Silo Wellness And Marley Green Terminate Licensing Deal Over Insufficient Sales

A five-year license agreement signed between Silo Wellness Inc.’s (OTCQB: SILFF) wholly-owned subsidiary SW Holdings Inc. (SWHI) and Marley Green LLC was terminated by the latter due to the former’s failure to meet its $600,000 in guaranteed minimum royalties due and owing as of August 15, 2022 and to obtain relevant insurance coverage minimums of $10 million. 

What happened?

The original license agreement was executed on November 20, 2020 and was meant to be effective through July 31, 2025, with automatic renewal if minimum net sales were met and if SWHI was not otherwise in material breach. 

The deal entailed the provision of recognizable branding for functional mushroom and psilocybin microdosing products to be launched, allowing the use of the name of the branding partner for products including psychedelic, medical or nutraceutical functional mushrooms where legal. 

The agreement stated the licensor would be paid royalties of 10% of net sales of the licensed products, including guaranteed minimum royalties in the form of the GMR payments during the agreement duration -$368.900 in year 1, $442.680 in year 2, $553.350 in year 3, $664.020 in year 4 and $737.800 in year 5, for a total of $1.955.170 of GMRs remaining due by SWHI under the licensing agreement. 

After the announcement of the agreement in March 2021, $468.116 were deployed out of the $472.192 estimated as an advance royalty payment of $500,000, satisfying the guaranteed minimum royalties payment in year 1.

But Silo has been ultimately unable to satisfy the additional licensing payments and remained in default. The breach between projected and real sales made it so that no additional royalties were paid. Silo specifically outlined the initial delay in the launch of the brand due to the licensor’s unmet requirements on product development, brand creation and marketing approvals.

Silo also disclosed that it had ceased additional functional mushroom product development due to the contracted royalty fees and general slim profit margins given the market’s saturation and too high costs, all of which lead to a risky and unknown rate of return.

Further, the company’s project of a microdosing psilocybin mushroom product line in Jamaica to be launched by the end of 2021 did not take place due to the inability to secure liability insurance covering psychedelic mushrooms, a contractual requirement in the licensing deal.

Separately, Silo expected its $3 million national distribution deal with Texas-based distribution and advertising firm One Light Enterprises LLC to achieve enough product sales to pay the remaining guaranteed minimum royalties, but the contract expired without any revenue.

Attempts to renegotiate the contract were ultimately unproductive. With insufficient sales of the other distribution contracts, the expenses of the licensing contract with Marley exceeded the projected revenue. 

Silo tried amending the contract to defer royalty payments out of future product sales so as to conserve cash for inventory and marketing, an option rejected by the licensor. Alternatively, the companies decided to terminate the contract and negotiate a payment plan for the remaining debt, with Silo using its resources in existing projects, namely the psychedelic retreats and its newly-acquired Dyscovry Science ventures. 

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