- Transaction is expected to enable We Grow's Qwest brand to
rapidly expand and reach a broad consumer audience through Westleaf
production facilities and retail assets
- Support from ATB Financial financing and insider-led equity
financing
CALGARY, Nov. 7, 2019 /CNW/ - Westleaf Inc. (the
"Company" or "Westleaf") (TSX-V: WL) (OTCQB: WSLFF)
is pleased to announce that it has entered into a definitive
arrangement agreement ("Arrangement Agreement") to combine
with We Grow BC Ltd. ("We Grow"), a leading indoor cannabis
producer located in Creston, British
Columbia (the "Transaction"). We Grow brings an
ultra-premium cannabis brand, Qwest ("Qwest"), which
achieves some of the highest realized pricing in the Canadian
adult-use markets(1). The combination of We Grow's Qwest
brand with Westleaf's high quality production and retail assets,
creates a combined company which is expected to be one of
Canada's preeminent craft-at-scale
cultivators, manufacturers, and retailers of ultra-premium cannabis
products.
"This transaction brings together a known brand with revenue and
EBITDA to complement some of Canada's most premier indoor cultivation and
extraction facilities. Together, we will be able to aggressively
expand a trusted brand, increase market share, drive revenue and
EBITDA growth and become an extremely competitive company in
Canada and beyond" said
Scott Hurd, President and Chief
Executive Officer of Westleaf.
"Westleaf has built world class cultivation, extraction and
retail assets that will allow us to scale quickly and address the
existing demand for our Qwest branded products. Together, we create
the preeminent ultra-premium cannabis brand in Canada" said Benjamin
Sze, Chief Executive Officer of We Grow.
Highlights of the Transaction
The Arrangement is expected to accelerate We Grow's strategy to
expand cultivation capabilities for its popular Qwest and Qwest
Reserve ultra-premium cannabis flower brands. The Arrangement is
expected to elevate the combined entity's forecasted 2020 cannabis
production capacity to 9,100 kgs(2) of dried
cannabis flower while enabling the Company to fully leverage the
Qwest ultra-premium brand through Westleaf's extraction facility
and Westleaf's chain of award-winning Prairie Records retail
stores. Specific additional highlights include the following:
- Established Industry Leading Cannabis Brands: Qwest has
established itself as a leading cannabis brand, recognized for
ultra-premium quality products and rare flower varieties, evidenced
by its leading realized selling prices in the Canadian recreational
market and strong demand across various distribution
channels(1). The Transaction positions the combined
company to accelerate Qwest's brand growth through Westleaf's
assets by expanding into cannabis derivative products, adding
craft-style cultivation capacity, and owning the relationship with
the consumer through the award winning wholly owned retail stores,
Prairie Records.
- Creates One of Canada's
Largest Craft Producers: The Transaction combines We Grow's
current production and Westleaf's nearly completed Thunderchild
cultivation facility, creating one of the largest craft producers
in Canada with a core focus on
producing the highest quality cannabis and cannabis derivative
products for the recreational market. We Grow's access to an
extensive genetic library is anticipated to be commercialized on an
accelerated basis to bring novel, differentiated cannabis products
to market.
- Positioned for Cannabis 2.0 Products: Westleaf brings
scalable extraction and product manufacturing assets which is
expected to enable Qwest to expand its ultra-premium product lines
into high margin derivative cannabis products in time to meet the
expected demand for cannabis 2.0 products.
- Proven Execution Capabilities: We Grow intends to take
its best-in-class production practices and cannabis cultivation
expertise and apply it to Westleaf's high quality assets to
maintain its high standard of quality for products under the Qwest
banner, including Westleaf's Thunderchild Cultivation facility and
The Plant extraction facility.
- Highly Experienced Management Teams: We Grow's
management and cultivation teams have a proven ability to scale
ultra-premium indoor cannabis production at industry leading yields
and obtain best in class wholesale pricing. Westleaf brings a
complementary and experienced processing and extraction team,
industry leading retail operators and capital markets
expertise.
- Additional Non-Dilutive Financing from ATB Financial: As
part of the transaction ATB Financial has committed, subject to
customary conditions precedent to be satisfied prior to or
concurrent with closing of the Transaction, to provide $8.9 million of additional credit and liquidity
through the issuance of a new term loan ($4.7 million) and removal of the restricted cash
requirement (~$4.2 million) under the
Company's current subsidiary level credit facilities (which are
expected to be consolidated at the Company level as part of the
Transaction). Following the close of the Transaction, the combined
company's remaining infrastructure projects are anticipated to be
fully funded.
