Data Shows Increasing Importance of the Cannabis Supply Chain

Written By: Jen Neville
July 10, 2018

Recent data published by Grand View Research, Inc., indicated that the global legal cannabis market is projected to reach USD 146.4 Billion by end of 2025. The increasing acceptance of cannabis medical remedies for afflictions such as cancer, mental disorders, chronic pain, among others, is expected to boost revenue growth in the near future. The report also specified that large public and private investments for the research and development of safer consumption methods of cannabis products such as tinctures, oils, vapes and edibles, are anticipated to positively strengthen market growth rates.

Citing a report from Deloitte, nearly two-thirds of current cannabis consumers are likely to buy cannabis products from a legal channel. Jennifer Lee, Partner, Cannabis National Leader, and Consumer Advisory and Analytics Practice National Leader commented, Most current and likely cannabis consumers want a variety of products offered at reasonable prices from suppliers who can vouch for the safety and origin of those products. Cannabis companies will need to have secure supply chains to protect the quality and integrity of their products, and retailers will need to meet consumer expectations, including providing a positive, engaging retailing experience and protecting the privacy of their customers, especially online.

Tidal Royalty Corp. had entered into a Letter of Intent as of July 8th, 2018, with an established licensed operator based in Las Vegas, Nevada to finance the expansion of the company's operations in the state. The Nevada Cannabis Company is led by a seasoned management team with experience in the cannabis industry, as well as deep ties to the music industry. As part of the transaction, the Company will implement a newly-developed cultivation technology that will effectively double the available cultivation canopy (from 20,000 sq. ft. to 40,000 sq. ft.) in its central Las Vegas facility. The Nevada Cannabis Company distributes its products through its wholly-owned dispensary in Las Vegas, as well as through a network of 3rd party dispensaries throughout Nevada.

Pursuant to the LOI, Tidal Royalty will provide the Nevada Cannabis Company with up to US USD 15 M to finance the Company's expansion plans and to establish a new processing facility that will enable it to bring a broader range of products to market. In return, the Nevada Cannabis Company will pay Tidal Royalty 15% of net sales generated by all operations in Nevada in perpetuity. This includes both net sales generated from existing cultivation and dispensary sales, as well as incremental sales generated by the planned expansion.

"We are excited to announce this LOI," noted Paul Rosen, CEO & Chairman of Tidal Royalty. "The combination of existing profitable operations, marketing expertise, sophisticated cultivation technology and a proven ability to win market share gives us great confidence that this company will experience continued growth and success in one of the largest cannabis markets in the US and the world. It is an archetypical company that we look to support with our innovative financing model, and it stands to benefit significantly from Tidal Royalty's financial support."

Nevada has the potential to be one of the largest adult-use markets in the US. According to Marijuana Business Daily, the state's adult-use market is expected to grow to USD 600M by the end of 2018. The vast majority of that revenue is expected to be generated in Las Vegas.

The LOI includes an exclusivity period during which the Nevada Cannabis Company will not negotiate with any other party. It further provides Tidal Royalty with a right of first refusal on any future financing with respect to the company or any of its affiliates. 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 details in respect to the contemplated transaction with the Nevada Cannabis Company upon the execution of a definitive agreement between the parties and the receipt of necessary regulatory approvals.

This is the 3rd letter of intent that Tidal Royalty had announced in the past 2 weeks. With this LOI, the Company has entered into letters of intent for expansion projects in California, Nevada and Massachusetts. In addition, Tidal Royalty is in the process of evaluating multiple additional opportunities across the U.S., including in California, Florida, Arizona, Ohio, Michigan, New York and Nevada. Tidal Royalty intends to provide further information on those discussions when the parties reach an agreement and execute an LOI.

Tidal Royalty has raised approximately USD 40 M to date by way of private placements, which it intends to use primarily for royalty financings and for general corporate purposes. The Company was founded by experienced cannabis industry executives and provides expansion financing to licensed U.S. operators across multiple verticals, including cultivation, processing and manufacturing, dispensing, and ancillary services.

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