Mr. Stephane Trudel reports

FIRE & FLOWER ANNOUNCES PRIVATE PLACEMENT AND LOAN AGREEMENT FOR $16 MILLION WITH ALIMENTATION COUCHE-TARD

Fire & Flower Holdings Corp. has entered into an amendment agreement with respect to certain amendments to the Series C common share purchase warrants of the company issued to an indirect wholly owned subsidiary of Alimentation Couche-Tard Inc. (ACT). In connection with the amendment agreement, ACT and the company have entered into: (a) a loan agreement in respect of an $11-million principal amount loan to the company; and (b) a subscription agreement to purchase common shares of the company for aggregate proceeds of approximately $5-million.

"These financings with our strategic partner, Alimentation Couche-Tard, provide Fire & Flower with access to capital on favourable terms and demonstrate continued strategic alignment between the two companies as we continue to execute our technology-enabled retail strategy," said Stephane Trudel, chief executive officer of Fire & Flower. "The company will prudently use this capital to continue to grow the business and build upon the recent success we have seen through improvements in our retail, wholesale and logistics, and digital business segments."

"In addition to our co-located store program with Fire & Flower, Alimentation Couche-Tard has committed to advance these financings to enable Fire & Flower to execute upon its growth-oriented strategy," said Alex Miller, executive vice-president, operations, North America, and global commercial optimization of Alimentation Couche-Tard. "Fire & Flower continues to be our strategic partner in the growing cannabis retail market, and we look forward to continuing to work with Fire & Flower on other initiatives."

Background

ACT is currently the holder of 17,796,284 Series C warrants:

• 13,339,078 of which each entitle ACT to acquire one common share at a price per share equal to the lesser of (i) $30; and (ii) a 125-per-cent premium to the 20-day volume-weighted average price (VWAP) of the common shares on the last business day prior to the exercise of the Series C warrants;
• 4,457,206 of which each entitle ACT to acquire one common share at a price per share equal to the greater of (i) $4.7732; and (ii) the initial exercise price.

The Series C warrants are currently exercisable at any time following Oct. 1, 2022, and expire on June 30, 2023, subject to the terms of the Series C warrants.

Proposed amendments

Pursuant to the terms of the amendment agreement, the company and ACT propose to amend the terms of the Series C warrants, which amendments include, but are not limited to, the following:

• The Series C warrants shall be divided into two equal tranches: Series C-1 warrants and Series C-2 warrants.
• The Series C-1 warrants shall be exercisable at a price equal to 85 per cent of the 20-day VWAP of the common shares (as of the date of exercise) at any time between the date the amendments come into effect and June 30, 2023 (subject to extension pursuant to the terms of the Series C-1 warrants).
• The Series C-2 warrants shall be exercisable at a price equal to the amended Series C exercise price (as of the date of exercise) at any time between Dec. 1, 2023, and Aug. 31, 2024 (subject to extension pursuant to the terms of the Series C-2 warrants).
• The number of Series C-1 warrants shall be reduced by the number of common shares issued to ACT in the private placement; provided, however, that the aggregate number of Series C-1 warrants and Series C-2 warrants shall, upon the closing of the private placement, entitle ACT to acquire that number of common shares, which together with common shares then held and as-converted common shares underlying the debentures held by ACT and its affiliates, would represent at least 50.1 per cent of the issued and outstanding common shares on a fully diluted basis (as defined in the amended and restated investor rights agreement (IRA) between the company and ACT dated Sept. 16, 2020).
• Any subsequent Series C warrants to be issued to ACT pursuant to its participation right and top-up right (each as defined in the IRA) shall have an exercise price equal to the greater of: (i) with respect to the participation right, the amended Series C exercise price (as of the date of exercise of the warrants) and the price per security issued in the offering giving rise to the participation right; and (ii) with respect to the top-up right, the amended Series C exercise price (as of the date of exercise of the warrants) and the market price of the common shares on the date ACT delivers its notice to exercise its top-up right.
• In the event the Series C-1 warrants are not exercised in full on or prior to the Series C-1 expiry date, all Series C-2 warrants shall immediately be cancelled.

The IRA would also be amended to reflect the aforementioned amendments to the Series C warrants.

The loan

Pursuant to the terms of the loan agreement, ACT will loan $11-million principal amount to the company with an interest rate of 11 per cent per annum and payable quarterly, provided that for the first six months of the term of the loan, the company may elect to increase the principal amount of the loan by the amount of accrued interest during such period in lieu of paying such accrued interest to ACT. The loan matures on Dec. 31, 2023, and ACT will have first-priority security on all of the assets of the company and its subsidiaries, including all intellectual property, subject only to permitted liens. Pursuant to the loan agreement, the company may prepay all or any portion of the loan without bonus or penalty upon five business days notice. Financing under the loan agreement is subject to the prior acceptance of the Toronto Stock Exchange, with financing of the loan expected to occur shortly thereafter.

