Accretive acquisition strategically accelerates Valens' entry
into the approximately $2.7 billion
flower-based market through an asset-light model that leverages a
robust network of craft contract growing
partners1
Catapults Valens into the high margin premium flower category
with the leading Citizen Stash brand which is the #1 flower brand
by market share with an average retail price over $13.00/gram2
Significant revenue and cost synergies are anticipated
through the combination of the Citizen Stash brand with Valens'
buying power and low-cost, manufacturing infrastructure
KELOWNA, and VANCOUVER, BC, Aug. 31,
2021 /CNW/ - The Valens Company Inc. (TSX: VLNS) (OTCQX:
VLNCF) (the "Company," "The Valens Company" or
"Valens") and Citizen Stash Cannabis Corp. ("Citizen
Stash") (formerly Experion Holdings Ltd) (TSXV: CSC) (OTCQB:
EXPFF) (FRANKFURT: MB31) are pleased to announce they have entered
into an arrangement agreement (the "Agreement") pursuant to
which Valens will acquire all of the issued and outstanding
common shares (the "Citizen Stash Common Shares") of Citizen
Stash by way of a court-approved plan of arrangement under the
Canada Business Corporations Act, in an all share transaction (the
"Acquisition" or the "Arrangement"). The
transaction is valued at approximately $54.3
million on an enterprise value basis.
Under the terms of the Arrangement Agreement, Citizen Stash
shareholders will receive 0.1620 of a Valens common share
("Valens Share") for each
Citizen Stash Common Share held (the "Exchange Ratio"). The
Exchange Ratio implies a premium per Citizen Stash Common Share of
approximately 35.1% based on the 15-day volume-weighted average
price ("VWAP") of the Citizen Stash Common Shares on the
TSX-V and the Valens Shares on the TSX as of the close of markets
on August 27, 2021.
The Citizen Stash Acquisition is expected to be accretive to
Valens in 2021 and 2022 before synergies, and will provide Valens
with strategic, asset-light expansion into flower and pre-rolls,
the largest segments of the Canadian cannabis market currently
accounting for over 70% of retail sales. This acquisition is
anticipated to solidify Valens' position as a top tier cannabis
company by enhancing the Company's market share and adding an
innovative, premium flower brand to its portfolio. Closing of the
Citizen Stash transaction will mark the third acquisition Valens
has made this year, which will accelerate Valens' strategic
initiative to create a leading global manufacturing platform,
capture market share through innovative product launches with
unique consumer experiences, and expand on its existing domestic
and international distribution network to better capitalize on the
global opportunity.
Key Transaction Highlights
- Top premium craft flower brand meets top cannabis product
manufacturer to create a best-in-class cannabis company:
Leading premium flower brand, a full suite of innovative product
manufacturing capabilities, scale, and operational and financial
flexibility best position the pro forma company to close the
significant trading discount to the large cap cannabis peer
group3 currently experienced by both companies.
- Competitively positioned to win: The Citizen Stash
complementary award-winning brand portfolio will bring over 40
provincial listings to Valens' growing house of brands across seven
provinces which will bring the proforma company to over 220
provincial listings as of August
2021.
- Accretive transaction: Expected to be accretive to the
Company in 2021 and 2022 before synergies. The Acquisition
represents an attractive revenue multiple of approximately 4.3x
first half fiscal 2021 annualized revenue.
- Asset-light model aligns with Valens' philosophy of
operational flexibility and continued financial discipline:
Utilization of Citizen Stash's craft contract growing model will
provide Valens with operational flexibility to work with industry
leading growers, efficiently manage proprietary strain rotation,
reduce risk, and avoid the challenges a large growing
infrastructure creates.
Citizen Stash is a licensed cultivator and processor of premium
craft cannabis products based in Mission,
British Columbia, and will provide Valens the opportunity to
unlock additional growth with its extensive and specialized product
portfolio in the premium flower and pre-roll segments. Citizen
Stash operates a unique, asset-light platform comprised of a
network of craft contract growing partners from which it
selectively sources premium bulk flower grown from Citizen Stash's
industry leading proprietary genetics. Citizen Stash manufactures
and packages flower and pre-roll products primarily through manual
processes.
