Neptune Technologies and Bioressources Inc (NEPT) Q4 2019 Earnings Call Transcript
Remember we've said this facility is constructed, it's built, it is run, it is extracted materials before, but we're choosing to turn on an elemental section of it, and we're doing so for reasons of speed and for investment. We think it is a natural and a wise first step in terms of the capacity expansion and that investment will be approximately $4 million and will be largely for security in those rooms combined with some material, handling and equipment, et cetera, to allow for the nature handling of this product.
Now our goal is that, we'll have this constructed and completed in the latter half of this year and we'll be working with Health Canada to get the amendments approved accordingly in a good side. So, this will be a six-fold increase in our capacity in Canada, and we're very, very excited by the capabilities, and the -- I would say, the quality and the cost profile that that capacity will allow us to deliver in future.
Page 10, it's not just about extraction as I mentioned earlier, it is also about the value added delivery forms. And for those who are following, there's a picture of the two-piece hardshell capsule equipment that has been installed. And I think important to touch on some of the commercial agreements that we've recently signed include a large element of loading of capacity onto these equipment. We will be expanding our packaging capability as well as other delivery forms capabilities in our site, and we have approved today with the board an additional investment of CAD7 million, and construction will begin again with an expectation, we'll have that completed in the coming months of this year.
Page 11, and I thought we would include this because it's interesting, cold storage capacity. This is a picture of cold storage rooms that we used in our facility when we were extracting omega-3s, and one of the big problems with this industry today is just capacity to handle materials, and it becomes especially important as the volumes are going up, as demand for extracted marijuana and hemp begin. And we'll also be investing to expand our storage into this area, and there'll be additional investments, minor investments here rather, mostly around just security.
So, I was just chatting with Martin, I think, you know the example is for those who may not be familiar in this industry and in Canada literally they were bulks with like you would see in a bank is how these materials would be beheld legislation sensible in a bit over a short period of time. But many companies that were engaging with material handling constraints in terms of where they can handle material. So that's a value added capability that we can offer.
Just moving on to outlook in Page 13, let's just talk about some of the commercial agreements that we published, added contract volumes minimum of about 360 metric tons over the next three years, and much of this that we'll be extracting will be put into consumer-ready value-added delivery forms, and there's a ton of engagement happening with our technical teams and including our technical and IT partners such as Lonza to develop and then formulate these products, and quite a bit of sharing of information and technologies, and going further in terms of vape pens and other such products as topicals.
I would be remiss, Page 14, if we didn't speak to. I'm looking at our North Carolina resident and Chairman, John Moretz, talk about the great things in North Carolina, and that's SugarLeaf Labs. I was there about two weeks ago touring the facility with the Founder and Principal, Pete Galloway, and team is just doing great work. Remember again, as I said for 1,500,000 kilos of extraction capability, we really love their access and the relationships with the growing and farm community in the tobacco belt. And not only the gear, but also the quality of all the capabilities of the organization.
And again as we said before the dynamics of what is happening in the Consumer Products natural health industry in the United States with CBD is just off the charge. We're so excited to be there at the ground floor. As we mentioned, this would be an 18 -- value of CAD18 million initial purchase price, which would represent about CAD12 million in cash and CAD6 million in share, and then earn-outs multiples as we go forward.
And Mario, the average of that earn-out, if all is achieved over the next three years would be honored about five times multiple. And we are working to close that as we speak, and we'll get in a little more detail on that in a moment, sometime between now and later July.
Let me just add, we had the privilege of having Pete Galloway visit us here for a board meeting this week, and it was just incredible to see the engagement of our team and Pete and all his experience with extraction. And I think he met some like-minded kin, if you will, in the extraction and cannabis again, and John, I think he made a tremendous conversation today this morning at the Board and we're excited by what we see.
Page 15, just a roadmap to added capacity. And one of our frustrations is that we have communicated before to this round and as well as presentations we've had the privilege to be invited to with BMO and GMP and others is that we have regulatory constraints that are limiting our capabilities. Now this is a near-term constraint, a regulatory constraint, and as we've said before, we have capacity that is installed technically there, ready to go. We have to go, but we do need the permission of Health Canada to turn that on. Moreover, we have people in and trained and ready to go, but we also need security approvals and the clearances for them. So, we are regulatory constrained in our facility today.
