Aleafia Health Inc. (TSXV: ALEF)
(“
Aleafia” or the “
Company”) and
Emblem Corp. (TSXV: EMC, OTCQX:
EMMBF) (“
Emblem”) are pleased to announce
that they have entered into a definitive agreement (the
“
Agreement”) under which Aleafia will acquire, by
way of a plan of arrangement under the Canada Business Corporations
Act, all of Emblem’s issued and outstanding common shares in an
all-share transaction currently valued at approximately $173.2
Million (the “
Transaction”).
The Agreement calls for Emblem shareholders to
receive 0.8377 of an Aleafia common share (each whole share, an
“Aleafia Share”) in exchange for each Emblem
common share (each, an “Emblem Share”),
representing the equivalent of $1.21 per Emblem Share and a premium
of 27.0% based on the closing prices of Aleafia and Emblem Shares
on the TSX Venture Exchange (“TSXV”) on December
18, 2018. When the Transaction is completed, it is expected that
existing Aleafia and Emblem shareholders will own approximately
59.0% and 41.0% of Aleafia, respectively, on a fully diluted
in-the-money basis. The Transaction has been unanimously approved
by Emblem’s Special Committee and Board of Directors.
Transaction Highlights
The proposed Transaction creates a new Canadian
medical cannabis leader. It will operate the country’s largest
national clinic network and enjoy improved operational scale with
planned annual capacity of approximately 138,000 kg (including
committed supply agreements), Canadian and expanded global
distribution, and a robust branding and product development
platform. Aleafia intends to capitalize on high growth
opportunities and leverage international expansion across four
verticals: Cannabis Production, Health and Wellness, Cannabis
Education and the Consumer Experience.
- The Leading Canadian Clinic Network: Combining
Canabo Medical Clinic and GrowWise Health creates the leading
Canadian clinic network with access to 40 national medical clinics
and education centres that have served almost 60,000 patients, with
increases in patient visits and referrals since October 17, 2018.
In addition, Aleafia will be able to leverage Emblem’s extraction,
and product innovation to, for the first time, sell high-margin
medical cannabis directly to Aleafia’s patient base.
- High-Margin, Highly Differentiated Medical Product
Portfolio: Aleafia’s patient base will enjoy access to
Emblem’s differentiated, high margin derivative products including
capsules, oils and oral sprays, with among industry leading
recognized revenue per gram rates. Patients will also access
Emblem’s award-winning customer service, schedule home delivery and
eCommerce platform.
- Scaled Production Capacity and Leading Supply:
Aleafia will be a leading licensed producer of cannabis with
approximately 138,000 kg of production and supply across three
Ontario facilities and the industry’s largest LP to LP cannabis
supply agreement.
- National and Global Distribution Platform:
Aleafia expects to leverage Emblem’s approval to supply to the
Provinces of Ontario, Saskatchewan, British Columbia and Alberta;
national medical distribution through Shoppers Drug Mart; and
national retail distribution through Fire & Flower, Starbuds
and the emerging OnePlant network. In addition, through Emblem’s
joint venture with German pharmaceutical wholesaler Acnos Pharma
GmbH, Aleafia expects to access the world’s largest medical
cannabis market serving more than 82 million people, with access to
approximately 20,000 pharmacies, along with access to Australia’s
burgeoning medical cannabis market upon completion of Aleafia’s
previously announced transaction with CannaPacific Pty Ltd.
- Industry Leading Adult-use Brands:
Complementing Aleafia’s adult-use strategy via the transactions
with Serruya Private Equity, Aleafia will leverage Emblem’s
flagship brand Symbl, which is ranked one of the top selling
recreational brands.
- Focus on Product Development: Aleafia will
build on Emblem’s product development success. Based out of
Emblem’s state-of-the-art Product Innovation Centre, product
development will focus on potential innovations in high-margin,
branded beverages, edibles, vape pens, topicals and concentrates
for the medical and adult-use markets.
