TORONTO, April 15, 2020 (GLOBE NEWSWIRE) -- North Bud Farms Inc. (CSE: NBUD) (OTCQB: NOBDF) ("NORTHBUD" or the "Company") is pleased to announce that its U.S. subsidiary, Bonfire Brands USA Inc., has fueled its California growth with the execution of definitive agreements (the “Agreements”) for a master lease, operations and royalty arrangement with an experienced California-licensed operator (the “Cultivator”), to operate the licensed facilities at the Company’s Salinas, California farm.
Highlights of the California Deal
Partnering with a proven licensed cannabis cultivator who has been operating successfully in Salinas for several years;Significantly strengthens the Company’s facility operations while allowing the Company to increase its asset value;Reduces the Company’s capital expenditure requirements while still generating significant revenue and retaining a portion of the unlimited upside potential through a royalty agreement;Builds EBITDA-positive operations; andAccess to a cost-efficient and reliable supply chain on which to build the Company’s branded product portfolio within the state of California.
Terms of the Agreement
As per the terms of the Agreements, the Cultivator will lease the Company’s Salinas farm for 5 years, with options to extend the lease for up to an additional 5 years, and Bonfire Brands USA Inc. will receive the following consideration:
Lease payments of USD$900,000 per year, with incremental increases if the Cultivator extends the lease beyond the initial 5 year term;A royalty equal to 5% of the gross revenue generated by the Cultivator from its use of the Salinas farm; andThe right to acquire a significant portion of the product harvested each quarter on the farm by the Cultivator, at a 15% discount to market rate.
During the term of the Agreements, the Cultivator will be responsible for the costs of operating the farm, including but not limited to staffing, operations, repair, maintenance, licensing and compliance; moreover, the Cultivator is committed to funding and managing the build-out of up to an additional 230,000 sq. ft. of licensed cultivation space in order to maximize the revenue-generating potential of the property.
“We are very pleased to have concluded this deal as we partner with an established operator to build up our asset and to secure access to high-quality, low-cost cannabis,” said Justin Braune, President of Bonfire Brands USA. “This deal will allow the Company to immediately achieve EBITDA-positive operations at our largest facility without incurring significant capital investments. By retaining preferential purchasing terms, the Company can now focus on the success of its branded product lines, on the back of the estimated 40,000 pounds of production capacity that the Cultivator is expected to bring online over the next 24 months.”