- Strong Economics and Demonstrated Cash Flow: We Grow has
demonstrated a disciplined approach to sustainable profitability,
achieving positive Adjusted EBITDA and net income in Q3 2019
enabling the Transaction to be immediately accretive to Westleaf.
The combined entity is anticipated to be reflective of We Grow's
commitment to lean and efficient operations and the pro forma
management team is expected to be focused on delivering strong
financial performance going forward.
Transaction Summary
The Arrangement
Under the Arrangement Agreement, Westleaf will purchase all of
the issued and outstanding shares of We Grow (the "We Grow
Shares"), other than its Class "H" non-voting common
participating shares ("Class H Shares"), in exchange for
common shares in the capital of Westleaf ("Westleaf
Shares"), by way of plan of arrangement under Division 5 of
Part 9 of the Business Corporations Act (British Columbia)(the "Arrangement").
Each We Grow Share will be exchanged for 4.264 Westleaf Shares and
each outstanding option to purchase one We Grow Share (the "We
Grow Options") will be exchanged for one Westleaf option
("Westleaf Options") to purchase 4.264 Westleaf Shares
pursuant to the Westleaf stock option plan currently in place.
All Westleaf Shares issued to the former holders of We Grow
Shares (excluding any Westleaf Shares issued in exchange for We
Grow Shares issued pursuant to the We Grow Financing or any We Grow
Shares issued on the exercise of We Grow Warrants (as defined
below)) or to the holders of We Grow Options on the valid exercise
of their Westleaf Options, will be subject to a hold period from
the closing of the Arrangement (the "Hold Period"), whereby
10% of such Westleaf Shares will be released on the date of closing
of the Arrangement (the "Closing Date"), 30% of such
Westleaf Shares will be released from the Hold Period on the date
that is six months from the Closing Date, 30% of such Westleaf
Shares will be released from the Hold Period on the date that is
nine months from the Closing Date and the remaining 30% of such
Westleaf Shares will be released from the Hold Period on the date
that is 12 months from the Closing Date. All such foregoing
Westleaf Shares will be legended with the applicable details of the
Hold Period.
After giving effect to the Arrangement, the pre-Arrangement
holders of We Grow Shares excluding the holders of We Grow Shares
issued pursuant to the We Grow Financing (as defined
herein), will hold approximately 55% of Westleaf's issued
and outstanding shares on a pro forma basis and the existing
shareholders of Westleaf will hold approximately 45% of Westleaf's
issued and outstanding shares on a pro forma basis.
Upon closing of the Arrangement, it is anticipated that
Westleaf's board of directors (the "Westleaf Board") will be
reconstituted and will include three appointees of We Grow being
Benjamin Sze, Michael Kelly, Paul
Wilson, and two appointees of Westleaf, being Cody Church and a Thunderchild nominee.
Westleaf's officers will be reconstituted and will include
Benjamin Sze, current Chief
Executive Officer of We Grow, as Chief Executive Officer,
Scott Hurd as President,
Taylor Ethans as Chief Financial
Officer, Gary Leong as Chief
Compliance Officer, and Adam Coates
as Executive Vice-President, Commercial. The foregoing changes will
constitute a "Change of Management" as defined in the policies of
the TSX Venture Exchange ("TSXV")(the "Change of
Management").
The Arrangement is anticipated to close in mid-December 2019. Closing of the Arrangement is
subject to the approval of not less than 662/3% of the
votes cast by holders of We Grow Shares and We Grow Options, each
voting as a separate class, on a resolution approving the
Arrangement (the "We Grow Resolution") at the upcoming We
Grow Meeting (as defined below) and, as a result of the Change of
Management and in accordance with the polices of the TSXV, approval
of not less than 50% of the votes cast by holders of Westleaf
Shares on a resolution approving such Change of Management (the
"Westleaf Resolution") at the upcoming Westleaf Meeting (as
defined below).
It is anticipated that a meeting (the "We Grow Meeting")
of the holders of We Grow Shares and We Grow Options and a meeting
(the "Westleaf Meeting") of the holders of Westleaf Shares
will each be held on or around December 11,
2019 following the mailing to such securityholders of a
joint management information circular regarding the Arrangement in
November 2019 (the "Joint
Information Circular").