- Improved Capital Markets Profile: Aleafia will
be a leading licensed producer appealing to a broader shareholder
base, with greater access to capital and improved trading
liquidity.
- Robust Cash Position: Aleafia and Emblem
currently have access to a combined CAD $69.9 million in cash, to
be used for continued product innovation and brand building,
construction and development of their cultivation facilities and
outdoor grow operations, to support expansion efforts and to pursue
strategic opportunities and investments that maximize shareholder
value.
“The Emblem acquisition rapidly accelerates the
execution of Aleafia’s strategy to become a vertically integrated,
diversified cannabis company. It is difficult to overstate the
significance of securing the highest quality medicine for our
patients and Aleafia,” said Aleafia Health CEO Geoffrey Benic.
“Emblem’s product leadership in the medical and adult-use sectors
and highly coveted supply agreements will perfectly complement
Aleafia’s cannabis production and clinic operations. This is a
transformative transaction that positions Aleafia as a global
cannabis leader.”
“Emblem’s patient-focused product portfolio and
strength in patient education, conversion and retention through
GrowWise will be further bolstered by the patient acquisition
capabilities of Aleafia’s Canabo clinics. The combination of the
companies will form a fully integrated market leader in the medical
cannabis sector, with industry leading patient counts, and the
ability to immediately capitalize on full revenue potential,” said
Emblem CEO Nick Dean. “Furthermore, our renowned national brands,
robust footprint in emerging value-added products, and strong
domestic and international growth opportunities, will cement our
position of strength in this highly competitive market.”
Additional Transaction
Details
The Transaction will be effected by way of a
court-approved plan of arrangement completed under the Canada
Business Corporations Act and will require approval by at least 66
2/3% of the votes cast by the shareholders of Emblem present in
person or by proxy at a special meeting of Emblem shareholders.
Upon completion of the Transaction, two (2)
independent directors of Emblem will be appointed to serve on the
board of directors of Aleafia, being Daniel Milliard and Loreto
Grimaldi who will replace two (2) directors of Aleafia.
The Agreement includes customary provisions
including reciprocal non-solicitation provisions, subject to the
right of each of Emblem and Aleafia to accept a superior
proposal/competing transaction in certain circumstances, with both
Emblem and Aleafia having a seven (7) business day right to match
any such superior proposal/competing transaction for the other
party. The Agreement also provides for reciprocal termination fees
of $10 million if the Transaction is terminated in certain
specified circumstances.
In addition to shareholder approvals, the
Transaction is subject to the receipt of certain regulatory, court
and stock exchange approvals, the obtaining of material consents /
waivers and the satisfaction of other conditions customary in
transactions of this nature.
Aleafia has entered into support and voting
agreements with each of Emblem’s directors, Emblem’s CEO and CFO,
along with additional shareholders who have agreed to support and
vote for the Transaction and who represent in aggregate
approximately 11.8% of the outstanding Emblem shares.
It is expected that holders of Emblem options
will receive replacement Aleafia options (on the same terms as the
Emblem options), and holders of Emblem warrants will receive, upon
exercise, the same consideration they would have received as if
they were Emblem shareholders at the closing of the
Transaction.
Aleafia and Emblem have also entered into an
agreement with a holder representing 69.44% of the principal amount
of Emblem’s convertible debentures pursuant to which such holder
has agreed not to accept any change of control offer to the extent
one is made, and the parties have agreed to use their commercially
reasonable efforts to amend the trust indenture to amend the change
of control provisions such that they do not apply to the
Transaction, and to reduce the conversion price from $2.30 to
$2.00.
Further information regarding the Transaction
will be included in the information circular that Emblem will
prepare, file, and mail in due course to its shareholders in
connection with its special meeting to be held to consider the
Transaction which is expected to occur before March 8, 2019. The
Agreement will be filed on the SEDAR profiles of Emblem and Aleafia
on the SEDAR website at www.sedar.com.
