabis testing laboratories. Distribution is a key strategic component of most cannabis sales verticals, and accordingly, is a critical segment of the cannabis market. River has quickly become a leading cannabis distributor because of its focus on compliance and best practices.
“We are excited to partner with CannaRoyalty and have them as our strategic partner given their strong business acumen and the many synergies we see with their existing holdings and platform,” said Lauren Fraser, Co-Founder and President of River. “We believe this relationship will serve us well in our plans to grow our leadership position in the California market and look forward to collaborating with CannaRoyalty on our mutual expansion.”
Pursuant to the Term Sheet, CannaRoyalty has agreed to advance an aggregate amount of US$5,000,000, funded in two tranches: (i) an initial advance of US$3,500,000 to River on the date of closing (the “Royalty Financing Amount”); and (ii) a second advance of US$1,500,000 prior to December 31, 2017. Closing is subject to, among other things, (i) satisfactory completion of financial, operational and legal due diligence by CannaRoyalty; (ii) the execution of final definitive documents acceptable to CannaRoyalty; and, (iii) the satisfaction or waiver of all conditions to closing specified in the definitive documents. The parties will also execute a general security agreement to secure the Company’s advances (and any funds subsequently owing to the Company) against the assets of River.
CannaRoyalty is a fully integrated, active investor and operator in the legal cannabis sector. Our focus is to build and support a diversified portfolio of growth-ready assets in high-value segments of the cannabis sector, including research, consumer brands, devices and intellectual property. Our management team combines a hands-on understanding of the cannabis industry with seasoned financial know-how, assembling a platform of holdings via royalty agreements, equity interests, secured convertible debt and licensing agreements.
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