Tidal Royalty Corp. (CSE:RLTY, OTC:TDRYF) is set to provide US$5mln for a new cannabis manufacturing and distribution facility in Palm Desert, California.
Licensed operator, The Palm Desert Cannabis Company. is led by a seasoned management team with experience across cultivation, manufacturing and retail distribution, the firm said.
With a population of 40mln, California has the potential for its adult-use cannabis market to be among the largest on the planet. California legalised adult-use cannabis at the beginning of this year, and the market is expected to grow to US$3bn by the end of the year, according to Marijuana Business Daily.
"We are very excited by this opportunity," said Paul Rosen, the chief executive and chairman of Tidal Royalty.
"The combination of existing operations, brand partnerships and the strategic foresight of this management team give us great confidence that, with Tidal Royalty's capital, they will expand their market share.
"California is one of the largest cannabis markets in the world and we are excited by the prospect of adding the strength of this group to our portfolio."
The letter of intent means Tidal Royalty will provide the Palm Desert Cannabis Company with US$5mln for the buildout of the facility.
Palm Desert Cannabis Company will pay Tidal Royalty the equivalent of 10% of all net sales generated by operations in California initially and, once certain payments thresholds are met, 5% in perpetuity thereafter, along with 2mln share purchase options, representing around 5% of the share capital.
The LOI (letter of intent) includes an exclusivity period during which the Palm Desert Cannabis Company cannot negotiate with any other party.
So far, Tidal Royalty has struck royalty transactions relating to operators licensed in Florida and Arizona, which operators intend to pursue licences in Massachusetts, and has entered into letters of intent with licensed cannabis operators in California, Nevada and Illinois.
It says it's also mulling further opportunities across the United States, including in New York, Ohio, Pennsylvania, Texas and Michigan.
Shares lost 2.98% to US$0.4075.