LOI - Lease for the cultivation facilities (California) TORONTO, March 04, 2020 (GLOBE NEWSWIRE) -- North Bud Farms Inc. (CSE: NBUD) (OTCQB: NOBDF) ("NORTHBUD" or the "Company") is pleased to announce that its U.S. subsidiary, Bonfire Brands USA Inc., has signed a letter of intent (the “LOI”) for a master lease and operations agreement with an experienced California-licensed operator (the “Cultivator”) to operate the cultivation facilities at the Company’s Salinas, California farm.
Terms of the LOI
As per the terms of the LOI, the companies will work together towards completing a definitive agreement before May 1, 2020, in which the Cultivator will lease the Company’s cultivation facilities at its Salinas farm for 5 years, with options to extend the lease for up to an additional 5 years, and Bonfire Brands USA will receive the following consideration:
- Lease payments starting at approximately USD$1 million per year in year 1, with incremental increases that could bring the annual rent to as high as USD$1.8 million per year;
- A royalty equal to 3% of the gross revenue generated by the Cultivator from its use of the Salinas farm; and
- The right to acquire up to 15% of all the product harvested by the Cultivator on the farm at a discount to market rate with extended payment terms.
During the term of the proposed agreement, the Cultivator will be responsible for 100% of the costs associated with staffing, operations, licensing and compliance with respect to the farm’s cultivation facilities; moreover, the Cultivator is committed to fund and manage the build-out of an additional 230,000 sq. ft. of licensed cultivation space over the first 24 months of the proposed agreement.
“Our objective when we acquired the Salinas farm was to secure access to the high-quality, low-cost cannabis that has always been grown in that area, known as “the salad bowl of America,” said Justin Braune, President of Bonfire Brands USA. “This proposed agreement will allow the Company to immediately achieve EBITDA-positive operations at our largest facility without incurring the significant capital investments that have debilitated many companies in our industry. By retaining preferential purchasing terms, the Company can focus on its branded product distribution business on the back of the estimated 40,000 pounds of production capacity that the Cultivator will bring online over the next 24 months.”
Sean Homuth, NORTHBUD’s CEO added: “Partnering with a proven licensed cultivator who has been operating in Salinas for multiple years achieves the following objectives: it significantly de-risks our California operations while allowing the Company to increase its asset value; it reduces our capital expenditure requirements while still generating significant revenue; and it builds EBITDA-positive operations without limiting our access to a cost-efficient and reliable supply chain on which to build our branded product portfolio within the state of California.”