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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Red White and Bloom Brands Inc (CE) | USOTC:RWBYF | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.0279 | 0.00 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15b-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 26, 2023
Commission File Number: 000-55992
Red White & Bloom Brands Inc.
(Exact name of registrant as specified in its charter)
789 West Pender Street, Suite 810
Vancouver BC Canada V6C 1H2
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Red White & Bloom Brands Inc. | |||
By: | /s/ Edoardo Mattei | ||
Edoardo Mattei | |||
Chief Financial Officer | |||
Date: September 26, 2023 |
Exhibit 99.1
Red White & Bloom Provides Update Relating to Aleafia Health
· | Court approves RWB’s Stalking Horse Bid for purposes of Aleafia Health’s CCAA Sale and Investment Solicitation Process |
TORONTO, ONTARIO August 22, 2023 (GLOBE NEWSWIRE) – Red White & Bloom Brands Inc. (CSE: RWB and OTC: RWBYF) (“RWB” or the “Company”) is providing an update on matters relating to Aleafia Health Inc. (“Aleafia Health”).
RWB is pleased to announce that the Ontario Superior Court of Justice (Commercial List) (the “Court”) has approved a stalking horse asset purchase and share subscription agreement (the “Stalking Horse Agreement”) pursuant to which RWB would acquire certain assets from Aleafia Health and subscribe for shares of certain subsidiaries of Aleafia Health if RWB becomes the successful bidder pursuant to the sale and investment solicitation process (“SISP”) also approved by the Court in connection with the proceedings (the “Aleafia CCAA Proceedings”) of Aleafia and certain of its subsidiaries (collectively, the “Aleafia Group”) under the Companies’ Creditors Arrangement Act (the “CCAA”).
As part of the Aleafia CCAA Proceedings, Aleafia obtained an order from the Court earlier today approving, among other things, (i) an extension of the stay period until October 31, 2023 (the “Stay Period”); (ii) the SISP submitted by the Aleafia Group and KSV Restructuring Inc. in its capacity as monitor in the Aleafia CCAA Proceedings (the “Monitor”); (iii) the Stalking Horse Agreement (solely for the purposes of being the stalking horse bid under the SISP (the “Stalking Horse Bid”)); and (iv) the preservation and maintenance of the Aleafia Group’s Health Canada and cannabis excise licences (the “Licences”) until the expiration of the Stay Period, including the ability of the Aleafia Group to sell cannabis in the ordinary course under the Licences and, to the extent any Licence may expire during the Stay Period, an extension of such Licence by a period equal to the Stay Period.
The Stalking Horse Agreement provides for a reverse vesting transaction whereby a wholly-owned subsidiary of RWB would subscribe for shares of Emblem Cannabis Corporation, Canabo Medical Corporation, Aleafia Farms Inc. and Aleafia Retail Inc. (collectively, the “Aleafia Purchased Entities”, with such shares being referred to as the “Purchased Shares”) and acquire specific intellectual property owned, licensed or leased by Aleafia Health (the “Purchased IP”). Certain excluded assets and liabilities of the Aleafia Purchased Entities would be transferred to one or more corporations that would not be included among the Aleafia Purchased Entities at closing. RWB’s subsidiary would be the sole shareholder of the Aleafia Purchased Entities following closing.
The consideration for the Purchased Shares and Purchased IP will be comprised of:
(a) | a credit bid consisting of: |
(i) | a release of all amounts outstanding and obligations payable by the Aleafia Group under the loan agreement made as of December 24, 2021, as amended, which was assigned to RWB on June 6, 2023 (the “Aleafia Senior Secured Loan Agreement”) and all related loan and security documentation, which amount as of July 31, 2023 was $15,414,622, including the principal amount of such claim, plus all accrued and unpaid interest thereon through to and including the closing date of the Stalking Horse Bid (the “Closing Date”), plus any fees and expenses associated therewith; and |
(ii) | a release of all amounts outstanding and obligations payable by the Aleafia Group as of the Closing Date pursuant to the debtor-in-possession financing of up to $6,600,000 previously approved by the Court (the “DIP Loan”) and all related loan and security documentation, including the principal amount of such claims and interest accrued as of the Closing Date, plus all accrued and unpaid interest thereon through to and including the Closing Date, plus any fees and expenses associated therewith; and |
(b) | cash consideration consisting of: |
(i) | up to $400,000 payable to the Monitor on the Closing Date to be used to pay the costs and expenses of the Monitor and its legal counsel after the Closing Date in connection with the completion of the Aleafia CCAA Proceedings (to the extent such amount has not be pre-funded under the DIP Loan prior to the Closing Date); |
(ii) | cash in an amount that is sufficient to satisfy any amounts remaining payable as of the Closing Date secured by (A) the charge to secure the fees and disbursements of the Aleafia Group’s counsel, the Monitor and its counsel of up to $1,250,000, and |
(B) the charge in favour of the directors and officers of the Aleafia Group of up to
$2,850,000, each as previously approved by the Court, and each without duplication to amounts satisfied under (i) or (iv);
(iii) | cash in an amount sufficient to satisfy the outstanding obligations of the Aleafia Group to 1260356 Ontario Limited (“1260356”) as secured lender under the credit agreement between Aleafia and 1260356 dated August 20, 2021 and as amended on December 24, 2021 and August 26, 2022, which amount as at July 31, 2023 was approximately $5,952,056; and |
(iv) | an amount sufficient to satisfy any remaining priority payments as of the Closing Date as required under the CCAA. |
The consummation of the transactions contemplated under the Stalking Horse Agreement are subject to satisfaction or waiver of certain conditions set forth in the Stalking Horse Agreement, including, among other things, the Court granting the requisite approval and vesting order as a final order, the Stalking Horse Agreement being determined to be the successful bid under the SISP, receipt of all required regulatory approvals and the Licences being in good standing and continuing in good standing and not suspended or terminated following the Closing Date.
There is no assurance that RWB’s Stalking Horse Bid will be the successful bid under the SISP. If RWB’s Stalking Horse Bid is unsuccessful, the Stalking Horse Agreement will terminate. Any alternative successful bid would result in the repayment in full of all amounts outstanding under the Aleafia Senior Secured Loan Agreement and the DIP Loan in addition to the payment of an expense reimbursement of up to $500,000 associated with transaction costs incurred by RWB in connection with the preparation of RWB’s Stalking Horse Bid.
A copy of the Stalking Horse Agreement can be found on RWB’s SEDAR+ profile at www.sedarplus.ca.
The entering into the Stalking Horse Agreement was evaluated and ultimately approved by the disinterested members of the board of directors of each of Aleafia Health and RWB. The disinterested members of the board of directors of RWB excluded Mr. Colby De Zen, President and Director, who, in accordance with Canadian corporate law requirements, recused himself from consideration of, and voting on, the Stalking Horse Agreement.