Westleaf previously completed a financing of convertible
debentures ("Debentures"), and the Arrangement constitutes a
"Change of Control" as defined in the debenture indenture dated
May 10, 2019 for the Debentures
between the Company and Computershare Trust Company of Canada, as trustee for the Debentures (the
"Debenture Indenture"). Holders of 50% of the principal
amount of the outstanding Debentures have agreed in writing to
consent to the Arrangement, provide a waiver and modification of
the Debenture Indenture so that the Arrangement will not require
the Company to repurchase the Debentures and to an amendment of the
conversion price of the Debentures from $1.30 to $0.45 per
Westleaf Share.
Additional Transaction Terms
The Arrangement is subject to We Grow completing a non-brokered
management and key stakeholder led private placement financing of
subscription receipts of We Grow ("Subscription Receipts")
for gross proceeds of not less than $3,000,000, at a price of $0.30 per Subscription Receipt, to be completed
prior to or concurrently with closing of the Arrangement (the
"We Grow Financing"). Each Subscription Receipt shall
entitle the holder thereof to acquire a unit of We Grow, which unit
will ultimately be exchanged under the Arrangement for one (1)
Westleaf Share and one-half of a warrant of Westleaf (each a full
warrant, "Westleaf Warrant"). Each Westleaf Warrant
shall be exercisable at a price of $0.38 per share for a period of 2 years following
the closing of the Arrangement.
The Arrangement is also subject to, among other conditions, the
approval of the Supreme Court of British
Columbia, the receipt of all necessary regulatory approvals,
including approval of Health Canada, applicable provincial retail
cannabis regulators and the TSXV, and satisfaction of certain other
closing conditions that are customary for a transaction of this
nature.
The Agreement contains representations, warranties and
covenants, including a termination fee in the amount of 3% of the
transaction value payable by Westleaf or We Grow to the other
party, as applicable, in the event that the Arrangement Agreement
is terminated in certain circumstances. The Arrangement Agreement
also includes certain non-solicitation covenants subject to the
rights of each of Westleaf and We Grow to accept a superior
proposal in certain circumstances, with the other party having a
five business day right to match any such superior proposal
received. Additional details of the Arrangement will be provided in
the Joint Information Circular.
Westleaf Board Approval and Recommendation
Westleaf appointed a special independent committee (the
"Special Committee") of the Westleaf Board consisting of
Cody Church, Kareen Stangherlin, Delbert Wapass and John
Radostits, with the mandate to review and evaluate strategic
transaction alternatives for the Company including the Arrangement.
Based on the recommendation of the Special Committee, the Westleaf
Board has unanimously approved the Arrangement Agreement,
determined that the Arrangement is in the best interests of
Westleaf and the Westleaf Board has unanimously resolved to
recommend that the holders of Westleaf Shares vote in favour of the
Westleaf Resolution at the Westleaf Meeting. The Special Committee
also received a verbal fairness opinion provided by Eight Capital
Inc. (the "Eight Capital Fairness Opinion") which was
considered in connection with its recommendation to the Board, that
provided, subject to the assumptions, qualifications and
limitations contained in the Eight Capital Fairness Opinion, that
the consideration to be paid by Westleaf for the acquisition of We
Grow pursuant to the Arrangement, is fair, from a financial point
of view, to Westleaf.
All of the directors and officers of Westleaf, who beneficially
own, or exercise control or direction over, approximately 19% of
the outstanding Westleaf Shares, have entered into support
agreements pursuant to which each has agreed to vote their Westleaf
Shares in favour of the Westleaf Resolution and all other matters
in favour of the Arrangement as applicable.
We Grow Board Approval and Recommendation
We Grow's board of directors (the "We Grow Board") has
unanimously approved the Arrangement Agreement, determined that the
Arrangement is fair and in the best interests of We Grow and, based
on the verbal fairness opinion provided by AltaCorp Capital Inc.
(the "AltaCorp Fairness Opinion"), determined that and
subject to the assumptions, qualifications and limitations
contained in the AltaCorp Fairness Opinion, that the consideration
to be paid by Westleaf to the holders of We Grow Shares with
respect to the Arrangement is fair , from a financial point of
view, and the We Grow Board has unanimously resolved to recommend
that the holders of We Grow Shares and the holders of We Grow
Options vote in favour of the We Grow Resolution at the We Grow
Meeting.