Private placement

Pursuant to the terms of the subscription agreement, ACT and the company have agreed to complete a private placement, whereby ACT will subscribe for 3,034,017 common shares at a price of $1.64798 per common share, for aggregate proceeds of approximately $5-million. The company is entitled to terminate the subscription agreement and enter into an agreement with respect to an unsolicited superior proposal, in which case the loan shall become immediately due and payable.

Fire & Flower board recommendation

The board of directors of the company, based on a unanimous recommendation of a special committee comprising independent directors, and after consultation with its legal and financial advisers, has unanimously determined that the loan and the warrant and share transaction are in the best interests of Fire & Flower.

The special committee was established by the board to consider certain proposals made by ACT, as well as other alternatives available to the company and, if deemed advisable, negotiate with ACT. Following comprehensive negotiations and the evaluation of alternatives available to the company, the special committee unanimously recommended that the board approve the loan agreement and the warrant and share transaction. The board (excluding conflicted directors), having received the unanimous recommendation of the special committee, unanimously approved the loan and determined that the warrant and share transaction are in the best interests of the company and recommends that the shareholders of the company, other than ACT and its affiliates (the minority shareholders), vote in favour of the warrant and share transaction at the special meeting of shareholders to be held to approve the warrant and share transaction.

The special committee retained Canaccord Genuity Corp. as financial adviser in connection with the warrant and share transaction and obtained a fairness opinion from Canaccord Genuity which provides that, as of Oct. 17, 2022, and based upon and subject to the assumptions, factors, limitations and qualifications set forth therein, the warrant and share transaction is fair, from a financial point of view, to the company.

Conditions precedent

The warrant and share transaction is subject to customary conditions precedent and applicable regulatory approvals, including the receipt of the requisite approvals by the holders of common shares as required by applicable securities laws and the policies of the TSX. The company intends to seek the requisite shareholder approval at a special meeting of shareholders expected to be held in December, 2022. It is a condition of both the amendments and the private placement that each transaction be approved by the minority shareholders prior to coming into effect. The loan agreement does not require minority shareholder approval.

Related party transaction

ACT holds greater than 10 per cent of the outstanding voting securities of the company. As such, the amendments, loan and private placement all constitute a related party transaction under Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions. The company has relied on the exemption from the formal valuation requirement of MI 61-101 contained in Section 5.5(c) of MI 61-101 in respect of the private placement as the common shares to be issued are being distributed for cash consideration, neither the company nor ACT have knowledge of any material information concerning the company, and the circular prepared for shareholders in connection with the meeting to approve the private placement will include the requisite disclosure contemplated by Section 5.5(c) of MI 61-101. The amendments and the loan are not subject to the formal valuation requirements of MI 61-101.

The company has also relied on the exemption from the minority shareholder approval requirements of MI 61-101 contained in Section 5.7(1)(f) of MI 61-101 in respect of the loan, as the loan was obtained by the company on reasonable commercial terms that are no less advantageous to the company than if the loan was obtained from an arm's-length party and the loan is not convertible into or repayable by the issuance of equity or voting securities of the company. The amendments and the private placement are not exempt under Section 5.7 of MI 61-101, and as such, are subject to minority shareholder approval in accordance with MI 61-101. Further details will be included in a material change report to be filed by the company, however, such material change report has not been filed 21 days before the entering into of the loan agreement, the amendment agreement and the subscription agreement as the terms thereof were not finalized and approved by all parties until immediately prior to the entering into of such agreements.

Advisers

Dentons Canada LLP is acting as legal adviser to Fire & Flower. Canaccord Genuity is acting as financial adviser to the special committee and provided a fairness opinion to the special committee.

Davies Ward Phillips & Vineberg LLP is acting as legal adviser to ACT.

Additional information

Copies of the amendment agreement, the subscription agreement, the loan agreement and the agreements attached thereto as exhibits, including the form of amended and restated warrant certificate, will be filed on the company's profile on SEDAR. The above descriptions of the terms and conditions of the amendment agreement, the subscription agreement, the loan agreement and the agreements attached thereto as exhibits are qualified in their entirety by the terms of the amendment agreement, the subscription agreement and the loan agreement, as applicable.

About Fire & Flower Holdings Corp.

Fire & Flower is a cannabis consumer retail and technology platform with more than 90 corporate-owned stores in its network. The company leverages its wholly owned technology development subsidiary, Hifyre Inc., to continually advance its proprietary retail operations model while also providing additional independent high-margin revenue streams. Fire & Flower guides consumers through the complex world of cannabis through best-in-class retailing while the Hifyre digital and analytics platform empowers retailers to optimize their connections with consumers. The company's leadership team combines extensive experience in the technology, cannabis and retail industries.

Through the strategic investment of ACT (owner of Circle K convenience stores), the company has set its sights on global expansion as new cannabis markets emerge and is poised to expand into the United States when permitted through its strategic licensing agreement with Fire & Flower U.S. Holdings upon the occurrence of certain changes to the cannabis regulatory regime.

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