FinCanna Capitalizes on CA’s Burgeoning Cannabis Industry
September 15th, 2017
The U.S. cannabis industry is projected to reach $50 billion by 2026, according to Cowen & Co., driven by the legalization of medicinal and adult use marijuana in several states. Despite these massive growth rates, federal prohibition has prevented large agricultural, pharmaceutical, and tobacco companies from participating in the upside. The flip side of the problem is that emerging cannabis companies can’t access capital through traditional banks and capital markets.
FinCanna Capital Corp. aims to capitalize on these dynamics by providing access to capital in exchange for royalties from licensed medical cannabis operations. In July, the company announced a deal with Astar Minerals Ltd. to complete a reverse-takeover and become a publicly-traded company in Canada. Investors interested in the cannabis industry may want to keep a close eye on these developments given the near-term potential to invest.
California’s Burgeoning Market
California is the sixth largest economy in the world and it’s poised to become the largest legal cannabis market in North America. Analysts estimate that the state’s annual revenue will reach $6.5 billion by 2020, while generating upwards of $1 billion in tax revenue. In fact, the state’s market could be twice the size of Canada’s entire national market, making it the largest cannabis market for investors interested in the space.
After becoming the first state to legalize medical cannabis in 1996, the state developed into a sophisticated consumer marketplace over the years. The legislature passed the Medical Cannabis Regulation and Safety Act in 2016 and the Adult Use of Marijuana Act in November 2016. State regulations will come into effect in January 2018 for both medical and adult use, which could significantly disrupt existing supply and demand dynamics.
There are several large barriers to entry for new companies entering California’s cannabis industry. In addition to the high capital costs for compliant indoor facilities, companies must obtain local approvals in a process that can take a year or more as well as meet rigorous pesticide and testing standards. These constraints could keep supply levels low over the coming years at a time when consumer demand is expected to increase.
The Flagship Coachella Campus
FinCanna’s flagship investment is in Cultivation Technologies Inc., a best in class operating partner, on a fully-entitled 111,500 square foot licensed medical cannabis facility to be constructed on six acres of land in Coachella, Southern California. The facility is expected to be one of the largest facilities of its kind in the largest cannabis market in North America, making it a generational, time-limited, opportunity for investors interested in the space.
The facility is expected to include an 81,600 square foot cultivation center, 9,000 square foot extraction and manufacturing center, and 20,900 square feet for testing, distribution, processing, and other activities. The indoor multi-tier grow systems will produce ultra-premium, chemical/pesticide-free product with an expected 2.5x yield compared to conventional technologies. Meanwhile, the extraction facility will enable white-label production in a programmable, repeatable, and scalable system.
The company plans to finalize the project financing and break ground during the third quarter of 2017 and commence production approximately 10 months later. The team has already secured a development agreement and conditional use permit and is in the process of obtaining the building permits to begin construction.
Innovative Business Model
FinCanna is investing C$14 million into Cultivation Technologies Inc. in return for royalty payments, which will be the greater of 10% of CTI’s revenue or 20% of CTI’s EBITDA from the Coachella Campus. In addition to these capital investments, the company has the right to finance CTI’s next two licensed medical cannabis facility projects on the same terms as Coachella Campus. The second project has already been identified in Colusa, Northern California on 10.78 acres under a CTI option agreement.
FinCanna Capital Corp. aims to capitalize on the fragmented U.S. licensed medical cannabis industry by providing access to capital in exchange for royalty payments from licensed medical cannabis operations. In California, the company is using a compelling royalty-based business model to invest in an operating leader that is developing very significant, state-of-the-art licensed medical cannabis projects.
FinCanna Disclaimer – http://fincannacapital.com/relevant-disclaimers/
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