All of the directors and officers of We Grow who beneficially
own, or exercise control or direction over, approximately 36% of
the outstanding We Grow Shares, have entered into support
agreements pursuant to which each has agreed to vote their We Grow
Shares and We Grow Options in favour of the We Grow Resolution and
all other matters in favour of the Arrangement as applicable.
Complete details of the terms of the Arrangement are set out in
the Arrangement Agreement, which will be filed by Westleaf and will
be available for viewing under Westleaf's profile at
www.sedar.com.
Combined Westleaf-We Grow Pro-Forma Facility and
Assets
- Creston Valley Cultivation (We Grow) – We Grow
has a purpose-built indoor cultivation facility currently
consisting of 26,000 square feet which has been retrofitted for
phase 1 cultivation including over 14,000 square feet of growing
rooms, and up to 100-acre cultivation abilities for future
production. We Grow is currently constructing a genetics and tissue
culture lab in the existing facility.
- Thunderchild Cultivation (Westleaf): Construction
of Westleaf's purpose-built, GMP compliant, indoor cultivation
facility near Battleford,
Saskatchewan has progressed significantly in the third
quarter and is nearing completion. Phase I of the indoor grow
operation will be a total of 80,000 square feet with 20 grow rooms
and approximately 21,000 square feet of flower bench. Phase II will
add an additional 50,000 square feet of production space. The name
of the facility reflects the company's first and largest investor,
the Thunderchild First Nation, an independent Cree nation based in
Turtleford, Saskatchewan.
- The Plant by Westleaf Labs (Westleaf): A scalable
extraction, processing, and product manufacturing facility located
in Calgary, Alberta is a strategic
asset for the Company. With the legalization of derivative
products, Westleaf anticipates strong industry wide demand for
efficient extraction, processing and formulation capacity and
recently announced receipt of its first white label order. The
Plant is currently a 16,000 square foot licensed production
facility with scalable capacity of up to 65,000 kgs(3)
of dried flower per annum. The Plant has an additional 45,000
square feet of expansion space.
- Prairie Records (Westleaf): The
Company's experiential retail concept Prairie Records, which
combines music and cannabis into a unique retail environment,
launched with three stores in the Saskatoon region and one in Calgary. Westleaf maintains a portfolio of
over 20 premium retail locations with development permits.
Advisors and Counsel
Eight Capital is acting as the exclusive financial advisor to
Westleaf and the Special Committee. Borden Ladner Gervais LLP is
acting as legal counsel to Westleaf.
AltaCorp Capital is acting as the financial advisor to We Grow.
McCarthy Tetrault LLP is acting as legal counsel to We Grow.
About Westleaf Inc.
Westleaf is a Canadian cannabis company focused on cannabis
brands, extraction and production of derivatives, wholly owned
retail, as well as cannabis cultivation. The Company's Health
Canada licensed extraction and processing facility, The
Plant, is expected to produce high quality and consistent
cannabis derivatives and consumables, both for Westleaf's in-house
brands as well as white label products. Westleaf's retail concept,
Prairie Records, leverages the instinctual tie between
recreational cannabis and music with stores operating or in
development across Western Canada. The Company's
Thunderchild cultivation facility is scheduled for
completion at the end of this year.
About We Grow BC Ltd.
We Grow is an authorized licensed cultivator, processor and
seller under the Cannabis Act (Canada). We Grow is located in Creston, British Columbia in the heart of the
Kootenay's, where British
Columbia-grown marijuana originated, and holds a Cultivation
License pursuant to the Access to Cannabis for Medical Purposes
Regulations under Health Canada. We Grow has scalable
production facilities currently consisting of 26,000 square feet
which has been retrofitted for phase 1 cultivation including over
14,000 square feet of growing rooms, and up to 100-acre cultivation
abilities for future production. We Grow's cannabis production
includes its brand Qwest, which is considered a preeminent
ultra-premium cannabis brand achieving one of the highest realized
flower prices in Canada.
Non-GAAP Measures
To supplement the financial measures prepared in accordance with
Canadian generally accepted accounting principles (GAAP), the
Company uses certain non-GAAP financial measures, including
Adjusted EBITDA (non-GAAP). The Company believes that these
non-GAAP measures, when presented in conjunction with comparable
GAAP measures, provide useful information about the Company's
operating results and liquidity and enhance the overall ability to
assess the Company's financial performance. The Company uses
these measures, together with other measures of performance under
GAAP, to compare the relative performance of operations in
planning, budgeting and reviewing the performance of its
business.
