FinCanna Capital Corp. (CSE: CALI), is pleased to report a significant development in the extraction business of its flagship investment in California.
Cultivation Technologies Inc (“CTI”) has announced that it is now directly operating its interim medical cannabis extraction facility (“Interim Extraction Facility”) and plans to directly operate its permanent facility (“Permanent Extraction Facility”) to be constructed at its 6-acre site in Coachella, California. This change was made possible due to the new regulations in California that took effect on January 1st of this year. In conjunction with this restructuring, FinCanna and CTI have amended their funding agreement and can capitalize on these significant economic opportunities.
Interim Extraction Facility
The Interim Extraction Facility, which commenced operations in October 2017, had been operated by a third-party tenant of CTI on its site in Coachella. Under this prior arrangement, CTI was entitled to a maximum of 20% of the production capacity of the Interim Extraction Facility, with at least 80% of production capacity belonging to this third-party tenant, on which CTI was entitled to a minor profit share. CTI has assumed the operational role and obtained state licenses for Type 7 manufacturing and distribution, and has the rights to 100% of the production capacity, which it will allocate towards extraction services, including white labeling for other brands, and CTI-branded sales. The new operating structure is expected to result in significant economic opportunities to CTI. FinCanna continues to be entitled to receive 50% of the profits of CTI which are derived from this Interim Extraction Facility.
This Interim Extraction Facility can currently process an estimated 6,000 pounds of biomass per month to produce approximately 3.7 million grams of raw oil per year. Under the new operating arrangement, CTI has the ability to add an additional extraction machine and fractional distillation and winterization equipment. This would result in additional capacity to process 3,000 pounds of biomass per month and the ability to service third-party vaporizer, winterization and distillation customers at a scale of approximately 100,000 grams of finished product weekly.
Permanent Extraction Facility
The Permanent Extraction Facility was planned to be operated by a third-party tenant under similar operating and economic terms as those initially contemplated for the Interim Extraction Facility. The new arrangement provides CTI with the ability to drive new products lines, add distribution services and improve control over sales channels. The economics of this new operating arrangement result in potential revenues to CTI that are significantly higher than those expected prior to the restructuring. As FinCanna receives a royalty based on sales, this translates to a significant increase in expected royalty revenues to FinCanna from the Permanent Extraction Facility once in operation.
Funding Agreement Changes
CTI and FinCanna have also agreed to amend their funding agreement to provide for certain changes to the terms of FinCanna’s investment:
- CTI to receive US$3.15 million dollars in tranches under the existing loan agreement with FinCanna. The funds will be used for the restructured extraction operations, to secure an additional 5MW power commitment at the Coachella site and for working capital purposes. The investment allows CTI to capitalize upon the immediate opportunity in California through extraction, manufacturing, and distribution before construction of the Coachella Project;
- The annual interest rate on the loan increases from 10% to 20%;
- 7% of CTI’s revenues will be paid to FinCanna and applied against interest and principal on the loan until it is fully repaid, which may accelerate repayment of FinCanna’s loan;
- The royalty to be earned by FinCanna on CTI’s Coachella Project increases to 14% of revenues and will be paid as a royalty (previously 10% of revenues to be paid as a dividend);
- A new conversion feature was added to the loan, which allows FinCanna the option to convert the loan into a percentage (up to 5%) of CTI revenues in perpetuity on projects which FinCanna does not elect to fund;
- Certain deadlines in the funding agreement related to CTI’s project financing for the Coachella Project were extended.
FinCanna CEO, Andriyko Herchak, comments, “We are thrilled with the new operating structure of CTI’s extraction operations. As revenues from the extraction and manufacturing business are now expected to be the largest segment of CTI’s Coachella Campus, the increase in expected royalties to FinCanna are very significant. We continue to be impressed by CTI’s exceptional management team and support their strategic approach to the market.”
Sponsored Content Release
FinancialBuzz.com, a leading financial news informational web portal designed to provide the latest trends in Market News, Investing News, Personal Finance, Politics, Entertainment, in-depth broadcasts on Stock News, Market Analysis and Company Interviews. A pioneer in the financially driven digital space, video production and integration of social media, FinancialBuzz.com creates 100% unique original content. FinancialBuzz.com also provides financial news PR dissemination, branding, marketing and advertising for third parties for corporate news and original content through our unique media platform that includes Newswire Delivery, Digital Advertising, Social Media Relations, Video Production, Broadcasting, and Financial Publications.