Capital shortages in the mining sector are not a new concept. Shovel-ready mine development projects can sit dormant for long periods of time. Now, the US cannabis companies are feeling a similar frustration, thanks to federally hamstrung bankers.
In both sectors, a need for financial creativity has arisen over the years. In Canada, the mining sector had plenty of projects on standby that have finally received a green light as of late. As for cannabis companies in the US, not looking to dilute their shares, a similar solution has arisen.
Plenty of mining projects have benefitted from the royalty financing model, championed by companies such as Auxly Cannabis (TSXV:XLY) (OTC:CBWTF), Canopy Rivers Corporation, Franco-Nevada Corporation (NYSE: FNV) (TSX: FNV), and CannaRoyalty Corporation (CSE:CRZ)(OTC:CNNRF).
For the US cannabis sector, the answer to their needs has come in the form of Tidal Royalty Corp. (OTC: TDRYF) (CSE: RLTY-U), which utilizes a very similar approach, and a team with experience in both financing and building cannabis operations from the ground up.
Royalty financing is defined by Inc. magazine as a relatively new concept that offers an alternative to regular debt financing (loans and trade credit) and equity financing (venture capital and stock sales). In a royalty financing arrangement, a business receives a specific amount of money from an investor or group of investors.
The model makes possible, those projects that were before deemed impossible through conventional financing methods. With precious metals prices currently fluctuating to a point that royalty companies have needed to diversify, each of the major players has taken a different route as of late.
TODAY’S ROYALTY FINANCE CAPITAL MOVERS
Auxly Cannabis (TSXV:XLY) (OTC:CBWTF)
Auxly has more than 16 streaming partners across Canada, expecting to receive about 230,000 kg of cannabis from these partners by 2019. It could see more than 400,000 kg by 2021, making it one of the world’s largest producers of cannabis. For example, Auxly has provided $55 million to medical marijuana provider ABCann. In return, Auxly will receive 50% of ABCann’s production for the next 99 years.
Canopy Rivers Corporation
Canopy Rivers is preparing to go public in September 2018 after raising $104.2 million. The company has a portfolio of holdings across cultivation, extraction, consumer-facing brands, distribution, medical and recreational products that it will finance.
CannaRoyalty Corporation (CSE:CRZ)(OTC:CNNRF)
CannaRoyalty is a private equity firm specializing in acquisitions. The firm invests in the legal cannabis sector with a focus on research and intellectual property, consumer brands, and industry infrastructure with a strong focus on California, one of the world’s largest cannabis markets.
Franco-Nevada Corporation (NYSE: FNV) (TSX: FNV)
Known for its specialization in the gold and silver markets, Franco-Nevada recently hinted that it will soon be offering financing also to not only mining companies, but to energy exploration companies as well. In order to better diversify and weather the storm of fluctuating metals prices, Franco-Nevada announced a key collaboration in its effort to gain exposure to natural resources. Not only is the royalty-financing giant going to continue to seek mining opportunities, but will also now focus heavily on oil and gas in order to generate higher royalty payments.
Wheaton Precious Metals Corp. (NYSE: WPM) (TSX: WPM)
Back in June, Wheaton Precious Metals announced it would be taking a gamble outside of its typical silver and gold streaming model, striking a deal with Brazilian giant Vale to develop cobalt in the Voisey’s Bay mine in Newfoundland and Labradour. CEO Randy Smallwood assured the market that his company was still focused on previous metals, but that they had identified an opportunity in cobalt based on the rise in demand for electric vehicles.
Tidal Royalty Corp. (OTC: TDRYF) (CSE: RLTY-U)
Focused solely on the US cannabis industry, Tidal Royalty Corp. provides royalty finance regulated producers and tech developers. To date, the royalty company has raised CA$42 million to date to invest in US cannabis projects. Their interests span over several states, which so far includes LOIs for companies in Illinois, California, Massachusetts and Nevada, and for a large-scale commercial extraction technology.
