FinCanna Capital Corp. (OTCQB: FNNZF) (CSE: CALI) a royalty company for the U.S. licensed medical cannabis industry announced, that due to Cultivation Technologies Inc.’s, (“CTI”) re-focused business strategy, FinCanna and CTI have agreed to a restructured agreement (“RA”). Under the RA, FinCanna is to receive approximately US$3.9 million as repayment of CTI’s outstanding secured loan and receive payments equivalent to 3.44% of the consolidated topline revenue of CTI in perpetuity.
Upon completion of the RA, the RA will replace the current funding agreement and FinCanna will no longer need to provide additional financing to earn payments in perpetuity on any of CTI’s projects, as the RA covers all of CTI’s current and future projects. CTI has entered into a sale escrow agreement for US$4 million for its 6-acre property in Coachella, California subject to certain conditions. The sale is expected to close in December 2018 or January 2019, and the expected net proceeds of approximately US$3.9 million after transaction costs will be paid to FinCanna. CTI has the option to increase its cash payment to FinCanna before December 31, 2018, and the payments in perpetuity of 3.44%, based on total cash payments to FinCanna of US$3.9 million, would alter based on total cash payments to FinCanna under a predetermined formula.
Additionally, FinCanna will continue to earn 50% of the profits of CTI’s Interim Extraction and Manufacturing Facility that is expected to remain in operation until June 2019, FinCanna will receive certain purchase warrants in CTI’s next equity financing and will retain customary security over its overriding royalty.
CTI’s refocused business strategy towards extraction, manufacturing, and brand development, instead of large-scale indoor cultivation, is a result of changing market conditions and prioritizing ROI. As a result, CTI intends to retrofit its 5,200 sq ft, building site in Palm Desert, California as a permanent extraction and premium manufacturing facility for various established premium brands such as its own Coachella Premium and for others.
CTI also intends to develop its wholly-owned two-acre site in Colusa, California as a biomass processing, manufacturing and distribution facility to serve the Bay Area and other key markets in Northern California.
Andriyko Herchak, President and CEO of FinCanna Capital states, “The new agreement is a very positive move forward for FinCanna and allows CTI to finance and execute on its refocused business to create long-term value for both parties. We are very bullish on CTI’s new strategy and anticipate a much quicker path to royalty revenue to FinCanna without any further financing obligations. Lastly, the expected cash proceeds from CTI of US$3.9 million will provide us with additional non-dilutive funds to expand our royalty investment portfolio with a goal to leverage additional verticals in the U.S licensed cannabis markets that are in need of financing for rapid growth.”