About Red White & Bloom Brands Inc.
Red White & Bloom is a multi-state cannabis operator and house of premium brands in the U.S. legal cannabis sector. RWB is predominantly focusing its investments on the major U.S. markets, including Arizona, California, Florida, Massachusetts, Missouri, and Michigan.
Red White & Bloom Brands Inc. Investor and Media Relations Edoardo Mattei, CFO
IR@RedWhiteBloom.com 947-225-0503, x.1003
Visit us on the web: www.redwhitebloom.com
Follow us on social media:
@rwbbrands
@redwhitebloombrands
@redwhitebloombrands
Cautionary Note Regarding Forward-Looking Information
This news release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of the applicable Canadian securities legislation. All statements, other than statements of historical fact, are forward-looking statements and are based on expectations, estimates and projections as at the date of this news release. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements.
In this news release, forward-looking statements relate to, among other things, statements regarding RWB’s Stalking Horse Bid’s terms and it being the successful bid under the SISP, the consummation of the transactions set out in the Stalking Horse Agreement, the DIP Loan (and its continued availability given it is conditional on, among other things, the applicable order of the Court remaining in effect) and the outcome of the Aleafia CCAA Proceedings. These forward-looking statements are not guarantees of future results and involve risks and uncertainties that may cause actual results to differ materially from the potential results discussed in the forward-looking statements.
The Company has relied on certain assumptions that it believes are reasonable at this time, including assumptions with respect to RWB’s Stalking Horse Bid and the expected timeline and outcome of the SISP and the Aleafia CCAA Proceedings, and the ability of Aleafia to comply with the conditions in the DIP Loan in order to continue to receive amounts thereunder from RWB. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release.
Risks and uncertainties that may cause such differences include but are not limited to risks relating to the Aleafia CCAA Proceedings, the outcome of which could have a material adverse impact on the Company’s share price, its current business relationships and on the current and future operations, financial condition, and prospects of the Company if its Stalking Horse Bid is unsuccessful and amounts owing under the Aleafia Senior Secured Loan Agreement or DIP Loan are not repaid or otherwise satisfied.
Exhibit 99.2
Red White & Bloom Reports Results for the Three and Six Months Ended June 30, 2023
TORONTO, ONTARIO August 29, 2023 (GLOBE NEWSWIRE) - Red White & Bloom Brands Inc. (CSE: RWB and OTC: RWBYF) (“RWB” or the “Company”) is pleased to report it has filed its Condensed Interim Consolidated Unaudited Financial Statements, Management Discussion and Analysis and associated certifications for its second quarter ended June 30, 2023 (collectively, the “2023-Q2 Filings”). The 2023-Q2 Filings may be accessed under the Company’s SEDAR+ profile at www.sedarplus.ca.
2023-Q2 Financial Highlights
· | Revenues were $21.9 million for 2023-Q2 and $49.0 million for the first 6 months of fiscal 2023. |
· | Gross profit, before fair value adjustments, was $6.9 million for 2023-Q2 or 32% of 2023-Q2 revenues versus $4.8 million for the quarter ended June 30, 2022 (“2022-Q2”) or 18% of 2022-Q2 revenues. |
· | Operating expenses were $9.8 million for 2023-Q2 versus $13.3 million for 2022-Q2. |
· | Adjusted EBITDA(1) was $0.3 million for 2023-Q2 and $1.0 million for the first six months of fiscal 2023. |
Colby De Zen, President of RWB, stated, “The Company is focused on expanding its premium, Platinum branded product offerings in existing and new markets in addition to creating new revenue opportunities across each of our distribution, retail and licensing channels. After our successful launch in Missouri last year and Arizona earlier this year, we are pleased to share that Platinum is now available in Canada with deliveries, in the third quarter, of Platinum branded products having arrived on shelves in Ontario. We continue to secure licensing opportunities for our Platinum branded products with key partners in targeted legal states and are in late-stage negotiations to add our sixth state in the early fourth quarter. In addition, through our continuing cost rationalization efforts, the Company has been able to successfully generate nearly $4 million (fiscal year to date) in reductions to its general and administrative expenses. The Company has also recently invested in the optimization of its manufacturing facilities through value-added enhancements, driven by automation and procurement strategies, designed to drive both labor and product cost efficiencies as well as an increase in overall production capacity.”
Recent Operating Highlights
· | During 2023-Q2, construction commenced on our next high profile retail location located in South Beach, Florida. The location is scheduled to open in early 2023-Q4 with a full suite of “House of Platinum” product offerings. All Florida retail locations have now been rebranded “House of Platinum” having garnered regulatory approvals from the state. |
· | On June 6, 2023, in conjunction with the execution of a binding letter agreement for a potential business combination between the Company and Aleafia Health, Inc. (the “Aleafia Letter Agreement”), the Company was assigned and acquired senior secured debt held by Aleafia Heath, Inc. (“Aleafia”) at a discounted purchase price of $12.5 million from a lender of Aleafia, and subsequently loaned Aleafia an additional $1.5 million under the credit facility (the "AH Note Receivable”). |
· | On June 20, 2023, the Company announced that its shareholders had approved all resolutions at the Annual General Meeting held on June 16, 2023. |
· | On July 11, 2023, the Company successfully launched its Platinum branded vape products in the Ontario (Canada) market; which it then followed with its Platinum branded vape cartridges on August 23, 2023. Through the Company’s distribution partnership, it continues to pursue product listings in Alberta, British Columbia and Manitoba. |
· | On July 14, 2023, certain holders of Aleafia Debentures representing more than 33 1/3% of the outstanding Aleafia Convertible Debentures, as represented by their designated representatives, communicated to Aleafia and RWB that they would not accept the terms of the Aleafia Debenture settlement set out in the Aleafia Letter Agreement. As a result, the Company and Aleafia mutually agreed to terminate the Aleafia Letter Agreement without liability or cost to either party. |