Emblem Board of Director’s
Recommendations
The board of directors of Emblem (the
“Emblem Board”) has unanimously determined, after
receiving the unanimous recommendation of its Special Committee and
financial and legal advice, that the consideration to be received
by the Emblem shareholders is fair from a financial point of view
and that the Arrangement is in the best interests of Emblem and its
security holders, and the Emblem Board unanimously recommends that
the Emblem shareholders vote in favour of the Transaction.
The Emblem Board and its Special Committee have
each obtained a fairness opinion from Eight Capital and Echelon
Wealth Partners Inc., respectively, that, as of the date of the
opinions, and subject to the assumptions, limitations, and
qualifications on which such opinions are based, the consideration
to be received by Emblem shareholders pursuant to the Agreement is
fair, from a financial point of view, to the Emblem
shareholders.
Legal and Financial
Advisors
Gowling WLG (Canada) LLP is acting as legal
counsel to Aleafia. Deloitte advised Aleafia on financial due
diligence. Mackie Research Capital Corporation is acting as
financial advisor to Aleafia. In addition to other fees and
expenses payable to Mackie, Aleafia is required to pay a success
fee (the “Success Fee”) to Mackie upon closing of
the Transaction equal to 2.0% of the aggregate fair market value of
the share consideration issuable by Aleafia to Emblem’s
shareholders and the amount of net debt of Emblem (as of its most
recent balance sheet prior to the closing of the Transaction, and
calculated as the sum of the long term debt and debentures) which
is assumed or acquired by Aleafia, or retired or otherwise
extinguished in connection with the Transaction (expected to be
$30.5 million). The Success Fee is payable in common shares of
Aleafia subject to acceptance of the TSX Venture Exchange.
Dentons Canada LLP is acting as legal counsel to
Emblem. Eight Capital is acting as financial advisor to Emblem and
Echelon Wealth Partners Inc. is acting as financial advisor to the
Special Committee. Eight Capital and Echelon Wealth Partners Inc.
have each provided a fairness opinion to the Emblem Board and the
Special Committee, respectively.
Conference Call and Slide
Presentation
Aleafia and Emblem will hold a webcast
conference call, including a slide presentation, to discuss the
Transaction.
Date: Wednesday December 19,
2018
Time: 8:30am (Toronto Time)
USA/Canada Toll-Free Participant Call-in: (866)
679-9046; Passcode: 9579635
International Toll-Free Participant Call-in:
(409) 217-8323; Passcode: 9579635
Webcast Link:
https://edge.media-server.com/m6/p/4pcbtcdd
This conference call will be webcast live over
the internet and can be accessed through the link provided. Audio
of the call will be available to participants through both the
conference call line and webcast, however questions to management
may only be submitted via the webcast.
For Additional Information and
Support:
Aleafia Health Inc. |
Emblem Corp. |
|
|
Nicholas
BergaminiVP Public Affairs, Aleafia Health
Inc.416-860-5665ir@aleafiainc.com |
Morgan
Cates H+K Strategies 416-413-4649 morgan.cates@hkstrategies.ca |
|
|
|
Alex
Stojanovic Chief Financial Officer, Emblem Corp. 647-748-9696
investors@emblemcorp.com |
About Aleafia Health Inc.
Aleafia is a leading, vertically integrated
cannabis company with major cannabis cultivation & processing
and medical cannabis clinics business operations. Aleafia owns two
cannabis cultivation facilities, one of which is licensed and fully
operational and one which will be fully operational in early 2019.
Aleafia will reach a fully-funded annual growing capacity of 98,000
kg in 2019. Canabo Medical Clinics are the largest brick and mortar
medical cannabis clinic network in Canada with 22 locations and
over 50,000 patients.
About Emblem Corp.
Emblem is a fully integrated cannabis company
focused on driving shareholder value through product innovation,
brand relevance, and access to patient and consumer channels.
Through its wholly-owned subsidiary Emblem Cannabis Corporation,
Emblem is licensed to cultivate, process, and sell cannabis and
cannabis derivatives in Canada under the Cannabis Act.