CAPITALIZING ON THE SIMILARITIES
Since the advent of the legal US cannabis industry, there has been a widespread shortage of available capital. Conservative mentalities amidst the banking industry has shut many doors to these businesses, leaving an opportunity available for others to bridge the capital shortfall. This is the unique opportunity that Tidal Royalty Corp. (OTC: TDRYF) (CSE: RLTY-U) has targeted, as it has shown that it’s not afraid to provide needed capital to a US cannabis sector that’s showing all the signs that it’s set to explode.
By modeling after the royalty companies that have serviced many of the mining sector’s most recent major projects, Tidal Royalty has set itself apart as a facilitator for cannabis producers. The company’s mission is to be the premier cannabis royalty company, with a chance to take part in a growing basket of high-potential cannabis projects across several different states and stages of the industry.
Tidal Royalty has leveraged its management’s expertise to provide value-adding capital to several experienced operators, helping to position them as a model for best-in-class businesses—backed by a team’s collective résumé that includes building, leading, and/or advising some of the most iconic cannabis businesses in Canada and across the world, that includes Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON), iAnthus Capital Holdings, Inc. (OTC: ITHUF) (CSE: IAN), and Canopy Growth Corporation (NYSE: CGC) (TSX: WEED) among a large portfolio.
But unlike the biggest producers in the industry, Tidal Royalty is offering a very unique product to its shareholders; establishing themselves as true pioneers in Canada for financing.
By offering non-dilutive capital for its recipients, Tidal Royalty is creating a win-win-win scenario: a win for its clients, a win for its shareholders, and a win for the industry as a whole.
For US cannabis entrepreneurs, there are still many roadblocks between their dreams and the required capital to achieve them. This gap between available capital and the cannabis boom that’s just only began, is where Tidal Royalty resides.
Upon financing their clients, Tidal Royalty retains a royalty on top line revenues, rather than equity. This royalty is ongoing, with the typical contract length lasting 99 years. Once the capital has been deployed, the clients can move forward, backing the investment with assets they purchase such as land, buildings, equipment, etc.
Given the severe lack of financing options available, Tidal Royalty has the benefit of choosing only the highest quality operators and deals—resulting in a very profitable portfolio of royalties.
So far, Tidal Royalty has announced a variety of impressive deals, including: allotting $15 million into Monterey Cannabis Company in California to expand its ~240,000 sq ft cultivation capacity and to establish a new processing facility; $15 million into Nevada Cannabis Company helping to double the size of its Las Vegas facility; $12.5 million to assist the Oregon Cannabis Company to expand into the Massachusetts market; and so far the largest deal to date, involving up to $41 million to the Illinois Cannabis Company to finance the expansion of its operations and strategic acquisitions.
"As Tidal Royalty looks forward to where the U.S. cannabis market is headed, we are excited to broaden our investment strategy," said Paul Rosen, CEO & Chairman of Tidal Royalty Royalty. "We are very excited to count the Illinois Cannabis Company among our portfolio constituents. Between the near-term cash flow generated by their existing operations, management's vision and drive to grow their market share, and the ability to accelerate their growth with Tidal Royalty capital, we feel this is going to be the beginning of a great long-term relationship between our companies."
In each of the above deals, Tidal Royalty is poised to receive a royalty off each company’s top line revenues. Tidal Royalty has also sought creative models, such as investing in an extraction technology, that would return a percentage of all of the extractions’ revenue over the life of the machine.
Tidal Royalty is attempting to emulate one of the most successful business models in the mining sector, that’s made companies such as Franco-Nevada Corporation (NYSE: FNV) (TSX: FNV), Wheaton Precious Metals Corp. (NYSE: WPM) (TSX: WPM), Osisko Gold Royalties Ltd (NYSE: OR) (TSX: OR), and Royal Gold, Inc. (NASDAQ: RGLD) each monumentally profitable. Both mining and cannabis sectors require significant amounts of capital to grow smoothly.
By careful analysis, it becomes clearer that there are more similarities between the two sectors than upon first glance, and it appears that Tidal Royalty is the first to charge see that vision become a reality.
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