· | On July 24, 2023, in light of Aleafia's financial condition, the termination of the Aleafia Letter Agreement, and the ongoing breach of covenants under the AH Note Receivable by Aleafia, RWB issued demand letters and notices to enforce its security under Section 244 of the Bankruptcy and Insolvency Act. |
· | On July 25, 2023, Aleafia announced that it had received an order (the “Initial Order”) from the Ontario Superior Court of Justice (Commercial List) under the Companies’ Creditors Arrangement Act (“CCAA”), in order to restructure its business and financial affairs (the “Aleafia CCAA Proceedings”). The Initial Order approved, among other things, debtor-in-possession financing (“DIP Financing”) to be provided by RWB to fund the Aleafia CCAA Proceedings and other short-term working capital requirements pursuant to a term sheet between RWB and Aleafia dated July 24, 2023 (the “Aleafia DIP Term Sheet”). As specified under the Aleafia DIP Term Sheet, RWB agreed to advance DIP Financing up to $6.6 million (the “DIP Loan”). The continued availability of the DIP Loan is conditional upon, among other things, certain conditions being satisfied, including the Initial Order remaining in effect. |
· | On August 22, 2023, the Ontario Superior Court of Justice (Commercial List) (the “Court”) approved a stalking horse asset purchase and share subscription agreement pursuant to which RWB would acquire certain assets from Aleafia and subscribe for shares of certain subsidiaries of Aleafia if RWB becomes the successful bidder pursuant to the sale and investment solicitation process, also approved by the Court, in connection with the Aleafia’s CCAA proceedings of Aleafia and certain of its subsidiaries. |
Consolidated Financial Highlights
2023-Q2 | 2022-Q2 | Variance | 2023-YTD | 2022-YTD | Variance | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Revenue | 21,915,629 | 27,402,453 | (5,486,824 | ) | 48,961,717 | 55,449,254 | (6,487,537 | ) | ||||||||||||||||
Cost of goods sold, before fair value adjustments | 15,049,199 | 22,614,856 | (7,565,657 | ) | 32,685,613 | 39,320,191 | (6,634,578 | ) | ||||||||||||||||
Gross profit before fair value adjustments | 6,866,430 | 4,787,597 | 2,078,833 | 16,276,105 | 16,129,063 | 147,041 | ||||||||||||||||||
Unrealized changes in fair value of biological assets | (1,287,157 | ) | (17,973 | ) | (1,269,184 | ) | (1,737,952 | ) | (2,467,978 | ) | 730,026 | |||||||||||||
Realized fair value amounts included in inventory sold | 616,685 | (1,351,571 | ) | 1,968,256 | 10,201 | (1,074,644 | ) | 1,084,845 | ||||||||||||||||
Gross Profit | 6,195,958 | 3,418,053 | 2,777,905 | 14,548,353 | 12,586,441 | 1,961,912 | ||||||||||||||||||
Gross profit Percentage (%) | 28 | % | 12 | % | 16 | % | 30 | % | 23 | % | 7 | % | ||||||||||||
Total operating expenses | 9,834,870 | 13,319,495 | (3,484,625 | ) | 20,700,898 | 24,675,078 | (3,974,180 | ) | ||||||||||||||||
Loss from operations before other expenses or income | (3,638,912 | ) | (9,901,442 | ) | 6,262,530 | (6,152,544 | ) | (12,088,637 | ) | 5,936,092 | ||||||||||||||
Total other expenses | 5,677,564 | 5,935,549 | (257,985 | ) | 12,246,949 | 12,536,719 | (289,770 | ) | ||||||||||||||||
Loss before income taxes | (9,316,476 | ) | (15,836,991 | ) | 6,520,515 | (18,399,494 | ) | (24,625,356 | ) | 6,225,862 | ||||||||||||||
Current income tax expense | (147,034 | ) | (1,133,396 | ) | 986,362 | (2,122,431 | ) | (3,204,566 | ) | 1,082,135 | ||||||||||||||
Deferred income tax recovery | — | — | — | 1,696,281 | — | 1,696,281 | ||||||||||||||||||
Net loss from continuing operations | (9,463,510 | ) | (16,970,387 | ) | 7,506,877 | (18,825,644 | ) | (27,829,922 | ) | 9,004,278 | ||||||||||||||
Loss from discontinued operations | (4,953 | ) | (675,823 | ) | 670,870 | (39,118 | ) | (1,573,476 | ) | 1,534,358 | ||||||||||||||
Loss for the period | (9,468,463 | ) | (17,646,210 | ) | 8,177,747 | (9,396,299 | ) | (18,864,762 | ) | 10,538,636 | ||||||||||||||
Adjusted EBITDA (1) | 252,778 | (6,305,180 | ) | 6,557,958 | 1,045,455 | (4,002,750 | ) | 5,048,205 |
Adjusted EBITDA
2023-Q2 | 2022-Q2 | Variance | 2023-YTD | 2022-YTD | Variance | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Net Income (Loss) for the Period | (9,468,463 | ) | (17,646,210 | ) | 8,177,747 | (18,864,762 | ) | (29,403,398 | ) | 10,538,636 | ||||||||||||||
Depreciation and amortization | 1,402,809 | 1,392,394 | 10,415 | 2,069,149 | 2,873,439 | (804,290 | ) | |||||||||||||||||
Bad debt expense | 379,716 | 891,736 | (512,020 | ) | 934,852 | 1,299,276 | (364,424 | ) | ||||||||||||||||
Accreted interest, leases | 663,549 | 1,371,148 | (707,599 | ) | 1,345,114 | 2,000,899 | (655,785 | ) | ||||||||||||||||
Finance expense, net | 7,503,331 | 1,809,731 | 5,693,600 | 14,422,752 | 9,183,117 | 5,239,635 | ||||||||||||||||||
(Gain) loss on revaluation of financial instruments | (1,276,619 | ) | — | (1,276,619 | ) | (2,284,312 | ) | — | (2,284,312 | ) | ||||||||||||||
Gain on disposal of assets | 144,359 | — | 144,359 | 144,359 | — | 144,359 | ||||||||||||||||||
Foreign exchange | (1,020,309 | ) | 2,754,670 | (3,774,979 | ) | (995,992 | ) | 1,352,703 | (2,348,695 | ) | ||||||||||||||
Termination costs | 153,938 | 71,237 | 82,701 | 341,081 | 71,237 | 269,844 | ||||||||||||||||||
(i) Non-recurring expenses | 810,556 | 547,174 | 263,382 | 1,320,700 | 1,599,789 | (279,089 | ) | |||||||||||||||||
Current income tax expense | 147,034 | 1,133,396 | (986,362 | ) | 2,122,431 | 3,204,566 | (1,082,135 | ) | ||||||||||||||||
Deferred income tax recovery | — | — | — | (1,696,281 | ) | — | (1,696,281 | ) | ||||||||||||||||
Fair value changes in biological assets | 1,287,157 | 17,973 | 1,269,184 | 1,737,952 | 2,467,978 | (730,026 | ) | |||||||||||||||||
Realized fair value changes in inventory sold | (616,685 | ) | 1,351,571 | (1,968,256 | ) | (10,201 | ) | 1,074,644 | (1,084,845 | ) | ||||||||||||||
Share based compensation | 142,405 | — | 142,405 | 458,614 | 273,000 | 185,614 | ||||||||||||||||||
Adjusted EBITDA | 252,778 | (6,305,180 | ) | 6,557,958 | 1,045,455 | (4,002,750 | ) | 5,048,205 |
(i) Non-recurring expenses include expenses are those that the Company does not expect to recur in the future, such as penalties and late fees
(1) Refer to Non IFRS and supplementary financial or operating measures
About Red White & Bloom Brands Inc.
