CROP Infrastructure brings a new model to cannabis production, sales
Much of the business news surrounding the cannabis sector has focused on large, licensed companies building their own cannabis production infrastructure, but nimble Canadian companies such as CROP Infrastructure Corp. (CSE:CROP) (OTC:CRXPF)(FSE:2FR) are finding innovative new ways to generate revenue. CROP is an acronym for Cannabis Real Estate Opportunity Portfolio, and it offers turnkey services by building, leasing and managing international cannabis and hemp infrastructure. CROP goes still further, offering its expertise in branding, marketing, land management and expansion to its licensed tenant growers.
With headquarters in Canada, the company currently operates in several cannabisfriendly U.S. states and Jamaica, and it owns high-CBD hemp operations in Nevada and Italy. This much progress is remarkable considering CROP only went public in March 2018.
“We’re building value for investors by exposing them to the global cannabis and hemp markets without requiring them to invest directly in a grower,” says CEO Michael Yorke.
CROP’s revenue is derived only indirectly from cannabis and hemp sales. In a typical project, CROP identifies and purchases suitable land, offering abundant local water rights, utilities and transportation networks. The location must also offer the capacity to scale up production, as there is significant demand in these target markets.
“We’ll find competent growers who are already licensed,” says Yorke. “We’ll then enter a joint venture where we fund 100 per cent of the infrastructure development costs. In many cases, those operators are starved for new capital in a more restrictive investment environment for cannabis. We’ll then lend them our IP for a proprietary energy-efficient greenhouse design, growing technology and methodology.”
Once a licensed tenant grower begins to produce, CROP begins charging fees for management, tenancy, licensing and branding, which come from the tenant’s earnings. Each agreement is structured as a loan, where CROP receives 60 per cent preferential payback on its invested capital until the loan is repaid in full; after that, CROP maintains a 30-to-49 per cent interest in the tenant grower’s operation indefinitely via its array of services.
In the U.S., CROP currently operates in Washington, California and Nevada, and is actively pursuing partners in other states.
“We wanted to be an early mover in the U.S., offering natural and organic products and specialized services, rather than be a later entry in the saturated Canadian market,” says Yorke. “The California market alone is bigger than the entire Canadian market and cannabis legislation continues to change positively.”
Each additional JV partner helps CROP achieve its goal of developing a robust and vertically integrated network built around active production hubs. The expected passage of a future U.S. Farm Bill allowing cannabis to be shipped across state lines would only create more momentum for the company and its partners.
Under the CROP model, multiple producers will be selling their products under a broad range of brands, which CROP has already acquired. The California tenant, currently awaiting the final phase of state product testing before sale, will operate under the Hempire LLC brand.
CROP has also established a five-acre joint venture in Jamaica in a region known for low-cost production of highquality cannabis strains.
“We’re looking at this as a strategic investment to eventually import this quality product into Canada and other legal jurisdictions at a disruptive price,” says Yorke.
CROP is actively pursuing hemp production as well, with an emphasis on extraction of cannabidiol (CBD), a valuable non-psychoactive cannabis compound used in a wide variety of beverages, edibles, cosmetics, pharmaceuticals and natural products.
CROP operates the largest high-CBD hemp farm in Nevada and plans to build a GMP ISO 9000-certified processing facility nearby to extract CBD isolate. One of CROP’s subsidiaries, Elite Ventures Group LLC, has signed a joint venture with The Hempire LLC of Nevada to purchase 100 per cent interest in a 1,000-acre Esmeralda county agricultural cannabis project with medical cultivation, medical production, adultuse recreational cultivation and production conditional licenses, as well as an option to acquire a retail dispensary close to Las Vegas.
The U.S. federal government is expected to pass the 2018 Farm Bill, which will reclassify hemp, allowing it to be shipped across state lines.
“That would be a gamechanger,” says Yorke. “The U.S. market is already robust, but this would potentially allow us to ship CBD isolate to every rapidly growing market in the country.”
CROP has also commissioned an 87,000-square-foot facility in Italy for high-CBD hemp cultivation and extraction. That facility is being readied for a rapid adaptation to cannabis, should the Italian government move to legalize it.
“If THC is legalized in Italy, we will have a significant advantage over our competitors as all our branding and infrastructure will be in place,” says Yorke.
The long game? Establishing joint ventures in every cannabis-friendly U.S. state and then consider M&A for other turnkey investments in those jurisdictions. At the same time, CROP will look for similar opportunities in cannabis and hemp worldwide, while pursuing retail licences for both hemp and cannabis products.
“Large industry-leading Canadian cannabis corporations such as Canopy Growth, Aurora and Aphria are already investing capital internationally in many of the same jurisdictions as CROP,” says Yorke. “The opportunity in what is becoming the end of cannabis prohibition is vast. We believe we are in the right places at precisely the right time.”