CannaRoyalty (CRZ.C) added to its war chest when the company announced yesterday that it had signed a binding term sheet with a Canadian institutional investor to complete a $12.0 million financing and form a joint venture (JV) to finance opportunities within the Canadian cannabis market.
According to the news release, the financing is expected to be a revolving $12.0 million secured credit facility with a three-year term. CannaRoyalty will be advanced $6.0 million upon closing.
The proceeds from this transaction will be directed toward specific opportunities that CannaRoyalty is pursuing in production and/or processing assets. A portion of the proceeds will also be used for general corporate purposes.
The facility will have an annual interest rate of 10% which is to be paid quarterly in cash or CannaRoyalty shares. Warrants have been issued to the investor to acquire 1.8 million CannaRoyalty share at an exercise price of $2.05 per share for a period of three years after closing.
Once the financing has been closed, the JV will launch and be administered by the institutional investor. CannaRoyalty will use its established relationships to identify and refer Canadian opportunities to the JV as well as assisting the institutional investor with due diligence and providing strategic support to JV investments.
CannaRoyalty CEO, Marc Lustig, commented, “Our focus on value-add assets in the cannabis sector has given us access to a broad pipeline of unique investment opportunities in Canada. This joint venture gives us a vehicle to participate in these opportunities while leveraging our joint venture partner’s expertise in hard asset lending.”
He went on to explain, “This JV will be the first in the cannabis sector and has the potential to provide a true “win-win-win” for target assets, the Investor and CannaRoyalty’s shareholders. Target Canadian assets get access to strategic capital; the Investor gets exposure to returns from highly productive assets in the cannabis sector; and CannaRoyalty attains exposure to accretive investment opportunities.”
As part of the transaction, the institutional investor has been granted the right to nominate a director to CannaRoyalty’s board. This will fill the vacancy left by Chuck Rifici when he resigned at the end of May to pursue other projects (Cannabis Wheaton).
This news comes on the heels of CannaRoyalty’s recent release of Q1 2017 financials which showed the company had upped revenues to $301,111 compared to nada during Q1 2016.
The company also realized a net loss of $2.05 million or $0.05 per share during the quarter, but Lustig explained the CannaRoyalty had spent Q1 2017 building infrastructure, opening its American office and soft-launching in preparation to fulfill the US$20.0 million revenue purchase commitment from River in California.
Lustig commented on the road ahead, “Moving forward, we expect to see a marked increase in revenues from several sources including royalty agreements, business units – most notably CR Brands, coming on-line and our strategic relationship with River, a leading California state-wide distribution company.”
CannaRoyalty continued to add to its portfolio in Q1 by signing a binding term sheet with Rich Extracts, acquiring 20% of Anandia, a Canadian cannabis biotech and last but not least, closing a $15.0 million bought deal prospectus financing.
If the company is able to continue bringing its CR Brands online as well as build its portfolio through its Canadian JV, this may be an interesting year for investors.
FULL DISCLOSURE: CannaRoyalty is an EQUITY.GURU client.