Red White & Bloom is a multi-state cannabis operator and house of premium brands in the U.S. legal cannabis sector. RWB is predominantly focusing its investments on the major U.S. markets, including Arizona, California, Florida, Massachusetts, Missouri, and Michigan.
Red White & Bloom Brands Inc. Investor and Media Relations Edoardo Mattei, CFO
IR@RedWhiteBloom.com 947-225-0503, x.1003
Visit us on the web: https://www.redwhitebloom.com/. Follow us on social media:
@rwbbrands
@redwhitebloombrands
@redwhitebloombrands
Neither the CSE nor its Regulation Services Provider (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this release.
FORWARD LOOKING INFORMATION
This press release contains forward-looking statements and information that are based on the beliefs of management and reflect the Company's current expectations. When used in this press release, the words "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may" or "should" and the negative of these words or such variations thereon or comparable terminology are intended to identify forward-looking statements and information. There is no assurance that these transactions will yield results in line with management expectations. Such statements and information reflect the current view of the Company with respect to risks and uncertainties that may cause actual results to differ materially from those contemplated in those forward-looking statements and information.
By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or other future events, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following risks: risks associated with the implementation of the Company's business plan and matters relating thereto, risks associated with the cannabis industry, competition, regulatory change, the need for additional financing, reliance on key personnel, market size, and the volatility of the Company's common share price and volume. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date that statements are made, and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Investors are cautioned against attributing undue certainty to forward-looking statements.
There are several important factors that could cause the Company's actual results to differ materially from those indicated or implied by forward-looking statements and information. Such factors include, among others, risks related to the Company's proposed business, such as failure of the business strategy and government regulation; risks related to the Company's operations, such as additional financing requirements and access to capital, reliance on key and qualified personnel, insurance, competition, intellectual property, and reliable supply chains; risks related to the Company and its business generally; risks related to regulatory approvals. The Company cautions that the foregoing list of material factors is not exhaustive. When relying on the Company's forward-looking statements and information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company has assumed a certain progression, which may not be realized. It has also assumed that the material factors referred to in the previous paragraph will not cause such forward- looking statements and information to differ materially from actual results or events. However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors. While the Company may elect to, it does not undertake to update this information at any particular time.
THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PRESS RELEASE REPRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS PRESS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME EXCEPT AS REQUIRED IN ACCORDANCE WITH APPLICABLE LAWS.
NON-IFRS AND SUPPLEMENTARY FINANCIAL OR OPERATING MEASURES
The Company references non-IFRS and supplementary financial or operating measures, including, but not limited to, Adjusted EBITDA. These measures do not have a standardized meaning prescribed by IFRS and are most likely not comparable to similar measures presented by other public company issuers including those operating in the cannabis industry. Non-IFRS measures provide investors with additional insights into the Company’s financial and operating performance which may not be garnered from traditional IFRS measures. The management of the Company, including its key decision makers, use non-IFRS measures in assessing the Company’s financial and operating performance. The Company calculates Adjusted EBITDA as net income or loss excluding current and deferred income tax expense, finance expense (net), depreciation and amortization, fair value changes in biological assets, changes in inventory sold, share based compensation, gains or losses on revaluation of debts or accounts payable and accrued liabilities, gains or losses on extinguishment of debts or accounts payable and accrued liabilities, impairments of tangible or intangible assets, impairment of goodwill, accreted interest on leases and applicable short term and long term liabilities, gains or losses on asset disposals, foreign exchange, gain or loss on earnouts, bad debt expense, and other non-recuring expenses.
Exhibit 99.3
AMENDED AND RESTATED DIP FACILITY TERM SHEET
Dated: July 24, 2023
WHEREAS Aleafia Health Inc. (“Aleafia”) and certain of its subsidiaries, as borrowers, and Red White & Bloom Brands Inc. (“RWB” or the “DIP Lender”, as the context dictates), as lender, are parties to a certain loan agreement made as of December 24, 2021, as guaranteed by certain other subsidiaries of Aleafia (as amended from time to time, the “Loan Agreement”);
AND WHEREAS the Loan Agreement and all security and ancillary documents granted in connection therewith were assigned to RWB pursuant to a letter agreement dated as of June 6, 2023;
AND WHEREAS Aleafia has requested that RWB provide it with further loans to fund Aleafia and certain of its subsidiaries’ restructuring efforts pursuant to a debtor-in-possession financing in the context of insolvency proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”) (the “CCAA Proceedings”) under the jurisdiction of the Ontario Superior Court of Justice (Commercial List) (the “Court”);
AND WHEREAS the Borrowers (as defined below), the Guarantors (as defined below) and the DIP Lender entered into a DIP facility term sheet dated as of July 24, 2023 (the “Original DIP Facility Term Sheet”), pursuant to which the DIP Lender agreed to establish a DIP facility in favour of the Borrowers;
AND WHEREAS, subject to the terms and conditions contained herein (this “Agreement”), the parties hereto have agreed to amend and restate the Original DIP Facility Term Sheet on the terms and conditions set out below;
NOW THEREFORE, the parties, in consideration of the foregoing and the mutual agreements contained herein (the receipt and sufficiency of which are hereby acknowledged), agree as follows:
DEFINITIONS | Capitalized terms used but not otherwise defined herein shall have the meanings given to them on Schedule “A” hereto.
|
BORROWERS | Aleafia, Emblem Cannabis Corporation and Aleafia Farms Inc. (collectively, and on a joint and several basis, the “Borrowers”, and each a “Borrower”).
