Mr. Andriyko Herchak reports

FINCANNA'S FLAGSHIP INVESTMENT TAKES OVER EXTRACTION OPERATIONS WITH SIGNIFICANT ECONOMIC BENEFITS

Fincanna Capital Corp. has provided a significant development in the extraction business of its flagship investment in California.

Cultivation Technologies Inc. (CTI) has announced that it is now directly operating its interim medical cannabis extraction facility and plans to directly operate its permanent facility to be constructed at its six-acre site in Coachella, Calif. This change was made possible due to the new regulations in California that took effect on Jan. 1 of this year. In conjunction with this restructuring, Fincanna and CTI have amended their financing agreement and can capitalize on these significant economic opportunities.

Interim extraction facility

The interim extraction facility, which commenced operations in October, 2017, had been operated by a third party tenant of CTI on its site in Coachella. Under this prior arrangement, CTI was entitled to a maximum of 20 per cent of the production capacity of the interim extraction facility, with at least 80 per cent of production capacity belonging to this third party tenant, on which CTI was entitled to a minor profit share. CTI has assumed the operational role and obtained state licences for Type 7 manufacturing and distribution, and has the rights to 100 per cent of the production capacity, which it will allocate toward extraction services, including white labelling for other brands, and CTI-branded sales. The new operating structure is expected to result in significant economic opportunities to CTI. Fincanna continues to be entitled to receive 50 per cent of the profits of CTI which are derived from this interim extraction facility.

This interim extraction facility can currently process an estimated 6,000 pounds of biomass per month to produce approximately 3.7 million grams of raw oil per year. Under the new operating arrangement, CTI has the ability to add an additional extraction machine and fractional distillation and winterization equipment. This would result in additional capacity to process 3,000 pounds of biomass per month and the ability to service third party vaporizer, winterization and distillation customers at a scale of approximately 100,000 grams of finished product weekly.

Permanent extraction facility

The permanent extraction facility was planned to be operated by a third party tenant under similar operating and economic terms as those initially contemplated for the interim extraction facility. The new arrangement provides CTI with the ability to drive new products lines, add distribution services and improve control over sales channels. The economics of this new operating arrangement result in potential revenues to CTI that are significantly higher than those expected prior to the restructuring. As Fincanna receives a royalty based on sales, this translates to a significant increase in expected royalty revenues to Fincanna from the permanent extraction facility once in operation.

Financing agreement changes

CTI and Fincanna have also agreed to amend their financing agreement to provide for certain changes to the terms of Fincanna's investment:

• CTI to receive $3.15-million (U.S.) in tranches under the existing loan agreement with Fincanna. The funds will be used for the restructured extraction operations, to secure an additional five-megawatt power commitment at the Coachella site and for working capital purposes. The investment allows CTI to capitalize upon the immediate opportunity in California through extraction, manufacturing and distribution before construction of the Coachella project.
• The annual interest rate on the loan increases from 10 per cent to 20 per cent.
• Seven per cent of CTI's revenues will be paid to Fincanna and applied against interest and principal on the loan until it is fully repaid, which may accelerate repayment of Fincanna's loan.
• The royalty to be earned by Fincanna on CTI's Coachella project increases to 14 per cent of revenues and will be paid as a royalty (previously 10 per cent of revenues to be paid as a dividend).
• A new conversion feature was added to the loan, which allows Fincanna the option to convert the loan into a percentage (up to 5 per cent) of CTI revenues in perpetuity on projects which Fincanna does not elect to finance.
• Certain deadlines in the financing agreement related to CTI's project financing for the Coachella project were extended.

Fincanna chief executive officer, Andriyko Herchak, comments: "We are thrilled with the new operating structure of CTI's extraction operations. As revenues from the extraction and manufacturing business are now expected to be the largest segment of CTI's Coachella campus, the increase in expected royalties to Fincanna are very significant. We continue to be impressed by CTI's exceptional management team and support their strategic approach to the market."

About Cultivation Technologies

Cultivation Technologies Inc. provides infrastructure, technology and branding to the licensed medical cannabis industry. The first major project for the company is in Coachella, Calif., which will span six acres featuring cultivation centres, extraction and manufacturing facilities, a testing lab, a distribution hub, and a centralized processing centre.

About Fincanna Capital Corp.

Fincanna is a royalty company for the licensed medical cannabis industry, with a focus on California. Fincanna, led by a team of finance and industry experts, is building its portfolio of investments in scalable, best-in-class projects. Fincanna's flagship investment is with Cultivation Technologies Inc. (CTI) to provide financing for its fully entitled, large-scale indoor medical cannabis facility to be developed in Coachella, Southern California. This Coachella campus will be a state-of-the-art facility that will include cultivation, extraction, manufacturing, testing and distribution.

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