Although the Canadian cannabis market has been one of the most exciting places for investors, the United States market is gaining significant traction.
As existing markets in the United States continue to mature and as new markets continue to open and emerge, the opportunity in the United States is becoming even significant and this is an opportunity to watch.
Over the last year, we have seen an increase in the number of companies focused on the United States opportunity. We have been monitoring this trend and have been focusing on companies that are positioning themselves as leading opportunities. We are monitoring this trend and have highlighted a United States royalty company that investors need to be keeping an eye on.
An Emerging Growth Opportunity
The company, Tidal Royalty (RLTY.V) (TDRYF) provides royalty financing to the United States regulated cannabis industry and is focused on increasing market share in burgeoning legal state markets. Tidal is led by a management team with extensive industry experience in the North American cannabis industry.
Tidal Royalty conducts extensive due diligence before engaging a company and provides operators with the funding they need to grow their business. This model benefits operators by providing non-dilutive capital and benefits investors by providing leverage and access to a diversified portfolio of companies.
The company has been laser focused on entering new markets and has entered into letters of intent for expansion projects in California, Nevada, Massachusetts and Illinois. In addition, Tidal Royalty is in the process of evaluating multiple additional opportunities in the United States, including in Florida, New York, Arizona, Ohio and Michigan.
Acquires Strategic Assets from CannaRoyalty
Last week, Tidal Royalty announced a significant acquisition that will improve its position in the California market. The company signed a binding letter of intent with to acquire CannaRoyalty’s (CRZ.CN) equity stake and royalty entitlement in AltMed for $8 million in a combination of cash and common stock.
AltMed is a licensed cannabis business operating in Florida that exclusively manufactures and distributes a line of cannabis infused products marketed under the MÜV brand. NuTrae (doing business as MüV), is a subsidiary of AltMed and launched the MüV product line in the third quarter of 2016 exclusively in Arizona.
CannaRoyalty holds an 6.14% ownership position in AltMed and has a 3.5% royalty on global net sales on certain MüV products (transdermal patches, metered dose inhalers, and patent-pending transdermal gels). Although the ownership interest and royalty will be transferred to Tidal, CannaRoyalty will maintain the right to license MÜV products in California, Nevada, Canada and other select markets.
This move is in-line with Tidal’s goal of increasing market share in burgeoning cannabis markets in the United States. We are favorable on the continued execution and will monitor how this asset creates value for the entire business.
Enters the Illinois Market and Expands its Reach
Last month, Tidal Royalty announced a major milestone and entered a new market by signing a letter of intent with an established licensed operator in Illinois to finance the expansion of the Illinois Cannabis Company’s operations and strategic acquisitions.
The Illinois Cannabis Company is led by a seasoned management team with years of cannabis industry experience. The company currently operates a 75,000 sq. ft. facility that uses highly-advanced plant monitoring technologies to precisely track plant inputs and other critical control factors in order to achieve optimal production yield and consistency. The proceeds will be used to expand their existing cultivation and manufacturing facility, as well as pursue acquisition of additional strategic assets that will increase market share.
Under the agreement, Tidal Royalty will provide the Illinois Cannabis Company with up to $41 million, in the form of both a royalty financing and equity investment. The capital will be provided in tranches and will be staged over specific milestones set by Tidal Royalty management.Tidal Royalty will receive a 15% net sales royalty on all the Illinois Cannabis Company’s Illinois operations. This includes both net sales generated from existing cultivation and dispensary sales, as well as incremental sales generated by the planned expansion.
This is a significant a development and we are favorable on the Illinois cannabis market. With approx. 13 million residents, Illinois is the sixth most populous state. The cannabis market is in the early stages of a major growth cycle and we are favorable on the leverage to this emerging opportunity.
A Company to Watch
Although the United States cannabis market has taken a backseat to Canada, we remain favorable on this opportunity and continue monitor its closely. Tidal Royalty has attractive leverage to this market through the letters of intent with companies that are based in burgeoning cannabis markets.
Tidal Royalty commenced trading on the Canadian Stock Exchange earlier this summer and the shares were under pressure with the market.
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