|
GUARANTORS |
Each Borrower (in accordance with Section “Borrowers’ Guarantee” below), Growwise Health Limited, Emblem Realty Ltd., Emblem Corp., Canabo Medical Corporation, Aleafia Brands Inc., Aleafia Retail Inc., 2672533 Ontario Inc., 2676063 Ontario Inc. and Aleafia Inc. (collectively, the “Guarantors”). The Guarantors hereby guarantee in favour of the DIP Lender the payment and performance of all Obligations of the Borrowers under or in connection with the DIP Facility. |
|
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RESTATEMENT | This Agreement amends, restates and replaces the Original DIP Facility Term Sheet. All indebtedness, liabilities and obligations outstanding under the Original DIP Facility Term Sheet as at the date of this Agreement shall be indebtedness, liabilities and obligations hereunder without readvance, reborrowing or novation. |
JOINT AND SEVERAL | Each of the Borrowers agree, acknowledge and confirm thatat their specific request the DIP Facility has been made available to all of them, and, in each case, that each individual Borrower’s ability to drawdown the full amount available for DIP Advances under the DIP Facility is not restricted except as specifically provided for in this Agreement. All covenants, agreements and obligations of the Borrowers contained in this Agreement relating to or in connection with the DIP Facility shall be joint and several covenants, agreements and obligations of each of the Borrowers as co-borrowers, and each of the Borrowers shall be jointly and severally liable for and obligated to repay all Obligations under the DIP Facility, in each case without the necessity of restating the words “jointly and severally” or “joint and several” in respect thereof. Such joint and several liability is independent of the duties, obligations and liabilities of each other Borrower. Each of the Borrowers waives all benefits of discussion and division among the Borrowers, and each of the Borrowers acknowledges and confirms that the DIP Lender shall have no obligation to pursue any other Borrower, as the case may be, or any Guarantor for all or any part of the Obligations under the DIP Facility before it can recover all such Obligations from it. Each Borrower acknowledges and confirms that it is fully responsible for all such Obligations even though it may not have requested a single DIP Advance.
Each of the Borrower’s liability for payment of the DIP Facility shall be a primary obligation, shall be absolute and unconditional, and shall constitute full recourse obligations of each of the Borrowers, enforceable against each of them to the full extent of their respective assets and properties. Each of the Borrowers expressly waives any right to require the DIP Lender to marshal assets in favour of any Borrower or any other Person or to proceed against any other Borrower or any collateral provided by any Person, and agrees that the DIP Lender may proceed against any Borrower or any collateral in such order as it shall determine in its sole and absolute discretion. To the extent permitted by law, any release or discharge, by operation of law, of any Borrower from the performance or observance of any obligation, covenant or agreement contained in this Agreement shall not diminish or impair the liability of any other Borrower in any respect. Each of the Borrowers unconditionally and irrevocably waives each and every defense, right to discharge, compensation and setoff of any nature which, by statute or under principles of suretyship, guaranty or otherwise, would operate to impair or diminish in any way the obligation of any Borrower under this Agreement, and acknowledges that such waiver is by this reference incorporated into each security agreement, collateral assignment, pledge and/or other document from each Borrower now or later securing the DIP Facility, and acknowledges that as of the date of this Agreement no such defense or setoff exists. Each of the Borrowers waives any and all rights (whether by subrogation, indemnity, reimbursement, or otherwise) to recover from any other Borrower any amounts paid or the value of any Property given by such Borrower pursuant to this Agreement or otherwise until the DIP Facility are irrevocably paid in full in cash. |
BORROWER’S GUARANTEE |
To the maximum extent permitted by Applicable Law and to the extent that a Borrower is deemed a guarantor, each Borrower unconditionally and absolutely, guarantees payment when due, whether by stated maturity, demand, acceleration or otherwise, of the Obligations and all existing and future indebtedness owing hereunder or in connection with the DIP Facility owed by each other Borrower and expressly waives any and all defenses now or hereafter arising or asserted by reason of (a) any extension, modification, forbearance, compromise, settlement or variation of any of the terms of the Obligations and the said indebtedness, (b) the discharge or release of any liability of any other Borrower or any other Person now or hereafter liable on the Obligations and the said indebtedness, by reason of bankruptcy or insolvency laws or otherwise, (c) the acceptance or release by the DIP Lender of any collateral, security or other guaranty from any Borrower or any other Person, or any settlement, compromise or extension with respect to any such collateral, security or other guaranty, (d) the avoidance, invalidity or unenforceability of any collateral, security or other guaranty from any Borrower or any other Person, (e) any failure to give any notice, demand, notice of dishonor, protest, presentment or non-payment, or any other notice, (f) any failure to comply with any Applicable Law in connection with any enforcement of any right or remedy against any collateral, security or other guaranty from any Borrower or any other Person, or (g) any action or inaction of the DIP Lender in any insolvency proceeding involving any Borrower or any other Person.
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DIP FACILITY | A non-revolving loan (the “DIP Facility”) up to the maximum principal amount of $6,600,000 (the “Maximum Amount”) including an initial advance in an amount of $2,270,000 (the “Initial Advance”).
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CURRENCY | Unless otherwise noted, the currency of the DIP Facility shall be Canadian Dollars. |
MATURITY DATE | Unless accelerated by an Event of Default, the DIP Facility shall be paid in full in cash on the date (the “Maturity Date”) which is the earliest of:
(a) the date that is one hundred and twenty (120) days from the date of the Initial Advance (or such later date as the DIP Lender in its sole discretion may agree to in writing with the Borrowers, acting reasonably);
(b) the date on which (i) the stay of proceedings under the CCAA Proceedings is lifted without the consent of the DIP Lender, or (ii) the CCAA Proceedings are terminated for any reason;
(c) the closing of a sale or similar transaction (including pursuant to a subscription agreement and/or a reverse vesting purchase agreement) for all or substantially all of the assets and business, or in respect, of the Obligors pursuant to the SISP, which has been approved by an order entered by the Court;
(d) the implementation of a plan of compromise or arrangement within the CCAA Proceedings (a “Plan”) which has been approved by the requisite majorities of the Obligors’ creditors and by an order entered by the Court; or
(e) the conversion of the CCAA Proceedings into a proceeding under the Bankruptcy and Insolvency Act (Canada).
The Maturity Date shall be accelerated upon the occurrence of an Event of Default.
The DIP Lender’s commitment in respect of the DIP Facility shall expire on the Maturity Date and all amounts outstanding under the DIP Facility including accrued Interest and Legal Fees (collectively, the “Obligations”) shall be repaid in full on the Maturity Date without the DIP Lender being required to make demand upon the Borrowers or to give notice that the DIP Facility has expired and the Obligations are due and payable. |
AVAILABILITY | Subject to the terms and conditions set forth in this Agreement, the Initial Order and the Restated Initial Order, the DIP Lender will make loans (the “DIP Advances”) to the Borrowers under the DIP Facility in an aggregate principal amount not to exceed the Maximum Amount, as follows:
(a) Initial Advance: subject to the provisions hereunder under the heading CONDITIONS PRECEDENT TO THE DISBURSEMENT OF INITIAL ADVANCE, upon the issuance of the Initial Order by the Court, the amount of the Initial Advance, or such other lesser amount as may be approved by the Initial Order, will be made available to the Borrowers by the DIP Lender to finance the Borrowers’ operating requirements in accordance with the Initial Cash Flow Projections. |
(b) Subsequent Advances: subject to the provisions hereunder under the heading CONDITIONS PRECEDENT TO THE DISBURSEMENT OF DIP ADVANCES (OTHER THAN THE INITIAL ADVANCE), and except as may be otherwise agreed in writing by the Borrowers and the DIP Lender, any further DIP Advances under the DIP Facility (each an “Additional Advance”) shall be made available to the Borrowers by the DIP Lender until the Maturity Date in accordance with the then applicable Cash Flow Projections approved by the DIP Lender in its sole discretion, from time to time, subject to duly issued orders of the Court.