Citizen Stash is one of the top performing premium brands in the
flower and pre-roll categories. Based on Hifyre data for the flower
category during March to May 2021 in
the markets of Ontario,
Alberta and British Columbia, Citizen Stash is the highest
ranked premium brand by market share in the flower category with an
average selling price above $13.00
per gram and is the only brand in the top 20 by market share with
an average selling price above $13.00
per gram. Within the pre-roll category during March to May 2021 in the markets of Ontario, Alberta and British
Columbia, Citizen Stash is the third highest ranked premium
brand with average selling price above $13.00 per gram and one of only five within the
top 20 overall brands. The Citizen Stash brand has demonstrated
very impressive strength in the competitive flower and pre-roll
categories with year-over-year market share gains unlike many other
competitor brands – a testament to the product quality and consumer
loyalty borne out of Citizen Stash's industry leading genetics.
Tyler Robson, Chief Executive
Officer and Chair of the Board of The Valens Company, said, "We are
excited to join forces with Citizen Stash's experienced team and
broaden our offerings in the flower and pre-roll verticals with a
best-in-class brand. The premium price tier of the flower and
pre-roll segments represents the best expansion opportunity for
Valens in the flower category, as premium brands are the hardest to
build, while also capturing the highest margins. Citizen Stash's
asset light model, and proprietary genetics will provide us
significant operational flexibility and an opportunity to leverage
the growing capabilities of our existing LP partners. In
short, this strategic acquisition will allow Valens to
significantly expand its presence in the recreational market and
capture a share of the largest categories of the Canadian cannabis
space without the burden of a high-cost growing infrastructure. We
are opportunistically expanding our product offering to align with
consumer demand for high quality craft cannabis flower and
pre-rolls."
Jarrett Malnarich, Chief
Executive Officer of Citizen Stash, said, "Combining our business
with The Valens Company represents an outstanding opportunity for
our company and the shareholders of Citizen Stash and is
wholeheartedly endorsed by our Board of Directors. We look forward
to the full integration of Citizen Stash with The Valens Company.
We believe the combination will create a leading platform in the
Canadian cannabis industry which spans all categories, while
focusing on profitability and creating value for all shareholders.
Together we look forward to taking the Citizen Stash brand to new
heights that Citizen Stash could not have achieved on its own, by
leveraging Valens' best-in-class, low-cost manufacturing
capabilities and industry leading distribution scale. In our
collaboration with Valens to date, Citizen Stash has come to
realize the common values we share centered around providing
consumers with the highest quality cannabis products. We anticipate
that the future of our combined company will be filled with product
innovation fueled by our shared entrepreneurial vision and mission
to provide outstanding consumer experiences in both domestic and
global markets. We look forward to the support of our shareholders
in completing this transaction and the full integration of our two
businesses."
Strategic Highlights of the Acquisition
With the Acquisition of Citizen Stash, The Valens Company will
be well positioned to capture market share, close the existing
valuation gap with the large LPs and maximize value for both sets
of shareholders:
- Strategic expansion into premium flower-based
categories: The acquisition combines Valens' leading cannabis
2.0 product manufacturing capabilities with Citizen Stash's robust
premium flower offering to create a leading player in the Canadian
cannabis industry with a total addressable market of $3.8 billion1 with a portfolio of
innovative products, across all categories, and a strategic focus
on the highest margin segments.
- Asset-light approach: Leveraging a robust network of
craft contract growing partners supplied with proprietary genetics
allows Citizen Stash to focus on product development and the
marketing of its industry leading premium flower-based products.
This unique decentralized model minimizes capital spend while
providing Citizen Stash both supply flexibility and an ability to
mitigate the risk of crop failures inherent to centralized
operations. This is a similar outsourcing model utilized by large
CPG companies in other industries reliant on agricultural
operations.
- Opportunity to achieve meaningful revenue synergies:
Several potential revenue synergies have been identified, including
launching of new premium strains and expanding the Citizen Stash
brand to new product categories. Valens will seek to drive further
revenue growth for Citizen Stash's existing products by improving
distribution penetration for the brand through the Company's broad
reaching relationships with provincial boards and retailers.
