Cannabis streaming and royalty companies give investors a chance he risko invest in multiple 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 streaming and 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.

 

Royalty vs. Streaming

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.

FinCanna’s 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.

1.FinCanna (CALI.C) 

Best Value & US Growth Potential

Market Cap: 21.5126 Mil

Shares Outstanding: 75,482,777

Price/Book: 1.72

FinCanna is arguably the most diversified cannabis royalty company in the US as it has deals with software, retail, production and dispensaries.

FinCanna is also 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.

2. Auxly (XLY.V)

Most Well Known Streaming Co.

Market Cap: 694.8680 Mil

Shares Outstanding: 573,652,046

Price/Book: 2.05

Auxly expects to see 8,000 kg’s per year from ABCN, part of their expected 230,000 kg’s per year, making them larger than any LP in Canada.

Auxly offers a wide variety of services for emerging cannabis companies. This includes branding, construction, consulting, licensing and legal affairs.

For example, Auxly (formerly Cannabis Wheaton) will still be receiving cannabis from VIVO (VIVO.C) long after we are all deceased. Auxly funded a VIVO facility and now in return gets 50% of VIVO’s (VIVO.C) cannabis production yields from that property for the next 99 years.  In exchange for this, Auxly will invest 55 million CAD between 2017 and 2019.

Company Province Agreement Stage Anual KG’s to XLY Notes
Abcann ON SA Sales Licence 8,000 50% of proceeds from 50k sqft exp. after current 100k sqft expansion is complete
Aphria ON SA Cult. & Sales 15,000 Until 2022 – 60000kg over 4 yrs. for export
Artiva ON SA Pre-Affirmation 17,800 33% of cultivation at cost + 10% for 10 years. Right of first refusal for future expansion.
Beleave ON SA Cult. Licence 15,000 50% proceeds of 200,000 sqft joint venture named ‘Newco’
CannabisCo. (IDP Group & HMT Solutions) ON BSA/SA Early Stage 22,500 Nestle Building – kg based on 300,000 sqft build out
Robinson’s Cannabis NS SA Affirmation 10,400 formerly Cannahort Agriculture
CannTx Life Sciences ON SA Affirmation 1,980 33% of all cannabis for 10 yrs. For Phase 1 and Phase 2 build out…total 24000sqft.
Curative Cannabis ON SA Pre-Affirmation 15,000 Initial footprint of 30,000 sqft with additional facility of 120,000sq.ft.
FV Pharma-Century Financial Capital Group Inc. ON JV Cult. Licence 200,000 Kraft Building – 620,000 sqft – new name ‘Cannabis ConneXion Corp’
Great White North Growers QC SA Affirmation 8,300
GreenhouseCo – Peter Quring ON JV Pre-Affirmation 162,000 4.2 m sqft of greenhouses in Leamington..360,000kg production total after Phase 3
Green Relief ON SA Cult. & Sales 115,500 In active discussion regarding their facility expansion
Level Ten ON SA Pre-Affirmation 8,100 30% perpetual stream of cannabis cultivated in Phase 1 – 278,000sqft
Lotus Ventures BC SA Active Review 6,000 50% of all cannabis proceeds for 10 yrs. and right of first refusal for expansion projects
Plan C BioPharm BC SA Affirmation 7,000
Kolab Project – RockGarden Medicinals ON SA Cult. Licence 2,080 Online Medical distribution with application for Export Licence
Sustainable Growth Strategy Capital – SGSC ON BSA/SA Pre-Licence 5,500 30% perpetual stream of cannabis from initial 145,000 sqft build out

The risk in Auxly is that sure they will have around 620,000 kg’s if all goes as planned, but, if there is an oversupply of product flooding the market that large amount of flower wont be as valuable as a company who has high margin extract products that they are moving at scale.

3. CROP (CROP.C)

Potential International Exposure

Market Cap: 42.26 Mil

Shares Outstanding: 112,371,278

Price/Book: 5.15

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.

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