Auxly Cannabis Group Inc. (TSX.V: XLY) (OTCQX:
CBWTF) (“
Auxly”), an international cannabis
company, today announced that Imperial Brands PLC
(“
Imperial Brands”) will invest approximately $123
million in Auxly by way of a convertible debenture and grant Auxly
global licences to Imperial Brands’ vaping technology and access to
its vapor innovation business, Nerudia (the
“
Transaction”).
“This investment from Imperial Brands will
enhance Auxly’s ability to continue to deliver on our business
plans and accelerate our growth initiatives to expand our portfolio
of branded derivative products,” said Hugo Alves, President of
Auxly. “The timing is ideal as we prepare to bring our portfolio of
innovative cannabis products to the Canadian market following the
legalization of edibles, extracts and topicals later this
year.”
Chuck Rifici, Chairman and CEO of Auxly, added:
“Following its extensive evaluation of the Canadian cannabis
market, we’re thrilled that Imperial Brands selected Auxly as its
partner of choice due to the high calibre of our assets, people and
capabilities. We are particularly excited to partner with Imperial
Brands on current and future intellectual property and product
development, starting with immediate access to its portfolio of
vaping technologies and research and development capabilities.”
Imperial Brands is an international fast-moving
consumer goods company that continually evolves to embrace changing
market dynamics and develop new consumer experiences. Its Next
Generation Products prioritizes the fast-growing vapor segment with
innovative products and proprietary technologies, including its
pioneering brand, blu.
Strategic Rationale
This collaborative partnership accelerates the
delivery of Auxly’s business plan ahead of significant regulatory
change to the Canadian cannabis market, as Auxly continues to focus
on the development of science-backed, innovative, branded
derivative products. As part of the Transaction, Imperial Brands
will grant Auxly global licences to its vaping technology for
cannabis use and access to its vapor innovation business, Nerudia.
The shared ability to rapidly innovate as the Canadian market
evolves is key to future growth and Auxly will work closely with a
small dedicated team from Nerudia in developing a portfolio of new
and enhanced vapor products and brands.
Upon completion of the Transaction, Auxly
will:
- Receive an immediate capital injection of approximately $123
million to continue to execute on its strategic objectives and
capitalize on emerging growth opportunities;
- Obtain rights to Imperial Brands’ industry-leading vaping
technology and intellectual property for cannabis use
globally;
- Be granted access to Imperial Brands’ vapor innovation
business, Nerudia, which has a growing team dedicated to cannabis
research and a facility that is already licensed for research and
development activities with cannabis;
- Become Imperial Brands’ exclusive partner for the future
development, manufacture, commercialization, sale and distribution
of cannabis products of any kind anywhere in the world; and
- Further strengthen its governance through the addition of one
director nominee and one non-voting observer to Auxly’s Board of
Directors, each to be designated by Imperial Brands.
Transaction Structure
Imperial Brands and Auxly have entered into a
subscription agreement pursuant to which Imperial Brands has agreed
to invest approximately $123 million by way of a debenture
convertible into 19.9% ownership of Auxly at a conversion price of
$0.81 per share, representing an 11% premium to Auxly’s closing
share price on July 24, 2019 and a 12% premium to the trailing
10-day volume-weighted average price on the TSX Venture Exchange.
The convertible debenture has a three-year term and a fixed
interest rate of 4.00% per annum, payable on the last day of
December. Imperial Brands will have the right to convert the
debenture into Auxly shares at any time during the three-year term
and has certain top-up and pre-emptive rights to maintain its pro
rata ownership in Auxly and certain governance rights. If at the
end of the term Imperial Brands has not converted, the debenture
will be repayable in full.
As part of the Transaction, Auxly agrees to
nominate for election to its Board of Directors one out of five
director nominees and one non-voting observer, each to be
designated by Imperial Brands. In addition, the Chair of Imperial
Brands’ Product Stewardship and Health Group will sit on Auxly’s
new Safety Board, which will have oversight of the controls in
place to ensure the safety, efficacy and quality of Auxly’s
products.
Upon the closing of the Transaction, Auxly and
Imperial Brands will establish a Commercial Cooperation Group (the
“CCG”), which will foster collaboration between
the parties to enable them to leverage their respective
capabilities and expertise for the benefit of growing Auxly’s
business. Each company will appoint four representatives to the
eight-member CCG.
The Transaction is expected to close in the
third quarter of 2019, subject to receipt of certain closing
conditions and approval by the TSX Venture Exchange.
BMO Capital Markets is acting as Auxly’s
financial advisor in connection with the Transaction.
ON BEHALF OF THE BOARD"Chuck Rifici" Chairman
& CEO
About Auxly Cannabis Group Inc. (TSX.V:
XLY)
Auxly is an international cannabis company
dedicated to bringing innovative, effective, and high-quality
cannabis products to the medical, wellness and adult-use markets.
