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CannaRoyalty Corp
Symbol CRZ
Shares Issued 46,859,329
Close 2018-03-14 C$ 4.40
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CannaRoyalty to provide up to $2.5M to 180 Smoke

2018-03-14 08:17 ET - News Release

Mr. Marc Lustig reports


CannaRoyalty Corp.'s subsidiary, Trichome Yield Corp., has signed its first binding term sheet to provide up to $2.5-million to 180 Smoke to finance an expansion of its retail footprint in anticipation of Canadian adult-use cannabis legalization.

The financing will support 180 Smoke's retail and cannabis product offering expansion and prepare the company for entry into Canada's legal cannabis space, including the opening of 11 new stores and an expansion of the company's cannabis hardware offering, as well as an increase in related inventory. 180 Smoke and CannaRoyalty's subsidiary, CR Advisory, will work together to bring innovative cannabis products to the Canadian marketplace to support and complement 180 Smoke's further expansion into the Canadian cannabis retail space.

"Forming a relationship with leading Canadian omnichannel retail leader 180 Smoke ahead of adult-use legalization represents a compelling and unique first deal for Trichome. It also presents CannaRoyalty shareholders with multiple paths to value creation," said Marc Lustig, chief executive officer of CannaRoyalty. "180 Smoke's harm reduction platform has enabled the company to develop an authentic and responsible Canadian retail experience that has served Canadian cannabis consumers for years. This unique model makes them a standout -- not just in Canada -- but also positions them favourably against established cannabis retailers we have seen in the mature California market, where we have benefited from investing in and securing distribution pipelines into retail sales channels. With a substantial on-line presence, manufacturing facility and entrenched retail network, 180 Smoke is well positioned to grow substantially into the Canadian retail cannabis space in the coming months and years. The financial terms of the financing are attractive to both parties, providing responsible growth capital that is secured against a profitable business and offering CannaRoyalty shareholders the potential to own a piece of a rapidly growing distribution channel in the Canadian market, to complement our leading distribution network in California."

"We are pleased to join CannaRoyalty's growing international network. The company has provided us with an all-in solution, including both capital and expertise, that will enable us to execute on the next phase of our strategic vision," adds Ashutosh Jha, president of 180 Smoke. "We also look forward to working closely with CannaRoyalty to build out our cannabis strategy and bring some key CR Brands products into Canada. With coast-to-coast reach on-line and significant brand awareness among cannabis consumers, 180 Smoke is perfectly positioned to capture a significant portion of the Canadian cannabis and vaporizer market. Combined with our rapid retail rollout model, the financing will enable us to build a leading presence across Canada ahead of Canadian adult-use cannabis legalization."

180 Smoke was co-founded by world-renowned heart surgeon Dr. Gopal Bhatnagar and is a leading, omnichannel vape products company with a head office in Ontario. 180 Smoke's website is the highest trafficked vaping website in Canada and currently attracts 64 per cent of Canadian vape-related Web traffic. The company is well regarded and has helped to shape current and upcoming regulations by testifying before municipal, provincial and federal committees as subject matter experts on vaping regulations. Some additional details about 180 Smoke:

  • $7.7-million in net sales in the trailing 12-month period ended Dec. 31, 2017;
  • It currently has 16 retail stores in its network, including 14 in the Greater Toronto Area (GTA);
  • 87 per cent of net sales are derived from vape and nicotine-related products and 12 per cent from cannabis vaporizer products;
  • It has a capital and operationally efficient business model, where retail operations have typically become cash flow positive within three months and produce an independent EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 16 to 29 per cent within the first 18 months;
  • Exclusivity or ownership of over 12 hardware and e-juice brands;
  • The only active franchise program in the industry in Canada, with three franchise stores so far;
  • It provides business-to-business distribution and services to more than 180 clients.

The financing

180 Smoke will receive up to $2.5-million from the financing, with an initial investment of $500,000 to be followed by additional investments up to the $2.5-million maximum, subject to satisfactory due diligence and other customary conditions. The financing will be secured against the assets of 180 Smoke. Further, 180 will issue warrants to acquire shares of 180 Smoke at a predetermined exercise price for a three-year term. The capital for the financing will be advanced by Trichome and/or CannaRoyalty. Shareholders of 180 Smoke have been granted the right to exchange up to an aggregate of 2.0 per cent of their 180 Smoke shares in exchange for CannaRoyalty shares in certain circumstances based on the closing price on the date prior to this announcement.

CR Advisory agreement

CR Advisory will provide advisory services to 180 Smoke in relation to cannabis products, cannabis industry knowledge and retail opportunities. In addition, CR Advisory will consult with 180 Smoke on execution of planned expansion across Canada. The terms of these advisory services shall be developed by the parties as the Canadian regulations surrounding retail sales and cannabis products become clearer.

About 180 Smoke

180 Smoke is a leading Canadian vape product retailer that is considered the gold standard for vape store operations and customer service. 180 Smoke sells vape and nicotine-related products, vape parts and upgrades, and recurring vape products to nicotine and cannabis users. 180 Smoke's vision is to become a multiregion, omnichannel, vertically integrated market leader servicing the end-to-end needs of Canadian nicotine and cannabis consumers.

About CannaRoyalty Corp.

CannaRoyalty is an active investor and operator in the legal cannabis industry. The company's focus is building and supporting a diversified portfolio of growth-ready assets in high-value segments of the cannabis sector, including research, consumer brands, devices and intellectual property. The company's management team combines a hands-on understanding of the cannabis industry with seasoned financial know-how, assembling a platform of holdings via royalty agreements, equity interests, secured convertible debt, licensing agreements and its own branded portfolio.

About Trichome

Trichome is a majority-owned subsidiary of CannaRoyalty and was formed to offer secured lending solutions to companies operating across the Canadian cannabis value chain. Trichome expects to offer a suite of simple asset-backed lending solutions to cannabis companies looking to finance: capital expenditures including the buildout or expansion of existing facilities; the purchase of equipment and inventory; working capital to support growth; and other capital requirements. Trichome is focused primarily on addressing the largely underserviced Canadian cannabis debt market and expects to expand to meet the needs of companies operating in fully legal international markets as those jurisdictions develop.

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