CannaRoyalty Corp. has entered into a binding term sheet regarding a royalty financing arrangement with Rich Extracts LLC where it will receive a 30 percent royalty on Rich Extracts’ gross revenues in perpetuity.

Rich Extracts has constructed a 30,000-square-foot facility in Oregon to produce cannabis extract products using a variety of extraction processes. The facility houses equipment including extractors capable of processing up to 60,000 grams per month and short-path distillation units that can process up to 4,000 grams per week. Commercial operations will commence, and are subject to, the facility obtaining the necessary permits from the Oregon Liquor Control Commission, which are expected to be received in the first half of 2017.

“Rich Extracts is an award-winning brand with a mission to produce the highest-quality, purest cannabis concentrates and distillates in the Oregon market. We’re excited to finalize this royalty agreement with Rich Extracts, which is poised to be a leading cannabis company in Oregon, a market which in 2016 had estimated cannabis product sales of approximately $200-million (U.S.),” said Marc Lustig, chief executive officer of CannaRoyalty.

In June, 2016, Rich Extracts was granted its medical processing licence (MMPS No. 281970) by the Oregon Health Authority for processing of cannabis products in accordance with the Oregon medical marijuana program. In anticipation of the new standards that were to be enacted by the Oregon Liquor Control Commission (OLCC), in August, 2016, Rich Extracts began a significant development and expansion of its operations in order to meet the expected OLCC guidelines. On Sept. 29, 2016, Rich Extracts formally filed its application for an OLCC licence and is expecting to obtain the licence during the first half of 2017.

Rich Wilkinson, chief executive officer of Rich Extracts, commented: “CannaRoyalty is a remarkable partner that provided Rich Extracts with the capital and resources we needed to address the changes in the Oregon regulatory environment in the fall of 2016, a critical juncture in our business. The capital has brought us to the brink of our goal to build what we anticipate will be one of the most advanced, full-spectrum cannabis extraction and processing facilities in the country.”

The term sheet replaces the company’s existing term sheet with Rich Ventures and contemplates the grant of a 30-per-cent royalty on the gross revenues generated by Rich Extracts, in exchange for the advances made by CannaRoyalty to Rich Extracts (approximately $2-million (U.S.) to date, subject to further advances). Closing is subject to, among other things: (i) satisfactory completion of financial and legal due diligence by CannaRoyalty; (ii) the execution of final definitive documents acceptable to CannaRoyalty; and (iii) the satisfaction or waiver of all conditions to closing specified in the definitive documents. The parties have also executed a general security agreement to secure the company’s existing advances against the assets of Rich Extracts.