Tidal Royalty Corp. (OTC: TDRYF) (CSE: RLTY.U), a leading provider of royalty financing to licensed U.S. cannabis operators, is pleased to announce it has signed a Letter of Intent (” LOI“) agreement on August 29, 2018 with a California-based licensed operator (” Palm Desert Cannabis Company“) to finance a new cannabis manufacturing and distribution facility in Palm Desert.
The Palm Desert Cannabis Company is led by a seasoned management team with experience across cultivation, manufacturing (including extraction) and retail distribution. The company currently has presence throughout California and holds entitlements for facilities in both Northern and Southern California. The Palm Desert Cannabis Company’s products are distributed through a network of dispensaries under their own brands, as well as multiple retail brand partnerships.
Pursuant to the LOI, Tidal Royalty will provide the Palm Desert Cannabis Company with US$5 million to finance the build-out of the Palm Desert facility. In return, the Palm Desert Cannabis Company will pay Tidal Royalty the equivalent of 10% of all net sales generated by the Palm Desert operations in California initially and, once certain payments thresholds are met, 5% in perpetuity thereafter, along with 2,000,000 common share purchase options (representing approximately 5% of the share capital of the Palm Desert Cannabis Company).
“We are very excited by this opportunity,” said Paul Rosen, CEO & Chairman of Tidal Royalty. “The combination of existing operations, brand partnerships and the strategic foresight of this management team gives us great confidence that, with Tidal Royalty’s capital, they will expand their market share. California is one of the largest cannabis markets in the world and we are excited by the prospect of adding the strength of this group to our portfolio.”
With a population of 40MM, the state of California has the potential for its adult-use cannabis market to be one of the largest in the world. California legalized adult-use cannabis on January 1, 2018, and the market is expected to grow to US$3 billion by the end of the year, according to Marijuana Business Daily.
The LOI includes an exclusivity period during which the Palm Desert Cannabis Company will not negotiate with any other party. Closing of the transaction contemplated by the LOI is subject to, among other things, the satisfactory completion of Tidal Royalty’s diligence investigation, which is currently underway. Tidal Royalty expects to announce further particulars in respect to the contemplated transaction with the Palm Desert Cannabis Company upon the execution of a definitive agreement between the parties and the receipt of necessary regulatory approvals.
To date, Tidal Royalty has consummated royalty transactions relating to operators licensed in Florida and Arizona, which operators intend to pursue licenses in Massachusetts, and has entered into letters of intent with licensed cannabis operators in California, Nevada, and Illinois. In addition, Tidal Royalty is in the process of evaluating multiple additional opportunities across the U.S., including in New York, Ohio, Pennsylvania, Texas and Michigan. Tidal Royalty intends to provide further information on the opportunities it is evaluating when the respective parties reach an agreement and execute letters of intent.