CannaRoyalty (CRZ.C) expanded its portfolio potential when the company announced today that it had entered into a binding term sheet with Rich Extracts LLC where CannaRoyalty will receive a 30% royalty on Rich Extracts’ gross revenues in perpetuity.
According to the news release, Rich Extracts has built a 30,000-square foot facility in the state Oregon for the purpose of producing cannabis extract products created by a wide selection of extraction methods.
The equipment in place has the capability of producing up to 60,000 grams per month and short path distillation units that can process up to 4,000 grams per week.
The facility has yet to begin commercial operation as it is still in process of obtaining necessary permits from the Oregon Liquor Control Commission.
However, the company expects to receive said permits in the first half of fiscal 2017.
CannaRoyalty, CEO, Marc Lustig, commented on the proposed transaction, “Rich Extracts is an award-winning brand with a mission to produce the highest quality, purest cannabis concentrates and distillates in the Oregon market. We’re excited to finalize this royalty agreement with Rich Extracts which is poised to be a leading cannabis company in Oregon, a market which in 2016 had estimated cannabis product sales of approximately US$200mm.”
Rich Extracts already has its medical processing license from the Oregon Health Authority and in August last year began to develop and expand its operations in order to comply with the expected Oregon Liquor Commission (OLCC) guidelines.
Rich Wilkinson, CEO Rich Extracts, added, “CannaRoyalty is a remarkable partner that provided Rich Extracts with the capital and resources we needed to address the changes in the Oregon regulatory environment in the fall of 2016, a critical juncture in our business. The capital has brought us to the brink of our goal to build what we anticipate will be one of the most advanced, full spectrum cannabis extraction, and processing facilities in the country.”
The announced binding term sheet, replaces the term sheet CannaRoyalty entered into with Rich Ventures.
The arrangement at hand contemplates the granting of a 30% royalty on Rich Extracts’ gross revenues in exchange for advances made by CannaRoyalty, which total an aggregate US$2.0 million to date and is expected to grow.
The transaction is based on customary conditions such as due diligence and regulatory approval from the CSE.
Both parties have executed a general security agreement which secures CannaRoyalty’s existing advances against Rich Extracts’ assets.
FULL DISCLOSURE: CannaRoyalty is an EQUITY.GURU client.