Unless otherwise agreed to in writing in advance by the DIP Lender in its sole direction, each Additional Advance shall be made by the DIP Lender to the Borrowers as soon as practicable (and in any event within five (5) Business Days) after delivery to the DIP Lender of a drawdown certificate executed by the Borrowers certifying, inter alia, that (i) the advance corresponds with the then applicable Updated Cash Flow Projections for the one week period commencing the Monday following the date of the drawdown certificate, (ii) that there is no Default or Event of Default that has occurred and is continuing, and (iii) that the Borrowers are in compliance with the DIP Credit Documentation and the Restated Initial Order.
Notwithstanding the foregoing, the Borrowers shall not be required to submit a drawdown certificate to obtain the Initial Advance, the full amount of which shall be made available to the Borrowers by the DIP Lender immediately upon the satisfaction of the conditions precedent listed under the heading CONDITIONS PRECEDENT TO THE DISBURSEMENT OF INITIAL ADVANCE hereunder being satisfied by the Borrowers or otherwise waived by the DIP Lender in its sole discretion.
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ACCOUNT | All DIP Advances shall be deposited into an account acceptable to the Borrowers, the Monitor and the DIP Lender and withdrawn to pay contemplated expenses under the then applicable Cash Flow Projections and otherwise in accordance with the terms hereof.
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USE OF PROCEEDS AND CASH FLOW PROJECTIONS |
The Initial Advance under the DIP Facility shall be used in accordance with the cash flow projections attached herewith as Schedule “B” (the “Initial Cash Flow Projections”), which have been prepared by the Borrowers in consultation with the Monitor. Any Additional Advances shall be used in accordance with the Updated Cash Flow Projections (collectively with the Initial Cash Flow Projections, the “Cash Flow Projections”), in each case, to fund working capital and |
general corporate needs of the Obligors during, and costs and expenses incurred by the Obligors in connection with, the CCAA Proceedings.
No proceeds of the DIP Advances may be used for any purpose other than in accordance with the Cash Flow Projections except with the prior written consent of the DIP Lender.
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INTEREST RATE |
Interest (“Interest”) on the principal outstanding amount of the DIP Advances (including the compounded interest referenced below) from the date each such DIP Advance is made (or, in the case of the compounded interest referenced below, the date that such interest is compounded), both before and after maturity, demand, default, or judgment until payment in full at a rate of 12.5% per annum, compounded and calculated weekly shall accrue and be added to the principal amount of the DIP Advances on the first day of each month.
All interest shall be calculated on the basis of a 365-day (or 366 day, as applicable) year, in each case for the actual number of days elapsed in the period during which it accrues.
All payments under or in respect of the DIP Facility shall be made free and clear of any withholding, set-off or other deduction.
If any provision hereof or the DIP Credit Documentation would obligate the Obligors to make any payment of interest or other amount payable to the DIP Lender in an amount or calculated at a rate which would be prohibited by law or would result in receipt by the DIP Lender of interest at a criminal rate (as construed under the Criminal Code (Canada)) then, notwithstanding that provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by law or result in a receipt by the DIP Lender of interest at a criminal rate.
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FEES |
The Borrower shall pay a commitment fee in the amount of $198,000.00 (the “Fee”), representing 3% of the Maximum Amount, $68,100.00 of which shall be fully earned upon the execution of this Agreement and shall be paid from the Initial Advance and the balance of which shall be fully earned upon the issuance of the Restated Initial Order and paid from the first Additional Advance following the date of the Restated Initial Order. For certainty, the Fee shall be secured by the DIP Lender’s Charge. |
COSTS AND EXPENSES | The Borrowers shall pay, on a bi-weekly basis, all reasonable and documented costs and expenses of the DIP Lender, and all reasonable and documented fees, expenses and disbursements of outside counsel, appraisers, field auditors, and any financial consultant, related to or in connection with the CCAA Proceedings, including, without limitation, reasonable and documented costs and expenses incurred by the DIP Lender in connection with the enforcement of any of the rights and remedies available hereunder.
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DIP SECURITY | All Obligations of the Obligors under or in connection with the DIP Facility and any of the DIP Credit Documentation shall be secured by a Court Ordered Charge on all present and after- acquired personal and real, tangible or intangible property of the Obligors, in each case of any kind or nature whatsoever and wheresoever situated (the “DIP Lender’s Charge”) without the need for any further loan or security documentation or any filings or registrations in any public register or system.