- Significant potential cost synergies have been
identified: With Valens' position as the largest bulk purchaser
of cannabis biomass in the Canadian market, the combined company is
expected to enjoy lower sourcing costs as well as cost savings from
packaging and logistical efficiencies and the removal of public
company costs.
- Expanded customer offering with genetics portfolio
and opportunity to deepen LP relationships: The leading premium
genetics portfolio of Citizen Stash paired with Valens' existing
best-in-class, low-cost manufacturing bolsters the offering the
Company can provide to both its licensed and unlicensed customers,
including next generation solutions for rare cannabinoids and
Cannabis 3.0 products. In addition, the need for new, high-quality
contract grow relationships provides an opportunity for Valens to
work with and create incremental value for its LP partners.
- Proven leadership team: With a strong history of
credibility and a track record of developing a leading premium
flower brand backed by an uncompromising pursuit of bringing only
the highest quality products to market, the Citizen Stash team is a
standout in the Canadian cannabis industry.
- Brand and expertise to leverage in entrance into the US THC
market upon federal legalization: The Citizen Stash brand, the
industry leading catalogue of genetics, and the flower expertise of
the Citizen Stash team are all assets that will prove valuable upon
entrance into the US THC market upon federal legalization.
Transaction Details
Under the terms of the Arrangement Agreement, Citizen Stash
shareholders will receive 0.1620 of a Valens Share for each Citizen Stash Common Share
held which implies a premium per Citizen Stash Common Share of
approximately 35.1% based on the 15-day VWAP of Citizen Stash
Common Shares on the TSX-V and of Valens Shares on the TSX as of
the close of markets on August 27,
2021.
Under the Arrangement, the outstanding Citizen Stash warrants,
and the in-the-money Citizen Stash options, will be transferred to
Citizen Stash for their in-the-money amount, payable in Valens
shares, net of appliable withholdings. Assuming the completion of
the Arrangement, all of the out-of-the-money Citizen Stash options
will be replaced by options to acquire Valens Shares, with their
exercise price and number of Valens shares issuable on exercise
appropriately adjusted for the Exchange Ratio, but otherwise on the
same terms, including their expiry date. Under the Arrangement,
each Citizen Stash restricted share unit outstanding immediately
prior to completion of the Arrangement (whether vested or
unvested), shall be fully vested and transferred to the Company and
thereupon cancelled in consideration for the issuance by the
Company of Citizen Stash common shares that will participate in the
Arrangement.
Valens has entered into voting and support agreements with
Citizen Stash's directors and officers. The Arrangement has been
unanimously approved by the Valens' board of directors. Citizen
Stash's directors permitted to vote also unanimously approved the
Arrangement after receiving the fairness opinion of Evans &
Evans Inc. Citizen Stash's board of directors recommend that
Citizen Stash shareholders and optionholders vote in favour of the
Acquisition.
The Arrangement requires the approval of at least 66 2/3%
of the votes cast by the shareholders of Citizen Stash present at a
special meeting of Citizen Stash shareholders to be called to
consider the Arrangement (the "Special Meeting"), at
least 66 2/3% of the votes cast by the shareholders and
optionholders of Citizen Stash (voting as a single class present at
the Special Meeting, in addition to a separate simple majority by
Citizen Stash shareholders, excluding votes from certain
shareholders, including Valens, as required by Multilateral
Instrument 61-101 – Protection of Minority Security Holders in
Special Transactions. The Arrangement does not require Valens
shareholder approval.
The Arrangement Agreement includes customary provisions for
transactions of this nature, including non-solicitation provisions,
the right of Citizen Stash to accept a superior proposal in certain
circumstances, with Valens having a period of five business days to
exercise a right to match any such superior proposal for Citizen
Stash. The Arrangement Agreement also provides for a break fee of
4.0% payable by Citizen Stash to Valens if the Arrangement is
terminated in certain specified circumstances and an expense
reimbursement for Valens if the Arrangement is terminated in
certain other specified circumstances.
