The agreement is about acquisition and partnership with Inferno Gardens, an experienced cannabis operator in Muskegon.
Inferno’s assets include the local approval for one retail dispensary and a 24,000-sq.-ft. indoor manufacturing facility that will include both cultivation and processing when fully constructed. State licensing is in progress and expected to be completed in the coming months. The facility is approximately 40% constructed and expected to be fully operational within 120 days.
The acquisition-partnership agreement is subject to Michigan regulatory approval and full licensing of Grown Rogue at the state level.
Grown Rogue Deal
Under the terms of the agreement, Grown Rogue will obtain the option to acquire a 51% ownership of Inferno Gardens, subject to state regulatory approval, for a one-time payment of $250,000 due upon the signing of the definitive agreement.
Further, Grown Rogue will provide up to $2 million in financing as a loan for development and operational build-out of the cultivation, processing, and dispensary centers.
Grown Rogue will have the right to purchase the remaining 49% of Inferno Gardens for either stock or cash or a combination of both at the earlier of Grown Rogue stock reaching $1.00 / share on the Canadian Securities Exchange for a period of 10 consecutive days or 24 months from signing the definitive agreement. Unless Inferno Gardens permits, Grown Rogue may not exercise this option for a period of 12 months following the signing of the definitive agreement.
Grown Rogue will also issue 900,000 common shares to Inferno Gardens based on milestones including the signing of a definitive agreement, production of 500 lbs of dried cannabis flower and achieving $3 million in top-line revenue.
Meanwhile, the binding agreement also considers the appointment of Inferno Gardens leadership to a management role for oversight of the development and operation of the Michigan facilities. Plans for the dispensary and processing facility are slated for launching in early 2020.
Michigan Cannabis Market
Grown Rogue believes that the Muskegon location is ideal with the facilities positioned on a popular corridor that see millions of locals and visitors passing through each year en route to Lake Michigan.
Michigan is the second largest medical cannabis population in the U.S. with the highest per capita medical patient registrations. The state passed the recreational vote in November 2018 and expects a minimum of two years to fully convert the regulations to be in compliance for recreational adult use.
“Our facility in Muskegon will have the capacity to produce approximately 4,000 lbs (~1814 kg) yearly of premium cannabis. This translates to $13-14 million in yearly revenue using today’s average market prices in Michigan,” stated Jacques Habra, chief strategy officer of Grown Rogue. “We expect demand for high quality cannabis products in Michigan to continue to oustrip supply for many years.”