Heritage Cannabis Holdings Corp (CSE:CANN) (OTCMKTS:HERTF) announced Thursday it will supply Cronos Group Inc (NASDAQ:CRON) with packaged cannabis vaporizer devices for the Canadian adult-use and medical markets.
Under the contract manufacturing agreement, Heritage will provide extract, fill and package vape devices for the Spinach and PEACE NATURALS brands, utilizing multiple proprietary formulations provided by Cronos.
The agreement has a two-year term with an option to extend upon agreement by both parties, at an annual potential contract value of C$35 million, according to a statement.
Heritage will be responsible for the costs of supplying cannabis biomass for the production -- which is estimated to be approximately C$12 million based upon the total contract value being achieved.
In addition to cannabis biomass, Vancouver-based Heritage will bear production, general and administrative and associated expenses for the manufacture of the vaporizer devices.
The contract value is based on future sales projections established by Toronto-based Cronos and could increase or decrease as a result of market demand and various other contract alterations.
Heritage will execute the agreement via its two licensed subsidiaries, CannaCure Corporation in Fort Erie, Ontario, and Voyage Cannabis Corp in Falkland, British Columbia.
Purefarma Solutions Inc, Heritage's extraction subsidiary, will oversee the extraction operations in these facilities, with first deliveries expected in December 2019.
Eying a market for vape pens
"Working with the Heritage group of companies gives us the quality and optionality that we are looking for as we introduce our proprietary vape pen formulations." said Cronos CEO Mike Gorenstein.
The partnership between Heritage and Cronos comes as Canada prepares for the legalization of cannabis-infused beverages, which is expected to lead to an expansion of the cannabis market via edibles, topicals and drinks -- and vape pens.
"This Contract Manufacturing Agreement with Cronos Group is an important, and significant milestone for Heritage as we continue to execute on our plan to establish ourselves as an industry leader for extracted products." said Heritage CEO Clint Sharples.
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