Item 7.01 Regulation FD Disclosure
On December 5, 2019, the Company issued a news release providing an update on its California operations, including construction updates in San Diego, and Marijuana Enforcement Tracking Compliance (“METRC”) at ShowGrow Long Beach and Cathedral City Operations.
ShowGrow Long Beach
Through its California subsidiary NMG Long Beach LLC, the Company has completed transition to the METRC system. Compliance with METRC is mandatory for all California cannabis permanent licensees. The California Track-and-Trace (“CCTT”) system powered by METRC, is used to track commercial cannabis activity and movement across the distribution chain. CCTT enables government oversight of cannabis throughout its lifecycle, from cultivation to the end user. To remain compliant, licensees must migrate their current product inventory on to the METRC platform enabling the tracking and reporting of cannabis and cannabis products as they move through the commercial cannabis supply chain.
The Company assumed management of the popular Long Beach dispensary ShowGrow this past August and has swiftly finalized the move to CCTT METRC. The Company has assumed management of the ShowGrow Long Beach dispensary in conjunction with the management agreement outlined in the definitive agreement announced by the Company on July 3, 2019.
ShowGrow San Diego
The Company, through its subsidiary, NMG San Diego, LLC, continues renovation work at the San Diego ShowGrow dispensary. Interior walls are framed and electrical, plumbing and mechanical rough in is complete. Wall boarding is anticipated to commence next week followed by finish work. The Company, through its subsidiary, NMG San Diego, LLC, owns 60% of the San Diego ShowGrow dispensary which is fully funded to completion of the renovation and start up
Cathedral City
The Company, through its subsidiary NMG Cathedral City, LLC ("NMG"), has transitioned from managing all the operations at Satellites Dip, LLC's ("SDL") manufacturing facility in Cathedral City, California. The Company previously managed all the operations at SDL's facility pursuant to a management and administrative services agreement (the "Management Agreement"). The parties have decided to terminate the Management Agreement and continue their relationship pursuant to the Brand Director Agreement (as defined below) and License Agreement (as defined below). SDL, the actual manufacturer, is a licensed cannabis business conducting commercial cannabis activity within the state of California.
On November 30, 2019, the Company, through its subsidiary, DEP Nevada, Inc. ("DEP"), entered into a brand license agreement (the "License Agreement") with SDL.
Pursuant to the License Agreement, DEP agreed to grant SDL a non-exclusive, non-transferable, and non-sublicensable right to use certain licensed marks in connection with or on licensed products, solely in connection with SDL's commercial cannabis activity in California.
On November 30, 2019, NMG entered into a brand director agreement (the "Brand Director Agreement") with SDL.
Pursuant to the Brand Director Agreement, SDL has retained NMG for an initial term of six months to provide certain advisory and director services in connection with SDL's manufacturing of Company-branded products, as well as certain other products (the "Managed Products") as agreed to by NMG (the "Brand Director Services"). The parties to the Brand Director Agreement may renew the Brand Director Agreement for three (3) month renewal periods.
The Brand Director Services include: (i) managing SDL's production of the Managed Products; (ii) payment of a reimbursement fee to SDL equal to the amount of direct costs and direct taxes applicable to the Managed Products; (iii) managing inventory of the Managed Products; and (iv) directing SDL to enter into distribution agreements and sale agreements with third-party commercial cannabis licensees for the distribution and sale of the Managed Products in accordance with applicable law. Pursuant to the Brand Director Agreement, NMG will pay a monthly fee (the "Contribution Fee") of $5,000 to SDL. In connection with the Brand Director Agreement, as partial repayment for the principal and interest accrued under a certain loan agreement (the "Loan Agreement") between NMG and SDL dated June 6, 2019, SDL waives payment of the Contribution Fee for the first five (5) months of the Brand Direction Agreement.
In consideration for the Brand Director Services, SDL (as the "Licensee") has agreed to pay NMG (as the “Brand Director”) a brand director fee for each calendar month during the Term, Licensee shall pay to Brand Director a fee, to be calculated as follows: (x) Net Revenue for a single calendar month, multiplied by, (y) seventy-five percent (75%); (z) plus any fees to be paid to Brand Director in connection with the Equipment Lease dated June 6, 2019 (the "Equipment Lease Fee") added to the product of (x) and (y), the (q) total amount shall be the fee paid to the Brand Director (the "Brand Director Fee"). If the Net Revenue, minus the product of (x) and (y) is less than the Equipment Lease Fee in any given month, the difference shall carry over to the subsequent month, to be added to that month's Equipment Lease Fee, or the difference may be paid by Licensee at its sole option.
Additionally, NMG and SDL entered into a release and satisfaction of loan agreement (the "Release Agreement") on November 30, 2019. Pursuant to the Release Agreement, NMG agreed that all indebtedness of SDL to NMG arising from the Loan Agreement (and promissory note issued in connection with the Loan Agreement) is hereby satisfied and discharged in full. The release is granted based on SDL's obligations and duties pursuant to the Equipment Purchase Agreement and its five (5) month waiver of the Contribution Fee under the Brand Director Agreement.
NMG entered into an equipment purchase agreement (the "Purchase Agreement") with SDL on November 30, 2019. Pursuant to the terms of the Purchase Agreement, NMG agreed to purchase certain equipment (the "Equipment") from SDL for a purchase price of $235,684.93, with such purchase price to be paid directly towards the outstanding balance of the Loan Agreement. The purchase closed effective as of November 30, 2019.
On November 30, 2019, NMG entered into a first amendment (the "First Amendment") to an equipment lease previously entered into between the NMG and SDL (the "Original Lease"), whereby NMG and SDL updated the term of the Original Lease and updated the Original Lease to include certain equipment purchased pursuant to the Purchase Agreement entered into contemporaneously with the execution of the First Amendment.
A copy of the news release is attached as Exhibit 99.1 hereto.