Biome Grow Inc. (OTC: ORTFD) (CSE: BIO) announced Friday November 2, 2018 that its Newfoundland and Labrador brand, Back Home Cannabis Corporation (“Back Home”) has entered into a 24,000 kg three-year production and supply agreement (the “Supply Agreement”) with the Province of Newfoundland and Labrador (the “Transaction”) pursuant to which the Company anticipates annual revenues of up to approximately $100 million and recovery of $52 million through reduced remittances to the Newfoundland and Labrador Liquor Corporation (“NLC”), beginning in 2020.
The Company will achieve the expected $100 million in revenue per annum by virtue of wholesale distribution to the NLC at a wholesale price. This wholesale distribution coupled with the quantity to be supplied will account for a significant portion of the total revenue based on the expected prices to be received. A discount premium will be applied providing for an additional revenue stream with such discount premium to be shared initially by the Company and the NLC for a period of five years or collection by the Company of an aggregate of $52 million, following which, the NLC will receive the entirety of the discount premium (as discussed further below). There is also additional revenue to be gained through the retail stream and the operation by the Company of five retail stores anticipated to open prior to 2020, which will account for the remaining portion of expected revenues beginning in 2020. In generating the expected revenue of $100 million, the Company anticipates expenses of $50 million per year. This amount is comprised of (i) $30 million in direct production and operating costs such as direct salaries, power/utility costs, and input costs (including nutrients, water, growing medium); and (ii) $20 million in indirect facility and administrative costs such as administrative and non-production salaries, marketing costs, facility maintenance and balance of facility mechanical costs, retail support costs, financing expenses associated with the planned expansion, and accounting and legal expenses. Please see “Forward-looking Statements” and “Future Oriented Financial Information and Financial Outlook” below for further details.
Additionally, the Company plans to recover up to $52 million through reduced remittances to the NLC. Specifically, pursuant to the Supply Agreement, Biome can recoup eligible construction costs through reduced remittance to the NLC, with a set term of 5 years. To be more specific, in exchange for new jobs and the construction of a new production facility in the Province, Biome will receive a discount on the revenue it will provide monthly to the NLC. The Company will retain a portion of the NLC commission that will be considered the ‘premium’, or reduced remittances to the NLC, up to a maximum of $52 million over a five-year term. The $52 million dollar value is based on the assumption that the Company is able to successfully capture a large portion of the Newfoundland Labrador market for cannabis sales with such sales averaging in excess of $104 million per year (exclusive of tax), assuming competitive pricing and sales in Company-owned stores, third party-owned and licensed cannabis stores, as well as online. In exchange for the reduced remittances to the NLC, the Company will maintain 120 production jobs for a minimum of 20 years. This will be facilitated as a part of the $60 million expansion of Back Home’s production facility, which will be funded by utilizing existing cash on hand, as well as a mixture of debt and equity, assuming favourable market conditions, and if in the best interest of investors to do so.