Now this is not a long-term issue. This is a very short-term issue. But it's one that we faced and the industry has faced. But maybe I could just pause here for a moment, speak to a little bit of what we're seeing with the dynamic of the Health Canada regulatory approach. I think it's important and there's been different reports on this, one recently we saw from Cowen, give or take 50% of the Canadian market is out of stock, underserved and we see that either through SKU, vacancies if you will on the store shelves or stores are actually just closing because they have no inventory today.
Now Health Canada's responsibility and then ambition to fully fulfill the legal channel demand, and I think they're recognizing that there has been some dilemmas and some problems, and we've seen this in a couple of ways. And we had the privilege of senior level meeting recently here in Montreal, and had a discussion with them in two ways. One is, for those who have been following, this has been a decision by Health Canada to not entertain, if you will, new applicants as freely as they once did, and only once new capacity is constructed and built and ready to go will they commit resources to review it as we understand.
Number two, is they're taking a risk adjusted approach to how they review amendments. And I think that is great news for us and that's what we understood from our conversation. Companies that have a history of performing well with the regulatory authorities as we have, companies that have performed well in the Health Canada audit as we did a short couple of weeks ago, companies that submit their dossiers in a very complete and articulate way are favored.
And I would say we score well on all those at least that's what Health Canada told us, and we feel confident that Health Canada is putting the moves in place to prioritize people and companies such as ourselves and that we will see these constraints removed shortly. But to be continued, will that be weeks, will that be more than weeks, we'll see to be continued. But that is going to be one of our biggest drivers for our revenue acceleration in the near-term demand, it is not our problem. Inventories are in the house. The capabilities are there. The commercial contracts are in place, and I think with the regulatory constraints removed, we'll see a very interesting acceleration of this business.
And I'd like to reiterate Mario's comment that we also foresee a year with a very interesting and positive enviable position, and we are going to see a significant sales ramp up in the coming periods going forward. We have not spoken about the value added SugarLeaf here today, but clearly once that transaction is closed, we'll be able to get more insights in terms of how that will contribute to the business. Moreover, I think once we get these regulatory constraints cleared up, we'll be in a better position to give further clarity on the visibility on that ramp.
So, I think that would conclude our formal remarks, and at this stage we would welcome questions and comments.
Questions and Answers:
Operator
(Operator Instructions) Your first question comes from the line of Ryan Macdonell with GMP Securities. Please go ahead. Your line is open.
Ryan Macdonell -- GMP Securities -- Analyst
Yes, hi, guys. Good evening. So, maybe just to start off, I had noticed previously you had given guidance or an outlook for processed volumes, but I didn't see in your deck this morning. Are you able to update that for us?
Jim Hamilton -- President and Chief Executive Officer
Yes, I mean, I think I know, Ryan, the chart to which you refer. And I think if you were to graph that chart once again you would see a maximum bar in year two, in year three, and you would see probably a half bar of maximum this fiscal year, driven by the constraints that we would face from a regulatory standpoint at this point in time. If the regulatory things can clear more quickly, and clearly if our Phase 3A comes online sooner, that bar may look differently. But if I was to graph that bar today, it would probably be something around one half and then full and full.
Ryan Macdonell -- GMP Securities -- Analyst
Okay. Okay. Thank you. And then maybe sticking with revenue per second, can you kind of give us a bit more color potentially across the kind of rough split that you guys expect we could maybe see between tolling revenue and white labelling revenue in fiscal '20 and fiscal '21?
Mario Paradis -- Chief Financial Officer
Yes, Ryan, it's Mario. So, I think the white label revenue is -- will represent probably less than, I would say, less than 15% of total revenues. So, as you know, we are charging its services and I'm talking here about the kind of tolling business model. So, where we don't buy the materials and so the materials are providing by our customer, and the -- if you look at the service that we're going to charge, the fee versus the white label and the delivery form services, that's probably a range of 85-15.