However, these measures are not prepared in accordance with GAAP
nor do they have any standardized meaning under GAAP. In addition,
other companies may use similarly titled non-GAAP financial
measures that are calculated differently from the way we calculate
such measures. Accordingly, our non-GAAP financial measures may not
be comparable to such similarly titled non-GAAP measures. We
caution investors not to place undue reliance on such non-GAAP
measures, but instead to consider them with the most directly
comparable GAAP measures. Non-GAAP financial measures have
limitations as analytical tools and should not be considered in
isolation. They should be considered as a supplement to, not a
substitute for, or superior to, the corresponding measures
calculated in accordance with GAAP.
As indicated above, for guidance purposes, the Company does not
provide reconciliations of projected Adjusted EBITDA (non-GAAP) to
projected GAAP net income (loss), due to the inherent difficulty in
forecasting and quantifying certain amounts that are necessary for
such reconciliations.
Forward-Looking Statements
This press release contains forward-looking statements and
forward-looking information within the meaning of applicable
securities laws. The use of any of the words "anticipate", "may",
"will", "should", "believe", "intends" and similar expressions are
intended to identify forward-looking statements or information.
More particularly and without limitation, this press release
contains forward-looking statements and information concerning:
mailing of the information circular, timing of the WGBC Meeting,
the timing of the Westleaf Meeting, the timing and
proceeds from the We Grow Financing, details with respect to the
Hold Period, anticipated synergies, anticipated pricing, future
capital requirements, construction of the Creston Valley Qwest
Cannabis Estate, Thunderchild and The Plant facilities and the
timing and production related thereto, the ability to satisfy all
requirements in order to close the Transaction and the anticipated
closing of the Arrangement. Risks and uncertainties inherent in the
nature of the Arrangement include the failure of the parties to
satisfy the conditions to the Arrangement, in a timely manner, or
at all. The failure of the parties to satisfy the conditions to the
Arrangement may result in the Arrangement not being completed on
the proposed terms, or at all. In addition, the failure of WGBC or
Westleaf to comply with certain terms of the Arrangement Agreement
may result in WGBC or Westleaf being required to pay a
non-completion fee to the other party, the result of which could
have a material adverse effect on Westleaf's financial position and
results of operations and its ability to fund growth prospects and
current operations.
Readers are cautioned that the foregoing list of factors is
not exhaustive. Additional information on other factors that could
affect the operations or financial results of Westleaf are included
in reports on file with applicable securities regulatory
authorities, including but not limited to Westleaf's Annual
Information Form for the year ended December
31, 2018 which may be accessed on Westleaf's SEDAR profile
at www.sedar.com
The forward-looking statements and information contained in
this press release are made as of the date hereof and Westleaf
undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of
new information, future events or otherwise, unless so required by
applicable securities laws.
This press release shall not constitute an offer to sell or
the solicitation of an offer to buy any securities nor shall there
be any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful. The securities issued
pursuant to the Arrangement described herein have not been and will
not be registered under the United States Securities Act of 1933
and may not be offered or sold in the
United States except in transactions exempt from such
registration.
The TSX Venture Exchange has in no way passed upon the
merits of the Arrangement and has neither approved nor disapproved
of the contents of this press release.
Neither the 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.
- Based on average management suggested retail price of SKUs
available from Alberta Gaming, Liquor and Cannabis in September 2019.
- Thunderchild production capacity estimates are based on Phase I
and Phase II total flower bench of 42,000 square feet total (21,000
square feet per phase), 60 grams of flower per yield per square
foot per harvest, and 5.8 harvests per annum. Phase I consists of
facility floor plate of approximately 80,000 total square feet
(total square footage of Phase I & II of ~130,000 sq. ft.).
Creston production capacity
estimates are based on Phase1 and Phase 1B total flower bench of 22,900 square feet total
(7,700 square feet phase 1), 43 grams of flower per yield per
square foot per harvest, and 5.5 harvests per annum.
- Extraction capacity estimates based on a phased approach
anticipated to reach 65,000 kg capacity in Q1 2020 as additional
equipment is installed in existing built out space. Based on 350
workdays per year.
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SOURCE Westleaf Inc.