Sproutly Canada (SPR.C) announced a joint-venture with Caribbean-based producer/cultivator Global Canna Labs, last week. With the announcement, Sproutly has shown the negotiation power of their patent and the type of business it can attract.
Sproutly Canada is the sole owner of a patent that is the best-in-class of beverage tech.
To paraphrase Chris Parry in his Canopy hit-list article, Sproutly’s APP technology has the potential to radically change how we go from weed grown to weed utilized in consumer products.
Essentially, what Sproutly’s tech does is “wash” the good stuff off the plant and into a water-soluble formula. You end up with a different extraction for every type of cannibinoid, which you can mix or keep separate at your discretion. This is then easier to work with and easier to add into products.
The method is cheaper than any of their competitors’ extraction methods and much more valuable. Water soluble cannibinoids can be felt 10-15 minutes after ingestion, and their effects only last from 2-4 hours. That rapid onset and offset makes it, possibly, the most accessible method out there for anything you want to do with cannabis.
Rapid onset and offset makes it an easy lunch choice, even if you know that you have to go back to work in a few hours. It also makes it a great end-of-the-day option, to wind down after work or with friends.
It’s highly probable that cannabis beverages will be in Canadian restaurants, probably as soon as they’re legalized, in October 2019.
“Bars, restaurants, and sports arenas are all familiar with distributing and selling liquid, consumable, packaged goods,” wrote Ned Stark (Stockhouse user, Tinley (TNLY.T) investor).
He added restaurants probably won’t start selling oils and other products that consumers can smoke or use, but beverage seem an easy fit.
Sproutly is confident their product will be just as shelf stable as most other alcoholic beverages.
Cannabis beverages are an ideal drink. The effects will be almost completely worn off by the time the patron leaves the restaurant. Consumers can actually be confident the effects will be gone within an hour of leaving the restaurant, in most cases. Less, if they linger. Which means it’s an easy product to drink without repercussions, and a safe choice to order with a meal. (The same cannot be said for traditional alcoholic beverages.)
How does Canopy (WEED.T) play into this?
Remember that hit-list article I just mentioned by Chris Parry? Parry is good at making cannabis predictions, and he’s proven it again.
During their quarterly earnings call, Canopy finally put intentions and numbers behind their acquisition plans. Canopy received $5 billion from Constellation (one of the world’s largest beverage/alcohol companies) to basically use however they wish. And now we know what they’d like to do with it.
Here’s how Canopy responded to a question from their quarterly earnings call about that $5 billion:
We have a roster of elements we might wish to acquire, none of which are producers in Canada, but there are a number of technologies that we think make sense that are out there on a global basis. So that mix of cash and shares would probably nibble up close to $1 billion.
Canopy wants to spend $1 billion dollars on cannabis and cannabis-beverage tech.
To put that into perspective, Sproutly’s current market cap is $56.7 million.
But Sproutly knows their value, or at least the value of their tech, and they’re likely not giving up on their patents until they get offered MUCH more than that. And good for them. Sproutly has earned the right to wait for the big players to come to them on their terms. Until then, they’ll just keep on making good deals like this one.
Global Canna Labs Highlights
- Largest cannabis producer in the Caribbean.
- Projecting a 1.2 m square feet grow facility to be completed by early next year.
- Their strategy is to partner with companies who can turn their flower into finished products.
- Effective sales: their partner Zimmer & Co (which sells CBD vapes, creams, and lotions) is available in 73 brick-and-mortar locations across Jamaica.
- Has plans to export to Germany.
- Their Tier-3 cultivation license grants them unlimited expansion, as well as the right to open a dispensary, herb house, and/or cannabis lounge/café.
The Terms of the JV
The deal that Sproutly and Global Canna Labs have made feels like a scene from Narcos, a show about building a cannabis empire.
“I will take on all the costs. I will do all the growing. I will take full responsibility for the success of the operation. I will ask of you nothing except a bit of police protection, and the rights to grow marijuana on your land. In return, I will offer you 50 per cent of all the profits.”
– Miguel, Narcos Mexico Season One, Episode One.
In this case, Miguel is Global Canna Labs.
Sproutly said the JV will be “for the purpose of developing, producing, distributing, marketing and selling cannabis-infused beverages, edibles and topical products derived from Sproutly’s fully licensed APP technology.”
“The joint venture is expected to be structured as a newly-formed, jointly-owned company with its own board of directors. Sproutly will have a 50 per cent interest and Global Canna Labs will own the remaining ownership interest. Global Canna Labs will be responsible for cannabis biomass production and procurement and day-to-day operations of the joint venture.”
In this JV, they’ll open a new company and split the profits 50-50. Global Canna Labs will run the operations day-by-day, they’ll provide the cannabis, and they’ll process it. They’ll turn it into product.
Sproutly hasn’t even had to lift its little finger yet.
Global Canna Labs is also responsible for all costs relating to producing final products for sale, including any equipment needed to produce beverages, edibles or other cannabis derivatives, and will leverage its existing production facility and staff for the joint venture. These costs will be decided upon by the board, along with the determination of the product lines to be produced.
Global Canna Labs is responsible for all the costs associated with the new company. That includes equipment.
The only thing that Sproutly is really offering in return is board members, the technology, the product line, and guidance. Global Canna Labs will be selling Sproutly products, the Sproutly way.
Sproutly will be responsible for providing access to the APP technology, supplying reagents, as well as beverage/product formulation capabilities (including its functional beverage formulation portfolio) for products to be formulated from Infuz2O and Bio Natural Oil. The products are expected to be sold in Jamaica and the rest of the Caribbean with potential expansion into additional European countries that allow for the import of cannabis products from Jamaica. The list of jurisdictions and product lines will be finalized and disclosed in the definitive agreement.
Sproutly negotiated this deal HARD. This is the impact of the leverage you can apply when you’re that far ahead of the competition.
What makes this deal particularly appealing is that it’s non-exclusive. Sproutly could easily form this type of deal with 10, 20 or 100 other companies. Or maybe just five more. Either way, generating that kind of passive income while actively pursuing their other international interests is not bad. Not bad at all.
Cannabis beverages are expected to be a big player in Jamaica and around the world. With brain and brawn, Sproutly and Canopy are making sure of that.
But this specific JV solves a big problem for Sproutly. You see, Sproutly will never really know how good their product tastes until it’s been tested by consumers from around the world.
Yet they want to make a splash in the Canadian beverage market. Edibles and beverages won’t be legal in Canada until the end of 2019, and they want to take the year that they’ve been given to release a perfect product on day one.
By developing and selling their product line in Jamaica, at low cost, to populations from all around the world, they’ve entered a profitable market that boasts a diverse range of people. Those people will collectively act as Sproutly’s taste testers; not just for the Jamaican market or the Canadian market or the German market, but for the GLOBAL response to their product.
With that kind of population diversity, a product that’s successful in Jamaica will likely be successful everywhere.
For now, I think Sproutly is happy to be developing their products in Jamaica, testing them out overseas, and proving they’re in possession of cost-effective, mass-manufacturable products. Then they’ll be the only company in the Canadian market with a truly vetted cannabis beverage when cannabis beverages are legalized in October 2019.
So ask me who has the brains in this market. I’ll tell you it’s Sproutly.
Full disclosure: Sproutly and Tinley are both Equity Guru marketing clients.