Ryan Macdonell -- GMP Securities -- Analyst
Okay, thank you. And just to clarify, is that for fiscal '20? And is that out of total cannabis revenue or not including nutraceutical revenue?
Mario Paradis -- Chief Financial Officer
Yes. So, no, it's excluding nutraceutical revenues, and for this delivery form again, we are -- the limiting factor is the amendments because we are awaiting the expansion amendments and we will have to file another set of amendments for this delivery form. So, we foresee potentially these white label and delivery form in the last quarter of the year.
Ryan Macdonell -- GMP Securities -- Analyst
Okay, thank you. And maybe turning a little bit to the U.S. for a second, speaking about fiscal '21, looking out a bit, can you give us maybe some color on what the revenue split geographically might look on the cannabis and hemp side between the U.S. and Canada?
Jim Hamilton -- President and Chief Executive Officer
I think it would be, Ryan, let's say, it's a great question. I think that's probably a better question post closure on the acquisition for us to comment on that. But I'd like to say that we are active in, call it, the hemp CBD market as we speak now in the natural products industry as we've mentioned before, but we have orders in house that we're processing through our nutrition team as we speak. And for those who may have been on this call this is old news, but I am just amazed at what I've seen that here's a product category that is now larger than vitamin E and on track to be much larger than omega-3. It is the topic of conversation and I think every major consumer products company has some kind of project under way right now. It's really an exciting time on the hemp CBD market and the States.
Ryan Macdonell -- GMP Securities -- Analyst
Got it. Thank you for the color there. And maybe pivoting a little bit to talking a bit more though white labeling, thank you for giving the outlook for CapEx. It was very helpful. I just wondering this the CAD7 million of CapEx for formulation, manufacturing, et cetera. I'm wondering how much of your intended capacity for these product categories does that encompass? And does it encompass all product categories that you expect to be involved in from a white labeling perspective?
Jim Hamilton -- President and Chief Executive Officer
Well, Ryan, I think for the space in the site that we've identified, and what we'll be doing, I would say, would be on the high value kind of the forms if you will. So formulated two piece capsules, it would be the cartridges for vapes and other such sort of high value tinctures, other values there. We actually had the conversation about sort of larger application forms. When I say larger, more bulky forms, and that could take the form of maybe more consumable kind of products. And we have room on the site footprint, if you will to do that, but that will take probably more construction. Right now, we're going to utilize what we have with the highest value margin added products that we can identify.
Ryan Macdonell -- GMP Securities -- Analyst
Okay. Can you expand a little bit maybe on which product categories specifically you're referring to?
Jim Hamilton -- President and Chief Executive Officer
Yes, we like, Ryan, specifically, the two-piece hardshell a lot, and some who are maybe marijuana obsessed, they may find that a little bit surprising. We're big believers in formulated products especially broad spectrum including an element of hemp CBD. And we say that because these are typically products taken chronically not sort of on an occasion basis, a social occasion basis, but chronically for things like information, sleep, anxiety what have you. So -- and we are very encouraged if you will by the data we're seeing in terms of the stability of this product, and the ability to, and I think this is early I want to be a little bit careful with this statement, but the ability to -- for this vehicle to retain the volatiles, the terpenes which there is some growing evidence to suggest these could be a powerful component in terms of the whole health profile.
So, we like capsules a lot. We think vapes and vape cartridges, clearly if you look at the U.S. model are a large part of this business that will be part of it. And I would say, there's also some interesting novel unique delivery forms that one of our partner customers would like to support with, and we'll be collaborating with them to jointly install and engineer some equipment for those specific applications. So those would be examples, Ryan.
Ryan Macdonell -- GMP Securities -- Analyst
Okay, interesting. And just on the CapEx requirements, is the CAD7 million going to be enough to fund all the capacity needs you foresee for these white label product services?
Jim Hamilton -- President and Chief Executive Officer
I would say for what we've identified and what we're doing today, Ryan, we don't -- and I don't mean to suggest this. We don't have a beverage project where we're going to build onto the plant and install a lot of beverage equipment, that's not in scope right now. But for the applications that we're looking to deliver in terms of a unique and value added formulated products, largely for wellness, this would be adequate investment for us at that point in time. And we also like the step approach to growing into the 6,000 metric ton capacity. We think this is for speed reasons. And for the payback and value add, it's an exceptional value. John was -- even John Moretz is smiling when he looked at the payback on that one. We like that a lot, Ryan. We're very encouraged by both of these projects.