Emblem’s state-of-the-art indoor cannabis cultivation facility and
Product Innovation Centre is located in Paris, Ontario. Emblem is
also the parent company of GrowWise Health Limited, one of Canada’s
leading cannabis education services. Emblem trades under the ticker
symbol EMC on the TSX Venture Exchange.
For more information, please
visit www.emblemcorp.com.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the Exchange) accepts responsibility for the adequacy
or accuracy of this release.
Cautionary Note Regarding
Forward-Looking Statements:
Certain information in this news release
constitutes forward-looking statements under applicable securities
laws. Any statements that are contained in this news release that
are not statements of historical fact may be deemed to be
forward-looking statements. Forward looking statements are often
identified by terms such as “may”, “should”, “anticipate”,
“expect”, “potential”, “believe”, “intend” or the negative of these
terms and similar expressions. Forward-looking statements in this
news release include, but are not limited to, statements with
respect to accretive earnings, anticipated revenue and costs
synergies associated with the acquisition of Emblem, statements
with respect to internal expectations, estimated margins,
expectations for future growing capacity, costs and opportunities,
the effect of the transaction on the combined company and its
strategy going forward, expectations for receipt of licenses to
cultivate, process or distribute medical cannabis in Federally
legal markets, the completion of any capital project or expansions,
the expectations with respect to future production costs, the
anticipated timing for the special meeting of Emblem shareholders
and closing of the Transaction; the consideration to be received by
shareholders, which may fluctuate in value due to Aleafia common
shares forming the consideration; the satisfaction of closing
conditions including, without limitation (i) required Emblem
shareholder approval; (ii) necessary court approval in connection
with the plan of arrangement, (iii) Aleafia obtaining the necessary
approvals from the TSX Venture Exchange for the listing of
securities in connection with the Transaction; and (iv) other
closing conditions, including, without limitation, obtaining
certain consents, the operation and performance of the Emblem and
Aleafia businesses in the ordinary course until closing of the
Transaction and compliance by Emblem and Aleafia with various
covenants contained in the Agreement. In particular, there can be
no assurance that the Transaction will be completed. Forward
looking statements are based on certain assumptions regarding
Emblem and Aleafia, including expected growth, results of
operations, performance, industry trends and growth opportunities.
While Emblem and Aleafia consider these assumptions to be
reasonable, based on information currently available, they may
prove to be incorrect. Readers are cautioned not to place undue
reliance on forward-looking statements. Forward-looking statements
also necessarily involve known and unknown risks, including,
without limitation, risks associated with general economic
conditions; adverse industry events; marketing costs; loss of
markets; future legislative and regulatory developments involving
the medical and adult-use marijuana markets; inability to access
sufficient capital from internal and external sources, and/or
inability to access sufficient capital on favourable terms; the
medical and adult-use marijuana industries generally; income tax
and regulatory matters; the ability of Aleafia and Emblem to
implement their business strategies; competition; crop
failure/conditions; currency and interest rate fluctuations and
other risks.
Readers are cautioned that the foregoing list is
not exhaustive. Readers are further cautioned not to place undue
reliance on forward-looking statements as there can be no assurance
that the plans, intentions or expectations upon which they are
placed will occur. Such information, although considered reasonable
by management at the time of preparation, may prove to be incorrect
and actual results may differ materially from those
anticipated.
Forward-looking statements contained in this
news release are expressly qualified by this cautionary statement
and reflect our expectations as of the date hereof, and thus are
subject to change thereafter. Emblem and Aleafia disclaim any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by law. This news release has been
approved by the Board of Directors of each of Aleafia and Emblem.
Factors that could cause anticipated opportunities and actual
results to differ materially include, but are not limited to,
matters referred to above and elsewhere in Emblem’s and Aleafia’s
public filings and material change reports that will be filed in
respect of this Transaction which are and will be available on
SEDAR.
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