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This week, a well-respected Canadian asset manager agreed to invest $12 million in CannaRoyalty (OTC BB: CNNRF).
CannaRoyalty is a Canadian company that was founded in 2015. The firm makes investments in cannabis companies in the U.S. and Canada, providing investors with diversified exposure to this industry.
Thus far, CannaRoyalty has made a total of 11 equity investments. Additionally, the company has seven royalty agreements whereby they make an investment in exchange for a share of future revenues.
This royalty approach was popularized in the Canadian mining sector. In fact, it’s very similar to the approach of Franco Nevada (NYSE: FNV) with gold mines and Silver Wheaton (NYSE: SLW) with silver mines. What’s interesting is that a new Canadian company is applying the royalty approach to the cannabis market.
To help fund future investments, CannaRoyalty had previously announced plans to raise $12 million from investors. And on July 5, the company announced its investor: Sprott Inc.
The Sprott name is well known to Canadians, but less well known by most Americans.
Eric Sprott started an investment firm called Sprott Securities as a brokerage firm and asset manager.
He made a bold prediction of a market crash in 2007, and encouraged clients to move heavily into gold. The trade avoided huge losses in common stocks, and led to considerable notoriety.
Eric Sprott has retired from day-to-day operations, but still serves as the company’s chairman. His company has been renamed Sprott Inc. (TSX: SII).
Another big name associated with Sprott is Rick Rule, who sold his company to Sprott back in 2010. Rick Rule is known to be one of the brightest minds in resource investing. He leads Sprott Global Resource Investments.
Under the deal, Sprott will invest $12 million in CannaRoyalty in a debenture financing. In exchange for the financing, Sprott will be paid 10% annual interest in cash or can purchase CannaRoyalty shares at a 10% discount to the market.
Additionally, CannaRoyalty will issue 1.8 million warrants to Sprott. These shares give Sprott the right to purchase shares at $2.05 anytime within the next three years.
The two companies will also form a joint venture partnership. This will allow CannaRoyalty to use Sprott for financing of future projects related to Canada’s growing legal cannabis sector.
CannaRoyalty first announced the $12 million financing on June 19. At the time, shares were trading at $2.05 and the name of the investor was not disclosed.
Shares have rallied 20% since then, closing Thursday at $2.46.
This week’s news highlights the increased interest in the legal cannabis sector. It’s exciting to see one of the biggest and most-respected resource investors financing cannabis deals.
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Pot Stock Briefing
Canadian Cannabis Extracts: +871%
Heath Canada reports that the sale of cannabis extracts grew a huge 871% during the first quarter of 2017. Eighteen of Canada’s 50 licensed producers are allowed to produce cannabis extracts. The expansion into cannabis extracts ̶ which allows for patients to take cannabis pills ̶ appears to be making this more appealing for doctors and patients alike.
Canadian Cannabis Sales: +89%
Meanwhile, Health Canada reports an 89% increase in dried cannabis sales during the first quarter. During the quarter, the number of registered patients grew by 213% to nearly 168,000.
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Market Snapshot
Weekly Performance (Monday – Thursday):
North American Index: -0.7%
Horizon Medical Marijuana ETF: Unchanged
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Good Investing,
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