Some major players in the Canadian cannabis industry are bankrolling smaller Canadian marijuana companies, using so-called "streaming" deals to finance their growth plans.
The deals could allow those backers to take leading roles in distributing wholesale and retail marijuana under the forthcoming legal regime.
Streaming is a business model traditionally associated with the mining industry. A backer provides upfront money for infrastructure and capital expenditures in exchange for the right to some of the miner's future production.
Cannabis Wheaton, which identifies itself as "the world's first marijuana streaming company," chose its name in reference to well-known silver streaming firm Silver Wheaton, said chairman and CEO Chuck Rifici.
"The markets are frothy, a lot of people are raising a lot of money, but for your average licensed producer it's still hard to get capital," said Rifici, former CEO of Tweed Marijuana Inc. and a former chief financial officer of the Liberal Party of Canada.
Canopy Growth Corporation, which owns Rifici's former employer Tweed, has also launched a streaming venture called Canopy Rivers.
"Generally speaking, banks aren't giving you debt in this industry just yet," said Vahan Ajamian, who covers the marijuana sector as an equity research analyst with Beacon Securities.
"And if you don't want to raise equity or you can't raise equity, or if you don't want to go public, it's another option that some are considering."
How streaming deals work
In addition to providing financing in exchange for production and equity stakes, Cannabis Wheaton also offers business guidance to its partner companies.
Cannabis Wheaton already has 16 streaming deals with 14 companies, Rifici said, including four that have already been approved as government-licensed medical marijuana producers:
- Broken Coast Cannabis.
- Green Relief.
- Evergreen Medicinal Supply.
- Harvest One (the parent company of licensed producer United Greeneries).
The remaining streaming deals are with applicants for Health Canada licences, said Rifici.
Cannabis Wheaton can help direct its streaming partners' sales, said Rifici, ideally toward retail sales rather than wholesale.
"We want to help our customers drive demand, which is why we've signed agreements with a number of patient education clinics," he said.
Beleave Inc. is one of the applicants that has a 10-year streaming deal with Cannabis Wheaton. Under the deal, Cannabis Wheaton will purchase and build a new facility for a new subsidiary of Beleave. In exchange, Cannabis Wheaton gets 50 per cent of the equity interest in that subsidiary, and 50 per cent of the proceeds of the subsidiary's future sales.
The deal with Cannabis Wheaton was an "opportunity for us to get more square footage, more yield, and more revenue streams for no capital expenditure on our part," said Bojan Krasic, chief financial officer of Beleave.
Securing production for the future
Locking down future streams of marijuana production now, said Rifici, could potentially allow Cannabis Wheaton to play a role in distributing marijuana after legalization, when he expects demand to outweigh supply.
"With all the unknowns around what distribution will look like, I think Cannabis Wheaton is incredibly well-positioned to be able to adapt to however that plays out," Rifici said.
"There's going to be large provincial distributors, whether it be pharmacy chains on the medical side or government-controlled distribution points," he said. "And the best partner for those institutional purchasers will be basically anybody with a scale and a breadth and depth of product availability."
Canopy Growth Corporation's new streaming arm, Canopy Rivers, could also help position that company as a retailer of multiple brands of marijuana in the future.
"It's like being able to get a loan where essentially the security you're providing is that you're going to grow marijuana and we get to buy it in the future and sell it," said Canopy Growth CEO Bruce Linton. He said Canopy Growth will be announcing its first streaming partners in the coming weeks.
Canopy Growth, said Linton, would sell its share of its streaming partners' crops through its Tweed Main Street online store.
"This is a way that when we do the streams, some of these guys will have a portion of their product show up as branded product in our store, which is good for everybody" said Linton. "It gives patients more product, it gives more brands to the Tweed store, and it gives more visibility to brands that might get lost in the mix."
Linton expects to see "three or four" streaming players providing financing to smaller companies.
"Everybody can't be a public company that does this," he said.
"You're not going to have 150 public companies as cannabis producers, there's going to be a handful that are substantial and then there's got to be other options for the people who take other routes."