An anonymous director reports
CANNABIS ONE HOLDINGS INC. ANNOUNCES DEFINITIVE AGREEMENT TO ACQUIRE WASHINGTON-BASED GREEN LADY IP INC. TO PROGRESS PACIFIC NORTHWEST EXPANSION PROGRAM
Cannabis One Holdings Inc., through its wholly owned subsidiary, has executed a definitive share purchase agreement to acquire all of the issued and outstanding securities of Green Lady IP Inc., an entity providing infrastructure services to three dispensaries operated by Green Lady Inc. and Green Lady Westside Inc., with two locations situated in Olympia, Wash., and one in Lynnwood, Wash. The dispensary companies are currently estimated by Green Lady IP management to collectively produce in excess of
$9.0-million (U.S.) in aggregate unaudited annual revenue, at an approximate EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 11.8 per cent, inclusive of Washington State cannabis taxes.
Following the execution of the definitive agreement, Cannabis One chief executive officer, Jeffery Mascio, commented, "Given the restrictive regulatory environment in Washington State, it appears most cannabis industry participants, particularly those operating in the public sphere, are hesitant to entertain expansion into this established Pacific Northwest market." Mr. Mascio continued: "This is an unfortunate situation for Washington State operators, since there appears to be a host of licence holders that we believe could benefit from certain ancillary services. By coupling our progressive infrastructure services program with an option to purchase the underlying licensed assets upon a change in WSLCB regulations, Cannabis One has developed a creative and accretive framework through which it may continue to pursue its exciting Pacific Northwest expansion program, as Washington law allows."
Following the closing of the proposed transactions contemplated in the definitive agreement, the company anticipates the acquisition of Green Lady IP will:
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Provide Cannabis One with diversified exposure -- adjacent to the direct sale of cannabis or cannabis-related products -- to the highly regulated Washington State cannabis industry, which currently prohibits out-of-state ownership of licensed assets;
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Allow the company to explore new relationships and potential collaborations within Washington State's vibrant, yet relatively isolated, cannabis market, as jurisdictional regulations and legislations may permit, by expanding its infrastructure services program within the state;
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Further bolster Cannabis One's management team with introduction of experienced cannabis industry member and Green Lady IP owner, Michael Redman, and former investment banker and merger and acquisition professional, Gavin Watson;
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Build upon the company's progressive Pacific Northwest expansion program, which follows Cannabis One's recent announcement, dated May 14, 2019, related to the company's securing of two Oregon-based manufacturing and processing facilities, which Cannabis One anticipates to begin production of cannabidiol and tetrahydrocannabinol-infused products, following receipt of all necessary governmental and regulatory approvals.
Michael Redman, president of Green Lady IP, stated, "Washington State is perhaps one of the most compelling, but often-overlooked, cannabis markets for out-of-state industry participants, due in no small part to the restrictive permissions around cannabis licensure in our home state." Mr. Redman continued, "Green Lady believes Cannabis One's forward-thinking approach to the diversification of its operations -- away from simply focusing on licensed ownership -- to additionally focus on intellectual property management, brand power and now infrastructure services, breaks the Washington mould to provide the competitive advantage necessary to challenge local incumbents."
Terms of the proposed transaction
Under the terms of the definitive agreement, the company, through its wholly owned subsidiary, shall acquire all of the issued and outstanding securities of Green Lady IP. In accordance with Washington State regulations and legislation, neither the company, nor its subsidiary, shall acquire any interest in or control over regulated inventory or licences related to the cultivation, manufacture, distribution, or sale of cannabis or cannabis-related products in connection with the proposed transaction. Gross consideration payable to Green Lady IP in connection with the proposed transaction shall be an amount equal to $3.05-million (U.S.), comprising: (a) $300,000 (U.S.) in cash consideration; (b) $1.35-million (U.S.) in Class B supervoting shares in the capital of Cannabis One at a per CBIS SVS share price equal to 10 times (given that each CBIS SVS share is convertible into 10 Class A subordinated voting shares in the capital of Cannabis One) the greater of: (i) the maximum discount allowed under the policies of the Canadian Securities Exchange to the closing price of the CBIS SUB shares immediately prior to the date of execution of the definitive agreement and announcement of the same by Cannabis One; and (ii) the 10-day volume-weighted average price of the CBIS SUB shares for the period immediately preceding the closing, converted into United States dollars using a 10-day simple average of the U.S.-/Canadian-dollar noon exchange rate for such period immediately preceding the closing, as published on the Federal Reserve website; and (c) $1.4-million (U.S.) in deferred consideration, payable in monthly instalments of $50,000 (U.S.) per month.
In connection with the proposed transaction, each of the dispensary companies will grant Green Lady IP an option, which provides the right, but not the obligation, to acquire all assets from the dispensary companies, including those assets related to cannabis licences and the sale of regulated products, following certain regulatory changes in the state of Washington that would allow out-of-state ownership of the assets held by the dispensary companies, or a portion thereof. Gross consideration that would be payable in respect of the exercise of the option is $3.2-million (U.S.), comprising: (a) $1.6-million (U.S.) in cash consideration; and (b) $1.6-million (U.S.) in CBIS SVS shares at a per CBIS SVS share price equal to 10 times (given that each CBIS SVS share is convertible into 10 CBIS SUB shares) the greater of: (i) the maximum discount allows under the policies of the CSE to the closing price of the CBIS SUB shares immediately prior to the date of the exercise and announcement of the same by Cannabis One; and (ii) the 10-day VWAP of the CBIS SUB shares for the period immediately preceding the exercise, converted into United States dollars using a 10-day simple average of the U.S./Canadian-dollar noon exchange rate for such period immediately preceding the exercise, as published on the Federal Reserve website. The option will have an initial term of five years, which term may be extended for an additional three years. The exercise of the option will be subject to state regulatory review and approval.
All CBIS SVS shares (and the underlying CBIS SUB shares which are issuable upon the conversion of the CBIS SVS shares) to be issued to Green Lady IP and the dispensary companies in connection with the proposed transaction or upon exercise, as the case may be, shall be subject to a trading restriction pursuant to applicable Canadian securities legislation of four months and one day, and trading restrictions pursuant to applicable United States securities legislation. Additionally, Cannabis One shall retain a right-of-first-refusal to purchase, or identify a third party purchaser for, any consideration shares intended to be sold by a recipient for a period of 60 days following receipt of Cannabis One of written notice from a recipient of any intent to sell such consideration shares.
About Cannabis One Holdings Inc.
Cannabis One Holdings is focused on aggregating and optimizing popular cannabis brands throughout North America. With its unique, franchise-ready retail brand, The Joint, and through targeted acquisition and partnership opportunities, Cannabis One intends to become the premier, globally recognized, house of brands, holding a client portfolio of award-winning products with an extensive market footprint. Through the company's The Joint retail concept, Cannabis One intends to leverage the consumer and brand data harvested from its retail locations to bring data-driven analytics to an emerging, branded industry.
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