Wednesday, March 04, 2020 9:15:39 AM
Terms of the LOI
As per the terms of the LOI, the companies will work together towards completing a definitive agreement before May 1, 2020, in which the Cultivator will lease the Company’s cultivation facilities at its Salinas farm for 5 years, with options to extend the lease for up to an additional 5 years, and Bonfire Brands USA will receive the following consideration:
Lease payments starting at approximately USD$1 million per year in year 1, with incremental increases that could bring the annual rent to as high as USD$1.8 million per year;
A royalty equal to 3% of the gross revenue generated by the Cultivator from its use of the Salinas farm; and
The right to acquire up to 15% of all the product harvested by the Cultivator on the farm at a discount to market rate with extended payment terms.
During the term of the proposed agreement, the Cultivator will be responsible for 100% of the costs associated with staffing, operations, licensing and compliance with respect to the farm’s cultivation facilities; moreover, the Cultivator is committed to fund and manage the build-out of an additional 230,000 sq. ft. of licensed cultivation space over the first 24 months of the proposed agreement.
“Our objective when we acquired the Salinas farm was to secure access to the high-quality, low-cost cannabis that has always been grown in that area, known as “the salad bowl of America,” said Justin Braune, President of Bonfire Brands USA. “This proposed agreement will allow the Company to immediately achieve EBITDA-positive operations at our largest facility without incurring the significant capital investments that have debilitated many companies in our industry. By retaining preferential purchasing terms, the Company can focus on its branded product distribution business on the back of the estimated 40,000 pounds of production capacity that the Cultivator will bring online over the next 24 months.”
Sean Homuth, NORTHBUD’s CEO added: “Partnering with a proven licensed cultivator who has been operating in Salinas for multiple years achieves the following objectives: it significantly de-risks our California operations while allowing the Company to increase its asset value; it reduces our capital expenditure requirements while still generating significant revenue; and it builds EBITDA-positive operations without limiting our access to a cost-efficient and reliable supply chain on which to build our branded product portfolio within the state of California.”
About North Bud Farms Inc.
NORTHBUD, through its U.S. subsidiary Bonfire Brands USA, has acquired cannabis production facilities in California and Nevada. The Salinas, California 11-acre farm is actively cultivating cannabis in its 60,000 sq. ft. of licensed greenhouse production space, and also has active distribution and processing licenses. The Reno, Nevada property contains a world-class cannabis production, research and development facility with 5,000 sq. ft. of indoor cultivation, and holds medical and adult-use licenses for cultivation, extraction and distribution. Through its wholly-owned Canadian subsidiary, GrowPros MMP Inc., the Company is pursuing a license under The Cannabis Act, to cultivate in its state-of-the-art purpose-built cannabis production facility located on 135 acres of agricultural land in Low, Quebec, Canada.
For more information visit: www.northbud.com
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