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CONDITIONS PRECEDENT TO THE DISBURSEMENT OF INITIAL ADVANCE |
The DIP Lender’s obligation to make the Initial Advance hereunder is subject to, and conditional upon, the satisfaction of all of the following conditions precedent:
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1. | the Obligors’ application materials in connection with their application for the issuance of an initial order under the CCAA (in form and substance satisfactory to the DIP Lender, acting reasonably, the “Initial Order”) shall have been shared with the DIP Lender, and such application shall have been brought before the Court no later than July 25, 2023, on notice to such parties as are acceptable to the DIP Lender, acting reasonably; | |
2. | the form of Initial Order shall be in form and substance satisfactory to the DIP Lender, acting reasonably; | |
3. | KSV Restructuring Inc. shall have been appointed as the Monitor pursuant to the Initial Order; | |
4. | the Initial Order (i) shall have been issued by the Court authorizing and approving the Initial Advance under the DIP Facility and granting the DIP Lender’s Charge in respect of the Initial Advance, and (ii) shall be in full force and effect and shall have not been stayed, reversed, vacated, rescinded, modified or amended in any respect adversely affecting the DIP Lender, unless otherwise agreed by the DIP Lender, acting reasonably; | |
5. | except to the extent not permitted by the CCAA, the DIP Lender’s Charge shall have priority over all Liens granted by the Obligors against any of the undertakings, property or assets of the Obligors (collectively, the “Property”) except for an administrative charge on the Property in an aggregate amount not to exceed $500,000 under the Initial Order, which amount shall be increased to $1,250,000 under the Restated Initial Order (the “Administrative Charge”); and | |
6. | the Initial Cash Flow Projections shall be acceptable to the DIP Lender, in its reasonable discretion. |
CONDITIONS PRECEDENT TO THE DISBURSEMENT OF DIP ADVANCES (OTHER THAN THE INITIAL ADVANCE) | The DIP Lender’s obligation to make any Additional Advances hereunder is subject to, and conditional upon, the satisfaction of all of the following conditions precedent: |
1. | the Obligors’ application materials in connection with their application for the Restated Initial Order shall be satisfactory to the DIP Lender, acting reasonably, and such application shall be brought before the Court no later than August 4, 2023, on notice to such parties as are acceptable to the DIP Lender, acting reasonably; |
2. | an order amending and restating the Initial Order, in form and substance acceptable to the DIP Lender, acting reasonably, shall have been issued by the Court authorizing and approving the increase to the DIP Facility and granting the DIP Lender’s Charge (the “Restated Initial Order”) and the Restated Initial Order shall be in full force and effect and shall have not been stayed, reversed, vacated, rescinded, modified or amended in any respect adversely affecting the DIP Lender, unless otherwise agreed by the DIP Lender, acting reasonably; |
3. | the DIP Lender’s Charge shall have priority over all Liens granted by the Obligors against any of the undertaking, property or assets of the Obligors except for the Administrative Charge; |
4. | all amounts requested for a particular Additional Advance shall be consistent with the Updated Cash Flow Projections for the applicable period, or otherwise expressly agreed by the DIP Lender in advance; |
5. | the terms and conditions of the Sale and Investment Solicitation Process (the “SISP”), including the various relevant milestones of such SISP and an outside date for the completion of the SISP (the “SISP Milestones”) approved by the Court, shall be in a form and substance satisfactory to the Monitor, and the DIP Lender shall be satisfied, acting reasonably, with the terms of the SISP and the SISP Order; |
6. | the representations and warranties contained herein shall be true and correct; and |
7. | no Default or Event of Default shall have occurred and be continuing. | |
Each of the Obligors agrees to indemnify and hold harmless the DIP Lender, its officers, directors, employees, representatives, advisors, solicitors and agents (collectively, the “Indemnified Persons”) from and against any and all actions, lawsuits, proceedings (including any investigations or inquiries), claims, losses, damages, liabilities or expenses of any kind or nature whatsoever which may be incurred by or suited against or involve any of the Indemnified Persons as a result of, in connection with or in any way related to the DIP Facility, this Agreement, or the DIP Credit Documentation, except to the extent that such actions, lawsuits, proceedings, claims, losses, damages, liabilities or expenses result from the gross negligence or willful misconduct of such Indemnified Persons. |
REPRESENTATIONS AND WARRANTIES |
Each of the Obligors represents and warrants to the DIP Lender, upon which the DIP Lender relies in entering into this Agreement and the other DIP Credit Documentation, that: |
1. | The transactions contemplated by this Agreement and the other DIP Credit Documentation: |
a. | upon the granting of either the Initial Order or the Restated Initial Order, are within the powers of the Obligors; |
b. | have been duly authorized, executed and delivered by or on behalf of the Obligors; |
c. | upon the granting of either the Initial Order or the Restated Initial Order, constitute legal, valid and binding obligations of the Obligors; |
d. | upon the granting of either the Initial Order or the Restated Initial Order, do not require the consent or approval of, registration or filing with, or any other action by, any governmental authority, other than filings which may be made to register or otherwise record the DIP Lender’s Charge or any DIP Security granted pursuant to the DIP Credit Documentation; |
2. | the business operations of the Obligors have been and will continue to be conducted in compliance with all Applicable Laws of each jurisdiction in which each such business has been or is being carried on; |
3. | the Obligors obtained all licenses and permits required for the operation of their business, which licenses and permits remain, and after the date of the Initial Advance will remain, in full force and effect. No proceedings have been commenced to revoke or amend any of such licenses or permits and no notices advising of a breach or potential breach of the conditions of such licenses has been received; |
4. | except as reflected in the Cash Flow Projections and as disclosed in Schedule “C” hereto, and than those amounts the Obligors have made known to the DIP Lender to date, the Obligors have paid where due their obligations for payroll, employee source deductions, sales taxes, value added taxes and are not in arrears in respect of these obligations; | |
5. | the Obligors do not have any defined benefit pension plans or similar plans; and | |
6. | all factual information provided by or on behalf of the Borrowers to the DIP Lender for the purposes of or in connection with this Agreement or any transaction contemplated herein is, to the best of the Borrowers’ knowledge, true and accurate in all material respects on the date as of which such information is dated or certified and is not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not materially misleading at such time in light of the circumstances under which such information was provided. In particular, and without limiting the generality of the foregoing, to the best of the Borrowers’ knowledge, all information regarding the Borrowers’ corporate structure is true and complete, and all public fillings and financial reports are complete and true in all material respects as of the date thereof. | |
AFFIRMATIVE COVENANTS | Each of the Obligors covenants and agrees to do the following: |
1. | comply with the Cash Flow Projections, including making payments when scheduled to be made in accordance with the Cash Flow Projections, and their reporting and other obligations to deliver financial information to the DIP Lender hereunder; provided that, such reporting and financial information shall be prepared and delivered under the supervision of the Monitor; |
2. | allow the DIP Lender, its designated representatives and financial advisors full access to the books and records of the Obligors on reasonable notice and during normal business hours and cause management thereof to fully cooperate with any advisors to the DIP Lender; |
3. | use the proceeds of the DIP Facility only for the purposes set out herein; |
4. | comply with the provisions of the Court orders made in the CCAA Proceedings; |
5. | obtain the SISP Order no later than August 14, 2023; |
6. | comply with the SISP and SISP Milestones following approval thereof by the Court in the CCAA Proceedings pursuant to the SISP Order; |
7. | provide the DIP Lender with draft copies of all motions, applications, proposed orders or other material or documents that any of them intends to file within the CCAA Proceedings at least three (3) days prior to any service of such materials or, where it is not practically possible to do so at least three days prior to any such service, as soon as possible prior to such service; |
