Royalty-streaming firm could profit from pot-sector squeeze

Looming challenges could provide a tailwind for one innovative financing model

Royalty-streaming firm could profit from pot-sector squeeze
While the cannabis industry is projected to undergo tremendous growth, growing pains are being forecast for the supply side. But the challenges in the sector could provide an opportunity for one firm.

That firm is Cannabis Wheaton, which provides upfront cash financing for pot growers in exchange for a share of revenue from their future product — a model known as royalty streaming. According to an article from, producers’ demand for financing will increase as they scramble to supply a hungry market.

Citing figures from Deloitte, the article said the legalization of recreational cannabis use will help the industry reach an estimated annual value of $22.6 billion. An analysis by Canaccord Genuity has anticipated 3.8 million recreational users hitting the market by 2021, equivalent to an additional 420,000 kilograms of pot worth $6 billion needed from suppliers. According to the Financial Post, the 40 licensed producers operating in Canada grew only 31,000 kilograms last year.

To accommodate the expanding market, the Canadian government has lowered regulatory barriers. It made the licensing process easier for suppliers in May last year. And in light of a reported year-on-year tripling in the number of medical marijuana users, Health Canada also recently streamlined the approval process for growers.

But access to capital remains a challenge for many; despite the opportunity, many traditional creditors and investors are still wary of the industry. Companies with US-based interests have also found it hard to get listed on the TSX, creating an additional funding barrier.

In this capital-limited environment, Cannabis Wheaton has provided multiple producers with seed funding from which it expects to reap profits. An investment in ABcann Global Corporation, which includes a $15-million purchase of common shares, entitles the firm to 50% of the grower’s product for 99 years. It has also sealed 15 partnership agreements in 17 facilities across six Canadian provinces.

According to the article, the company is a comparatively safe way for investors to gain access to the pot industry. The firm gets revenue streams from multiple producers, offering relatively diversified exposure. It also doesn’t “touch” the product itself, but only takes a royalty.

The Cannabis Wheaton team includes CEO Chuck Rifici, founder of Canopy Growth; President and Director Hugo Alves, who founded the cannabis group at international law firm Bennett Jones LLP; and strategic advisor Rick Dykstra, president of the Progressive Conservative Party in Ontario.

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