CannaRoyalty (CSE:CRZ) has announced that it has entered into a binding term sheet wherein the company will invest $5 million, in two tranches, for a royalty equal to 2.25 percent of the net sales of River Wellness until the $5 million is paid, then 1.75 percent of net sales of the balance of the royalty term ending December 31, 2024.
As quoted in the press release:
River has also agreed to a US$15 million purchase commitment for CannaRoyalty’s products 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 million and are expected to grow rapidly over the almost 8 year term of the agreement. ArcView estimates the sales 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 compliant distribution 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.