In addition to the approval by Citizen Stash's shareholders and
optionholders, the Arrangement is subject to the receipt of certain
court and stock exchange approvals and the satisfaction of
customary conditions precedent in transactions of this nature, as
well as certain other specified conditions precedent set out in the
Arrangement Agreement.
Concurrent with the entering into of the Arrangement Agreement,
Valens and Citizen Stash also signed a binding commitment for a
$1.5 million investment from Valens
to fund Citizen Stash's transaction expenses and other short-term
working capital requirements pursuant to the terms of a secured
convertible debenture agreement to be entered into between the
parties (the "Debenture" or the "Financing"). The Debenture
will be on customary terms, bear interest at 6.0% and will be due
six months from the date of issue, subject to earlier termination
under certain circumstances. The principal amount of the Debenture
plus accrued interest will be convertible into Citizen Stash Common
Shares at a conversion price of $0.39
per Common Share at any time prior to maturity. In connection
with the Financing, Citizen Stash will also issue Valens warrants
to acquire 1,923,077 Citizen Stash Common Shares at an exercise
price of $0.585 per Common Share for
a period of one year.
Further information regarding the Arrangement will be included
in the management information circular that Citizen Stash will mail
in due course to its shareholders and optionholders in connection
with the Special Meeting. Citizen Stash will also be applying in
the coming weeks to the Supreme Court of British Columbia to obtain an interim order
approving various procedural and related matters in order to
convene the Special Meeting.
The Arrangement Agreement will be filed under the SEDAR profiles
of Citizen Stash and Valens on the SEDAR website at
www.sedar.com.
None of the securities to be issued pursuant to the Arrangement
Agreement have been or will be registered under the United States
Securities Act of 1933, as amended (the "U.S. Securities Act"), or
any state securities laws, and any securities issued upon closing
of the Arrangement are anticipated to be issued in reliance upon
the exemption from such registration requirements provided by
Section 3(a)(10) of the U.S. Securities Act and applicable
exemptions under state securities laws. This news release does not
constitute an offer to sell or the solicitation of an offer to buy
any securities.
Advisors
Stikeman Elliott LLP is acting as legal counsel to The Valens
Company. Fasken Martineau DuMoulin LLP is acting as legal counsel
to Citizen Stash and Hillcrest Merchant Partners Inc. and Evans
& Evans, Inc. are acting as financial advisors to Citizen
Stash.
Conference Call & Webcast Presentation
The Valens Company will host a conference call and webcast
concurrently with an accompanying presentation to discuss the
Citizen Stash Acquisition on Wednesday
September 1, 2021, at 11:00 AM
ET / 8:00 AM PT.
Toll-Free: 1-877-407-0792
Toll / International: 1-201-689-8263
Conference ID#: 13722732
Webcast Link:
http://public.viavid.com/index.php?id=146411
Please visit the webcast link at least 15 minutes prior to the
presentation to register, download, and install any necessary audio
software. An archived replay of the webcast presentation will be
available on the Valens investor page of the Company website
at https://thevalenscompany.com/investors/.
At Valens, it's Personal.
Sources:
1Statistics Canada June retail sales annualized,
flower-based portion estimated as 70% of total based on Hifyre
data
2Hifyre data for the markets of Ontario, Alberta and British
Columbia during March to May
2021
3Peer group includes Canopy Growth Corporation, Tilray
Inc., Cronos Group Inc., Aurora Cannabis Inc., Sundial Growers
Inc., Organigram Holdings Inc., Hexo Corp., and Village Farms
International Inc.
