Leading cannabis companies in Canada invest money and expertise in startups in exchange for an equity stake and a share of future production. Is it good for the cannabis industry?
Though it may be relatively easy to raise money for many purposes, an average licensed producer of marijuana faces difficulties in acquiring capital, as banks are prohibited from giving loans to cannabis-related companies.
The so-called “streaming” deals allow small cannabis companies to get business development funds they are not able to receive from banking institutions. Some leaders of the cannabis market provide upfront funds in order to receive their share in the business and a part of company's products for a fixed price in the future.
For instance, Cannabis Wheaton is the first company that offers streaming deals to cannabis startups. In addition to financial support, the company also helps new market players by providing business guidance.
Currently, Cannabis Wheaton cooperates with fourteen companies that got sixteen streaming deals. Four partner startups, namely Green Relief, Harvest One, Broken Coast Cannabis, and Evergreen Medicinal Supply, have already received government licenses for producing medical marijuana. Other companies have already submitted applications for Health Canada licenses.
Beleave Inc. is one of the cannabis startups that entered into a streaming deal with Cannabis Wheaton for ten years. The backer will buy and construct a new facility for Beleave's subsidiary, while the startup will share half of its equity interest and future sales.
This steaming deal is beneficial for Beleave, as the company has an opportunity to get more facilities and new revenue streams without any investments on their part.
These deals will allow Cannabis Wheaton play a significant role in distributing cannabis products after cannabis legalization in Canada, when marijuana demand increases.
Canopy Growth Corp. is another Canadian company that provides streaming deals to the cannabis industry. It has recently launched Canopy Rivers Corp., a streaming platform for the market players.
According to Bruce Linton, CEO of the company, it is a great opportunity for marijuana startups: to get a loan borrower needs to simply provide assurance that they are going to cultivate cannabis. The creditor gets to purchase the produce, usually at a fixed price, in order to resell it. The company is expected to sell some of its products under their own brand, which will give consumers more brands and products. Linton also expects that some startups they funded will provide financing to smaller businesses.