Cannabis royalty companies give investors a chance to invest in multiple ancillary companies within the cannabis sector that they would not have access to otherwise. There are similarities and differences between the two models that will be outlined in this piece.
The cannabis royalty business models are attractive for a few different reasons.
One being diversification, meaning lower risk. If a company is getting product or revenue from multiple investments or sources it spreads the risk out to multiple bodies. If a company has one different companies paying it and one of the five goes into bankruptcy, there are still four revenue generating streams.
FinCanna (CALI.C) At A Glance:
Market Cap: 21.5126 Mil
Shares Outstanding: 75,482,777
FinCanna is an early stage company who has done $479,000 in revenue in 2018. FinCanna is projecting just $7 million revenue for 2019 as the projects it has invested in are also early stage. One of the most exciting aspects to FinCanna’s portfolio is CTI’s Coachella brand operating out of California. CTI has the naming rights to use Coachella as a brand, FinCanna has given CTI $3 million in funding as of August, 2018.
Current Royalty Agreements:
Cultivation Technologies Inc. (CTI) – FinCanna is providing funding to CTI for its planned 111,500 sqft indoor medical cannabis facility in Coachella, California. They also established a medical cannabis extraction facility on the Coachella Property through CTI’s Conditional Use Permit. The lab is also producing and selling licensed medical cannabis products. FinCanna will provide $3M USD in funding for a 14% royalty on revenue. FinCanna projects the royalty will earn them $1.6M USD per year beginning six months post funding.
Green Compliance Inc. – FinCanna is providing funding for Enterprise compliance and point-of-sale software solution (“ezGreen”) for licensed medical cannabis dispensaries and cultivators. FinCanna will provide $3M USD in funding in July/August, 2018 for a 10% royalty on revenue. FinCanna projects the royalty will earn them $3.2M USD per year beginning six months post funding.
Gram Co. – FinCanna is providing funding for Gram Co., a cannabinoid research and refinement facility based in Oakland, California, focused on the medical cannabis industry to provide B2B and B2C products and services to licensed medical dispensaries to be operational by end of 2018. FinCanna will provide $1-3M USD in funding in July, 2018 for a 7.5-14% royalty on revenue. FinCanna projects the royalty will earn them $2.24M USD per year beginning six months post funding.
CROP (CROP.C) At A Glance:
Market Cap: 42.26 Mil
Shares Outstanding: 112,371,278
CROP’s royalty portfolio gives investors exposure to six early stage cannabis businesses, covering most of the verticals when it comes to cannabis production and distribution. CROP has royalty deals in the investment, retail, extraction, construction, and renter/owner projects for cannabis producers. Half of the businesses in CROP’s portfolio are in the application and construction phase, including an international property in Northeastern Italy.
Federally regulated US investment banks aren’t yet lending to the cannabis sector, so royalty companies like CROP make this financing possible with the help of the looser Canadian markets. The CSE has been by far the favourite thus far for most Canadian and American cannabis companies to list on.
|Property||Property Type||Location||Construction Status||Planned Size|
|Emerald Heights Retail||Retail outlets||San Bernardino, California||Application||2 retail outlets|
|Humboldt Farms||Indoor growing||Humboldt County, California||30,000 sq.ft complete||30,000 sq.ft|
|Nevada||Outdoor growing||Nye County, Nevada||Production ready pending license||315 acres|
|The Park||Indoor growing||Grant County, Washington||Completed retro-fit||35,000 sq/ft|
|The Dozen||Indoor growing||Grant County, Washington||Construction Underway||114,000 sq./ft|
|Italy||CBD extraction||Northeastern Italy||Outdoor planting to commence||522,000 sq/ft|
With cannabis being recreationally and medically legal in a growing number of US states, but still illegal federally,royalty and streaming companies have had the opportunity to become the bank to many of these businesses in the United States.
Similarly, in Canada the big banks have stayed away from financing cannabis companies as the banks have US ties. This has allowed companies like Auxly (XLY.V) and CannaRoyalty (CRZ.C) to thrive as they provide funding and help with other startup costs for early stage Canadian cannabis companies.
FinCanna wins this one as it has less shares out, is more diversified and is more undervalued according to its financial health ratios. Their diversity lies in the fact that they have deals with software, retail, production and dispensary companies.
FinCanna (CALI.C) has royalty deals with producers and retail and software companies. Investors like this model is it potentially gives them access to different areas within a sector. FinCanna have designed their royalty agreements to protect themselves from potential poor performance of the companies they invest in.
Their setup allows them to take gross royalties off the top, which differ from net royalties that are paid after expenses. .
Streaming on the other hand is similar in its risk diversification, but differs in its structure. Where royalties are taken off the top in the form of cash payments, streaming deals involve payment in the form of product.