Ryan Macdonell -- GMP Securities -- Analyst
Excellent, cool. Thanks for the color there. Maybe just one more from me again kind of on future products. I'm curious to hear your comments on, in your discussions with clients, be it LPs or otherwise, what are some products that you've been hearing lots of inter -- product categories and you've been hearing lots of interest from -- for white labeling services.
Jim Hamilton -- President and Chief Executive Officer
Yes, it's a good question, and Martin may want to pipe it on this one. But I would say, we're seeing a lot of interest in topicals, and I would say, we're also -- it's an application form that we're looking at. Ryan, I'd like to build on that a little bit, where we see a lot of topical interests especially in the United States, because it's sort of safe gateway into the hemp CBD business, and the major multinationals are probably more comfortable establishing a product line with that initially, and then broadening that out.
I think what we'll see in the United States is that as a first move and followed up rapidly with a formulated product, probably capsules again, where it's in combination with, for example, omega-3 or melatonin, and now use the structure function claims that they can get on the nutrition product along with hemp/CBD. And as the regulatory frames become more clear, there's more comfort with the majors. I think that's probably step-wise, but topicals are big on everyone's mind right now.
Ryan Macdonell -- GMP Securities -- Analyst
Okay. Thank you. That's all for me.
Jim Hamilton -- President and Chief Executive Officer
Ryan, that was great. Thank you for calling in. Appreciate it.
Operator
Your next question will come from the line of Doug Loe of Echelon Wealth Partners. Please go ahead. Your line is open.
Siew Ching Yeo -- Echelon Wealth Partners -- Analyst
Hi. This is actually Siew (ph) calling on behalf of Doug. Just two quick updates. Two quick questions from me, sorry. The first one, just looking for any further updates that you might have on your Lonza partnership. And the second being just a clarification on the timelines to the projects that you outlined in your CAD7 million in CapEx investment that was on Slide 10 like when do you sort of see that being completed by? And that's it for me. Thanks.
Jim Hamilton -- President and Chief Executive Officer
Well, if I understand the question, first of all, I would say that the customer relationships that we announced in the last days to Cree (ph) include a major portion of our capsule capabilities that we're collaborating with Lonza on, that's in Canada. I would say part of our collaboration and motivation with working with again just a little bit back on Lonza there, Basel Switzerland-based API drug delivery form active ingredient company. And clearly we wanted to start in Canada, but I think there is an ambition to explore possibilities beyond Canada. But this is a great place to start, and we're very, very pleased with the progress in collaboration with Lonza.
Both investments, if I understood the question, will be starting. The engineering is complete, the project plans have been put in place. We have the board green light today and they will begin, and the capacity expansion remember this is already built and exists. It's mostly around security. And as people know and it was since called before we basically like to put cameras up in every corner, so there is no space unmonitored. Doors have to be secured and we'll also have to put in some handling. But fundamentally, I would call them not significant construction, but rather adaptations of existing infrastructure, and that could be probably characterized in the course of months, and then the following year. So that's why we say the latter half of the year.
I think on the application forms, we also have the room built. The utilities are there but what we have to do is make it a clean and former style GMP environment, and that will take us probably a similar timeline. So both we think have the potential to be ready this fall. The licensing, of course, is the unknown. But we do believe licensing will be a faster process in future as we move forward.
Did that answer the question?
Siew Ching Yeo -- Echelon Wealth Partners -- Analyst
Yeah, it does. Thanks a bunch, Jim.
Jim Hamilton -- President and Chief Executive Officer
Okay. Thank you.
Siew Ching Yeo -- Echelon Wealth Partners -- Analyst
Thank you.
Operator
Your next question will come from the line of Chen Lin of Lin Asset Management. Please go ahead. Your line is open.