Auxly's experienced team of industry first-movers and enterprising
visionaries has secured a diversified supply of raw cannabis,
strong clinical, scientific and operating capabilities, and leading
product research and development infrastructure in order to create
trusted products and brands in an expanding global market.
Learn more at www.auxly.com and stay up to date at Twitter:
@AuxlyGroup; Instagram: @auxlygroup; Facebook:
@auxlygroup; LinkedIn: company/auxlygroup/.
Investor Relations:
For further information, please contact our
Investor Relations Team: Email: IR@auxly.com Phone:
1.833.695.2414
Media Enquiries
(only):
For media enquiries or to set up an interview,
please contact:Sarah Bain, VP External Affairs Email:
sarah@auxly.com Phone: 613.230.5869
Forward-Looking Statements
This news release contains certain
"forward-looking information" within the meaning of applicable
Canadian securities law. Forward-looking information is frequently
characterized by words such as "plan", "continue", "expect",
"project", "intend", "believe", "anticipate", "estimate", "may",
"will", "potential", "proposed" and other similar words, or
information that certain events or conditions "may" or "will"
occur. This information is only a prediction. Various assumptions
were used in drawing the conclusions or making the projections
contained in the forward-looking information throughout this news
release. Forward-looking information includes, but is not limited
to: the timing and completion of the proposed Transaction,
obtaining the necessary regulatory approval of the proposed
Transaction, anticipated use of proceeds, the impact of the
Transaction on Auxly's market position, Auxly's execution of its
innovative product development, commercialization strategy and
expansion plans, the anticipated benefits of the Transaction and
the strategic relationship with Imperial Brands including without
limitation, Auxly's ability to develop and commercialize
high-margin and value-added cannabis products and brands in Canada
and globally, future legislative and regulatory developments
involving cannabis and cannabis products, political change in
Canada and globally, competition and other risks affecting Auxly in
particular and the cannabis industry generally.
A number of factors could cause actual results
to differ materially from a conclusion, forecast or projection
contained in the forward-looking information in this release
including, but not limited to: whether Auxly and Imperial Brands
can complete the Transaction on the anticipated terms and timeline;
the ability to satisfy various conditions to the closing of the
Transaction contemplated by the subscription agreement; the ability
to obtain regulatory approval of the Transaction on the proposed
terms and timeline; any conditions imposed on the parties in
connection with consummation of the Transaction; the risk that
synergies and expected collaboration from the Transaction may not
be fully realized or may take longer to realize than expected;
future revenue expectations; consumer demand for cannabis products
in Canada and globally; the expected benefits of the Transaction
may not materialize in the manner or timeframe expected, or at all;
Auxly's subsidiaries and partners are able to obtain and maintain
the necessary regulatory authorizations to conduct business; and
general economic, financial market, legislative, regulatory,
competitive and political conditions in which Auxly and its
subsidiaries and partners operate will remain the same. Additional
risk factors are disclosed in the revised annual information form
of Auxly for the financial year ended December 31, 2017 dated May
24, 2018.
New factors emerge from time to time, and it is
not possible for management to predict all of those factors or to
assess in advance the impact of each such factor on Auxly's
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking information. The forward-looking
information in this release is based on information currently
available and what management believes are reasonable assumptions.
Forward-looking information speaks only to such assumptions as of
the date of this release. In addition, this release may contain
forward-looking information attributed to third party industry
sources, the accuracy of which has not been verified by Auxly.
Readers should not place undue reliance on forward-looking
information contained in this release.
The forward-looking information contained in
this release is expressly qualified by the foregoing cautionary
statements and is made as of the date of this release. Except as
may be required by applicable securities laws, Auxly does not
undertake any obligation to publicly update or revise any
forward-looking information to reflect events or circumstances
after the date of this release or to reflect the occurrence of
unanticipated events, whether as a result of new information,
future events or results, or otherwise.
Required Early Warning Report
Disclosure
Auxly’s head office is located at 1055 West
Hastings Street, Suite 2200, Vancouver, BC V6E 2E9. Imperial
Brand’s head office is located at 121 Winterstoke Road, Bristol, UK
BS3 2LL.
An affiliate of Imperial Brands will acquire the
convertible debenture and assuming the convertible debenture is
exercised in full on the closing of the Transaction, it is expected
that Imperial Brands and its affiliates would have beneficial
ownership of 151,668,018 common shares of Auxly (approximately
19.99% of the issued and outstanding common shares calculated on a
non-diluted basis).
Imperial Brands entered into the subscription
agreement as part of a strategic investment in Auxly. Imperial
Brands intends to review its investment in the Corporation on a
continuing basis and may, subject to the terms of the Transaction
agreements, purchase or sell common shares, either on the open
market or in private transactions, or exercise the convertible
debenture in the future, in each case, depending on a number of
factors, including general market and economic conditions and other
factors and conditions Imperial Brands deems appropriate.
An early warning report will be filed by
Imperial Brands with applicable Canadian securities regulatory
authorities. To obtain a copy of the early warning report, please
contact Daniel Glavin at 416-869-5500.
Neither TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
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