with industry sources, it would take somewhere between $97.5m and $130m to fund production of 1.3
million square feet at a cost of $75 to $100/ft depending on how high tech it is.
For that matter, it’s not clear if the company would even want to fund them. Based on a corporate
presentation on its website, which is the only description of how the business is intended to work, it has
the following key bullet points of a “Stream Overview”;
-Finance of expansion for ABC Streaming Partner
-Investment size of $30m at an illustrative valuation of 3x current market value (value of equity is
-Fully funds the Capex for a 150,000 square foot facility that produces an estimated 15,000 kg/yr with
Cannabis Wheaton being entitled to 33% of the annual output
I take that to mean that a grower puts up $10m of equity, CBW puts of $30m and then gets 1/3 of the
economics, despite putting up 75% of the capital. Though it could also mean that CBW puts up $30m,
the grower puts up nothing and CBW gets 1/3 of the annual output despite putting up 100% of the
capital. I’m assuming the former as it’s more favorable.
This leads to many more questions than answers about the logic of this business model. However, I
doubt much thought has been put into the business plan and instead, it has been contrived to fit into
the concept of CBW being a “streaming vehicle,” made amazingly popular by the successes of Silver
Wheaton, Franco Nevada and Royal Gold.
What makes a mining company a good streaming asset is the fact that good mining streaming assets
have very long mine lives and over time, as industry costs rise and global average grades decline,
commodity prices rise and the future income stream is effectively on the right side of inflation over
industry costs during that elevated mine-life where the cash cost is locked in. What makes a Cannabis
stream idiotic is that the whole industry is experiencing massive production and operating cost declines
as growers get more efficient and new technology comes online. Additionally, due to the laws of supply
and demand, supply is growing more rapidly than demand—which is clearly reflected in overall retail
cannabis pricing where prices have continued to drop rapidly. Why would anyone want to pay a
premium to current equipment costs in an industry where equipment rapidly depreciates and has a
strong trend towards obsolescence?
On another note, my industry sources tell me that all of Canada needs somewhere between 10 and 15
million feet of growing capacity—even assuming a not insignificant leakage of product into the US. At
1.3 million feet of future production, CBW would be 10% of the market which seems like a huge market
share to grow into what is already a somewhat saturated market. If they actually build it, margins may
be negative and there would be no royalty stream anyway. Nothing shows this better than their slide
#16 where the publicly traded industry average already has an adjusted EBITDA per gram sold of -$2.12.
Effectively, no one makes money at this already. However, CBW is expecting to make $5.25 per gram.