Chen Lin -- Lin Asset Management -- Analyst
Yeah, hi. Thank you for taking my questions. First, I want to ask with today's press release with The Green Organic Dutchman, on their press release they mentioned there is some kind of exclusivity. Can you comment on that? Did they exclude you from sending any other similar deal in Canada?
Jim Hamilton -- President and Chief Executive Officer
We'll be doing with -- first of all, they are a great company and a great team and we've really, really enjoyed the engagement with them. They also have installed a very large capability not too far from us here in Montreal, so geographically it is very conducive to the relationship. The number three, I think when you look at The Green -- TGOD, let's just call it, TGOD, they have a very interesting and differentiated approach. I mean, these guys are The Green Organic Dutchmen. They are going organic and this is a segment I'm looking at Martin right now, but this is -- I wouldn't say the majority of the market, but is a clear segment of consumer preference. This is their focus. They will be working with us to help us with getting organic certified in some of our processes and what we have agreed is that, for certain elements of our process-certified organic, we would work with them on an exclusive basis.
Chen Lin -- Lin Asset Management -- Analyst
Okay. Thank you. That is a very good clarification. And also, when you plan to expand to 1,500 before the end of the year, so you need to -- you probably implying earlier you need to Health Canada to come in to do another inspection to get another approval process before this could be online, is that correct?
Jim Hamilton -- President and Chief Executive Officer
Yeah. And I think, as I mentioned earlier, the licensing process in Canada has been probably the ban and the frustration of the industry and I think the good news, as I stated earlier, is two-fold. One is the initial licensing process is a gigantic hurdle, and it can be measured in years, and we're happy we started our process years ago and achieved that as -- a short while ago as January of this year. But we are licensed and we are in this business and we are manufacturing today and that is a great place to be. The amendments, as I mentioned earlier, we anticipate will not be measured in years, will be measured in months and we think these amendments and where Health Canada is going with their prioritization processes are very conducive to where we want to go and more quickly. So we're encouraged there but I wish I could tell you when that is. So we can't do that. But I don't think this will be a topic for our Phase II and capsule production will not be a topic in August but it likely will be a topic in late this year as we look for the amendments to come through on the Phase III.
Commercially, however, it doesn't slow us down from already engaging with customers in terms of occupying that capacity and I'd like to add that this is an active dialogue as we speak. As I said, before with a line of sight I think there is an interesting demand dynamic in the market right now, and it is a capacity that will serve this industry very, very well.
Chen Lin -- Lin Asset Management -- Analyst
Okay, great. Thank you. And I believe I would talk to Mario before and then you have gave a guidance with your last year's deal with Canopy. It's basically with margin of CAD0.50 to CAD1 per gram on the extraction marijuana side. Do you have any guidance for those two deals you just announced this week, or gave some rough idea what kind of margin, is that similar or higher than last year's contract?
Jim Hamilton -- President and Chief Executive Officer
So, Mario, do you want to start on?
Mario Paradis -- Chief Financial Officer
Yeah. So, Chen, I think we -- I don't think I ever gave guidance on the CAD0.50. I think gave you probably an example on how to build your financial ball model. That being said, we are not publicly said what would be the total revenue of these two agreements. So, again, we talk about the volume that we agreed with these two new partners. And coming along we will disclose the revenues and again, it will be easier for everybody to see what kind of revenue and margin, and don't forget that we are not selling products, we're selling services. So we're not buying materials. So the gross margin when you compare with other LP that have materials is completely different.
Jim Hamilton -- President and Chief Executive Officer
But Mario, you want to comment in terms of what are our fixed costs of the site, or we've share that information before that might be helpful?
Mario Paradis -- Chief Financial Officer
Yeah. So, at full capacity meeting the 200,000 kilogram, this site, the total fixed costs, including variable costs could be in a range of CAD15 million per year.
Chen Lin -- Lin Asset Management -- Analyst
Okay.
Mario Paradis -- Chief Financial Officer
Excluding white label and different type of delivery forms, I'm talking about extraction here.
Chen Lin -- Lin Asset Management -- Analyst
Okay, great. Thanks. Just last question, in your SugarLeaf acquisition, that's mainly for hemp, do you foresee any possibility for it to modify some of the equipment to extract marijuana?