About The Valens Company
The Valens Company is a leading manufacturer of cannabis
products with a mission to bring the benefits of cannabis to the
world. The Company provides proprietary cannabis processing
services, in addition to best-in-class product development,
manufacturing, and commercialization of cannabis consumer packaged
goods. The Valens Company's high-quality products are formulated
for the medical, health and wellness, and recreational consumer
segments, and are offered across all cannabis product categories
with a focus on quality and innovation. The Company also
manufactures, distributes, and sells a wide range of CBD products
in the United States through its
subsidiary Green Roads, and distributes medicinal cannabis products
to Australia through its
subsidiary Valens Australia. In partnership with brand houses,
consumer packaged goods companies and licensed cannabis producers
around the globe, the Company continues to grow its diverse product
portfolio in alignment with evolving cannabis consumer preferences
in key markets. Through Valens Labs,
the Company is setting the standard in cannabis testing and
research and development with Canada's only ISO17025 accredited analytical
services lab, named The Centre of Excellence in Plant-Based Science
by partner and scientific world leader Thermo Fisher Scientific.
Discover more on The Valens Company and its subsidiaries at
http://www.thevalenscompany.com.
About Citizen Stash Cannabis Corp.
Citizen Stash is the parent company of Experion Biotechnologies
Inc., a Health Canada licensed cultivator and processor of
Cannabis, based in Mission,
B.C.
Citizen Stash is best known as a rapidly growing adult-use
premium cannabis brand offered nationally in seven provinces and
territories. Citizen Stash has invested and developed a
portfolio of premium cannabis genetics, strains and products with a
unique growth strategy incorporating a highly scalable aggregation
and distribution business model to drive revenues across its
national sales network.
Citizen Stash trades on the TSX Venture Exchange as a Tier 1
issuer under the symbol "CSC" on the OTCQB Venture under the symbol
"EXPFF" and on the Frankfurt Stock Exchange under the symbol
"MB31". For further information, please visit the Citizen Stash's
website at www.citizenstash.com.
Notice Regarding Forward Looking Statements
This news release includes certain statements that constitute
"forward-looking statements", and "forward-looking information"
within the meaning of applicable securities laws collectively
"forward-looking statements". These include statements regarding
Valens' and Citizen Stash's intent, or the beliefs or current
expectations of the officers and directors of Valens' and Citizen
Stash's (the "Companies") for Valens post-closing. When used
in this news release, words such as "anticipate", "believe",
"estimate", "expect", "forecast", "forward", "future", "outlook",
"plan", "pro forma" and similar expressions are intended to
identify these forward-looking statements as well as phrases or
statements that certain actions, events or results "could", "may",
"should", "will", "would" or the negative connotation of such
terms. As well, forward-looking statements may relate to future
outlook and anticipated events, such as the consummation and timing
of the Acquisition; the satisfaction of the conditions precedent to
the Acquisition; the strengths, characteristics and potential of
the combined company; the Financing; and discussion of future
plans, projections, objectives, estimates and forecasts and the
timing related thereto. These forward-looking statements involve
numerous risks and uncertainties, including those relating to
required shareholder and regulatory approvals, exercise of any
termination rights under the Agreement, meeting other conditions in
the Agreement, material adverse effects on the business, properties
and assets of the Companies, whether any superior proposal will be
made and such other risk factors detailed from time to time in the
Companies' public disclosure documents including, without
limitation, those risks identified in Valens' annual information
form for the year ended November 30,
2020, which is available on SEDAR at www.sedar.com, and
Citizen Stash's management's discussion and analysis for the year
ended November 30, 2020, which is
available on SEDAR at www.sedar.com. Forward-looking statements are
based on information available at the time those statements are
made and/or management's good faith belief as of that time with
respect to future events and are subject to risks and uncertainties
that could cause actual performance or results to differ materially
from those expressed in or suggested by the forward-looking
statements. Forward-looking statements speak only as of the date
those statements are made. Except as required by applicable law,
the Companies assume no obligation to update or to publicly
announce the results of any change to any forward-looking statement
contained or incorporated by reference herein to reflect actual
results, future events or developments, changes in assumptions or
changes in other factors affecting the forward-looking statements.
If either of the Companies updates any one or more forward-looking
statements, no inference should be drawn that the company will make
additional updates with respect to those or other forward-looking
statements. All forward-looking statements contained in this news
release are expressly qualified in their entirety by this
cautionary statement.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in policies of the TSX Venture
Exchange) accepts responsibility for the adequacy or accuracy of
this release.
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SOURCE Citizen Stash Cannabis Corp.