CannaRoyalty to Acquire 100% of California Licensed Producer FloraCal® Farms, an Ultra-Premium Craft Cannabis Company

CannaRoyalty Corp. (CSE: CRZ) (OTCQX: CNNRF) (“CannaRoyalty” or the “Company”), a leading North American cannabis products and brands company, announced that it has entered into a binding term sheet to acquire 100% of FloraCal® Farms (“FloraCal”), a licensed ultra-premium craft cannabis producer located in Sonoma County, California for total purchase considerations of US$1 million in cash and 3,508,772 CannaRoyalty shares on close, as well as up to an additional US$3 million in cash and 3,508,772 shares to be paid over 3 years, based on completion of certain milestones (the “Transaction”). FloraCal adds branded premium cannabis flower and pre-roll products to CannaRoyalty’s diverse portfolio. FloraCal is building its Sonoma County facility in three Phases and has been designed to comply with cGMP* (Current Good Manufacturing Process) standards. Phase I is licensed and in commercial production, with 15,000 square feet of purpose-built indoor growing in a 64,200 square foot facility. Phase II has been licensed and will increase the facility size to 42,200 square feet and targeted annual production of 3,700 kg, with construction expected to commence in Q2 2018 and be completed by Q1 2019. Phase III is under option and would allow further expansion to the full facility size of 64,200 square feet facility with targeted annual production of 5,500 kg. FloraCal has a temporary medium indoor cultivation license from the state of California, as well a Type 6 non-volatile manufacturing permit in Sonoma County.

Highlights of the Transaction

  • Strong financial performance: FloraCal’s small batch ultra-premium flower commands a premium price averaging over US$17.00 per gram. FloraCal generated US$6.4 million in Revenue1 in fiscal 2017 and US$3.2 million of EBITDA.
  • Differentiated premium flower brand fills gap in branded product portfolio: CannaRoyalty is now positioned to offer premium branded cannabis products in every major product category: flower, pre-rolls, vapes, and edibles, through its state-wide California distribution
  • Premium Brand: FloraCal is a broadly recognized premium brand in the state of California. The Transaction gives CannaRoyalty rights to commercialize the brand globally.
  • Unique strains: FloraCal possesses a unique and rare genetics collection, currently encompassing seven ultra-high-quality cannabis flowers. CannaRoyalty also has the rights to licenses these strains globally.

“FloraCal is truly unique. The rare combination of product consistency, premium pricing, authentic brand, and resoundingly positive feedback from our dispensary partners and California consumers, positions it well to be a future global cannabis brand. We see its success in the discerning California market as evidence that branded flower that is truly differentiated occupies an important place in the cannabis industry,” said Marc Lustig, CEO of CannaRoyalty. “Husband and wife team Drew and Karen started this company 3 years ago with a focus on producing small-batch, ultra-premium flower for sophisticated consumers. Through standardization of their production techniques, they have maintained this focus and positioning, even through significant growth. Their unique library of strains not available from other cultivators, combined with their attention to detail and commitment to consistent quality complements our overall portfolio strategy of acquiring top cannabis consumer brands in California that we will seek to deploy globally. We welcome Karen, Drew and their qualified team to CannaRoyalty and look forward to what we will achieve together.”

“We are ecstatic to be a part of CannaRoyalty and benefit alongside shareholders as the CannaRoyalty reputation as California’s best-in-class cannabis product manufacturer and distributor continues to grow,” said Drew Duval, CEO of FloraCal. “We think FloraCal has the opportunity to grow in CannaRoyalty’s ecosystem to a size we couldn’t achieve on our own.”

Transaction Summary

The total Transaction is for up to 7,017,544 CannaRoyalty shares and up to US$4 million. On Closing, FloraCal will receive US$1 million in cash and 3,508,772 in CannaRoyalty shares. The reminder of the Transaction consideration is to be paid over three years, on completion of certain milestones, as follows: (i) 584,795 CannaRoyalty shares to be issued on completion of phase II expansion to the entire 42,200 sq. ft. of the facility; (ii) up to 2,923,977 CannaRoyalty shares to be issued 175 days after completion of the phase II expansion, with the total amount of shares issued to be adjusted based on FloraCal’s ability to achieve set production thresholds; and (iii) US$3 million in cash to be issued in equal parts in Q1/Q2 2019, Q1/Q2 2020, and Q1/Q2 2021, all subject to adjustments, based on FloraCal’s ability to maintain its controllable costs under set thresholds. Closing is expected to occur in Q2 2018 and is subject to conditions including due diligence and regulatory approval.


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