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Speakeasy Cannabis arranges $3.27-million of loans

2020-03-23 12:19 ET - News Release

Mr. Marc Geen reports

SPEAKEASY ANNOUNCES $3.27 MILLION IN LOAN FINANCING

Speakeasy Cannabis Club Ltd. has secured loan financing in the aggregate principal amount of approximately $3.27-million.

The company has secured interest-free loans in the aggregate principal amount of $268,500 from Marc Geen, an insider of the company, and certain non-arm's-length parties and expects to secure up to an additional $250,000 in the days ahead. Each of the interest-free loans are repayable by the company upon receipt of demand from the lender, which demand shall not occur until the proceeds of the secured loan (as defined below) are received by the company.

Founder Mr. Geen states: "Raising money during these extremely difficult times has been a challenge for the entire industry; fortunately for us, we have fostered relationships that bring financial partners who also bring much more than just investment capital. In the coming months, these relationships will become key components in the marketing and sales aspect of the business. Being able to raise capital without diluting the stock is important to all of our shareholders and, although the cash costs are high now, they are small when we consider the income projected from our outdoor harvest this fall. Not diluting the stock now will be a positive for us in the long run."

The company has also entered into a term sheet with an arm's-length lender for a senior secured loan in the aggregate principal amount of $3-million. The secured loan will accrue interest at a rate of 55 per cent per annum and will be repayable as to $2,715,000 (inclusive of interest) on the first anniversary of the closing date and as to $2,999,250 (inclusive of interest) on the second anniversary date of the closing date. The outstanding principal amount and accrued interest thereon will be convertible into common shares of the company at the option of the lender at any time prior to the maturity date at a conversion price of $1 per common share.

Under the terms of the term sheet, the lender has agreed to advance $250,000 to the company upon the execution and delivery of a definitive loan agreement and security documentation. The balance of the principal amount will be advanced on or before April 15, 2020. As security for the secured loan, the company will cause the grant to the lender of a first mortgage over the company's property in Rock Creek, B.C., and a first-ranking general security agreement over the present and after-acquired personal property of the company and its subsidiaries. In the event that the company determines not to proceed with the secured loan prior to entering into a loan agreement, the company has agreed to pay the lender a break fee in the amount of $15,000.

In connection with the secured loan, the company has agreed to pay a finder's fee to an arm's-length party of $285,000. The finder's fee is payable on the first anniversary of the closing date.

The company intends to use the net proceeds of the loan financing for capital projects and for general corporate purposes. The initial advance under the secured loan is expected to occur on or about March 31, 2020, and is subject to certain conditions, including, but not limited to, the entering into of a definitive loan agreement and all security documentation, the granting of the security, and the receipt of all necessary regulatory and stock exchange approvals, including the approval of the Canadian Securities Exchange.

The interest-free loans may be considered to be related party transactions within the meaning of Multilateral Instrument 61-101 (Protection of Minority Security Holders in Special Transactions) as a result of Mr. Geen being, directly or indirectly, a lender thereunder. Mr. Geen is an insider of the company as a result of holding in excess of 10 per cent of the company's common shares. The company intends to rely on the exemptions from the requirements of MI 61-101 in respect of such insider participation.

About Speakeasy Cannabis Club Ltd.

Speakeasy Cannabis holds a cultivation, processing and sales licence issued by Health Canada under the Cannabis Act. Speakeasy owns 290 acres of land in Rock Creek, B.C., and leverages three generations of farming experience in British Columbia, as well as its favourable location to grow and process high-quality cannabis products at low cost.

We seek Safe Harbor.

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