Trichome Yield Corp., a lending arm of Ottawa-based CannaRoyalty Corp. (CSE: CRZ)(OTCQX: CNNRF) catering to the legal cannabis industry, has agreed to provide up to $2.5 million in capital to established omnichannel vaporizer products company 180 Smoke. CannaRoyalty and 180 Smoke are jockeying for market position against competition ahead of full legalization of marijuana across Canada, expected later this year.
Initially, Trichome will invest $500,000, with the other $2.0 million in capital subject to additional due diligence and "customary conditions," with the financing secured against assets of 180 Smoke.
180 Smoke plans to use the investment to prepare for entry into the recreational pot business, including opening 11 new locations, expanding its cannabis hardware product line and bolstering inventory. CR Advisory, another subsidiary of CannaRoyalty, is working with 180 Smoke on bringing innovative cannabis products to market.
CannaRoyalty chief executive Marc Lustig sees the investment as having multiple pathways to add value, not just in the Canadian market that 180 Smoke has been serving for years, but in other markets as well. The CEO pointed out the large market opportunity in California, where marijuana was legalized on a recreational level at the start of 2018.
CannaRoyalty has made investments in the California market already and has secured distribution pipelines in retail sales channels that could benefit 180 Smoke.
Coupled with the infrastructure of 180 Smoke, which includes a manufacturing facility, Lustig sees a strong growth opportunity. In the 12 months through December 31, 2017, 180 Smoke generated $7.7 million in net sales from its ecommerce platform and 16 retail locations (14 in the Toronto area). Currently, 87% of those sales are derived from nicotine-related products, with cannabis-related products only accounting for 12% of revenue.
180 Smoke also employs a franchise model, with three franchises to date, and provides business-to-business distribution and sales services to more than 180 clients.
Shares of CRZ, which have traded ahead for seven straight sessions, closing Tuesday at $4.40, are down 2.3% at $4.30 in early trading action on Wednesday following the news.