8. | maintain all licenses required for the operation of their business in good standing; |
9. | provide the DIP Lender with all correspondence between the Obligors and any governmental authority in respect of their cannabis licenses from and after the date of the Initial Order; |
10. | the Initial Order, the Restated Initial Order and any other Court orders which are being sought by the Borrower shall be shared with the DIP Lender; provided that any Court order that directly impacts the DIP Facility and the DIP Lender’s Charge shall be in a form satisfactory to the DIP Lender, acting reasonably, subject to any amendments that are required by the Court; |
11. | subject to any Court ordered limitations and appropriate confidentiality restrictions to the extent the DIP Lender participates in the SISP as a stalking horse purchaser or a bidder, use all reasonable efforts to keep the DIP Lender apprised on a timely basis of all developments with respect to the business and affairs of the Obligors and with respect to the SISP; |
12. | deliver to the DIP Lender by no later than 5:00 p.m. (Toronto time) on Tuesday of each week (or, if Tuesday is not a Business Day, the following Business Day), updated 13-week cash flow projections, in form and substance satisfactory to the DIP Lender, in its discretion, reflecting the projected cash requirements of the Borrowers on a rolling-basis (the “Updated Cash Flow Projections”); |
13. | concurrently with the weekly delivery of Updated Cash Flow Projections, provide a comparison to the previously delivered Updated Cash Flow Projections (or to the Initial Cash Flow Projections, if applicable) including applicable bank reconciliations; |
14. | maintain all insurance with respect to the Property in existence as of the date hereof; |
15. | forthwith notify the DIP Lender of any event or circumstance that, with the passage of time, may constitute an Event of Default; |
16. | forthwith notify the DIP Lender of the occurrence of any Event of Default, or of any event or circumstance that may constitute a material adverse change from the Cash Flow Projections; |
17. | duly and punctually pay or cause to be paid to the DIP Lender all principal and interest payable by it under this Agreement and under any other DIP Credit Documentation on the dates, at the places and in the amounts and manner set forth herein; |
18. | comply in all respects with all Applicable Laws; and |
19. | comply in all material respects with their obligations under the DIP Credit Documentation. | |
NEGATIVE COVENANTS | Each of the Obligors covenants and agrees not to do the following, other than with the prior written consent of the DIP Lender, which consent shall not be unreasonably withheld: | |
1. | sell, assign, transfer, lease or otherwise dispose of all or any part of its assets, tangible or intangible, outside the ordinary course of business, except for the disposition of any obsolete equipment or other assets or as permitted under the Initial Order or Restated Initial Order, or pursuant to the SISP Order; | |
2. | make any payment of principal or interest in respect of existing (pre-filing date) indebtedness except as contemplated by the Cash Flow Projections, or declare or pay any dividends; | |
3. | create or permit to exist indebtedness for borrowed money other than existing (pre-filing date) debt, debt contemplated by this DIP Facility and post-filing trade payables incurred in the ordinary course of business; | |
4. | create or permit to exist any Liens on any of the Property other than Permitted Liens; | |
5. | enter into or agree to enter into any investments (other than cash equivalents) or acquisitions of any kind, direct or indirect, in any business; | |
6. | assume or otherwise agree to be bound by any contingent liabilities or provide any guarantee or financial assistance to any Person; | |
7. | transfer, distribute, lend or otherwise provide any funds (whether arising from DIP Advances or otherwise) to any Affiliate unless such Affiliate is an Obligor; | |
8. | enter into any amalgamation, reorganization, liquidation, dissolution, winding-up, merger or other transaction or series of transactions whereby, directly or indirectly, all or any significant portion of the undertaking, property or assets of any Obligor would become the property of any other Person or Persons unless authorized by the DIP Lender; | |
9. | other than the Court Ordered Charges, seek or support a motion by another party to provide to a third party a charge upon any Property (including, without limitation, a critical supplier’s charge) without the prior consent of the DIP Lender; | |
10. | amend or seek to amend the Initial Order or the Restated Initial Order, or without the prior approval of the Monitor, the SISP; | |
11. | other than for cause, terminate the employment of any personnel required to maintain all of its cannabis licenses in good standing unless replaced in due course; | |
12. | terminate or repudiate any agreement with the DIP Lender, solely in its capacity as lender under the DIP Facility; | |
13. | seek or obtain any order from the Court that materially adversely affects the DIP Lender, except with the prior written consent of the DIP Lender; and | |
14. | other then the two leases disclosed to the DIP Lender, disclaim any lease or agreement pursuant to section 32 of the CCAA, which is material to the business and operations of the Borrowers. | |
EVENTS OF DEFAULT | The occurrence of any one or more of the following events shall constitute an event of default (“Event of Default”) under this Agreement: |
1. | failure of the Borrowers to pay principal or interest when due under this Agreement or any other DIP Credit Documentation; |
2. | any other breach by any Obligor in the observance or performance of any provision, covenant (affirmative or negative) or agreement contained in this Agreement, provided, that, in the case of a breach of any affirmative covenant, such breach remains unremedied for longer than three (3) Business Days following receipt of notice thereof; |
3. | the SISP Order has not been issued by the Court by August 14, 2023. |
4. | if the total cumulative disbursements and receipts pursuant to the Cash Flow Projections are: (i) at any time during the first two weeks of the CCAA Proceedings, greater than 20% of the cumulative budget confirmed in the applicable Cash Flow Projections; and (ii) thereafter, greater than 10% of the cumulative budget confirmed in the applicable Cash Flow Projections, in each case measured on a weekly basis; |
5. | (i) any order shall be entered reversing, amending, varying, supplementing, staying, vacating or otherwise modifying in any respect in a manner materially affecting the DIP Lender without the prior written consent of the DIP Lender, (ii) either the Initial Order or the Restated Initial Order shall cease to be in full force and effect in a manner that has a material adverse effect on the interests of the DIP Lender, or (iii) any Borrower shall fail to comply in any material respect that has an adverse effect on the interests of the DIP Lender with any order granted by the Court in the CCAA Proceedings; |
6. | this Agreement or any other DIP Credit Documentation shall cease to be effective or shall be contested by an Obligor; |
7. | any order is issued by the Court (or any other court of competent jurisdiction) that materially adversely affects the DIP Lender; |
8. | the CCAA Proceedings are terminated or converted to bankruptcy proceeding or any order is granted by the Court (or any court of competent jurisdiction) granting relief from the stay of proceedings during the CCAA Proceedings (as extended from time to time until the Maturity Date), unless agreed by the DIP Lender, acting reasonably; |
9. | any Plan is filed or sanctioned by the Court in a form and in substance that is not acceptable to the DIP Lender if such Plan does not either provide for the repayment of the obligations, in their entirety including compounded interest added to the principal, under the DIP Facility in full by the Maturity Date; |
10. | if any of the Borrower’s cannabis licenses are revoked or any Borrower fails to comply with a material condition required to keep such licenses in good standing and such license is not reinstated or such Borrower’s failure to comply with such material condition continues for a period of five (5) Business Days; | |
11. | any of the Obligors makes any material payments of any kind not permitted by this Agreement, the Cash Flow Projections or any order of the Court; or | |
12. | borrowings under the DIP Facility exceed the Maximum Amount. |
REMEDIES |
Upon the occurrence and continuance of an Event of Default, subject to the DIP Credit Documentation, the DIP Lender may, upon written notice to the Borrower and the Monitor: |
1. | terminate the DIP Facility; | |
2. | on prior written notice to the Obligors and the service list of no less than four (4) Business Days, apply to the Court for the appointment of an interim receiver or a receiver and manager of the Property or for the appointment of a trustee in bankruptcy of the Obligors; | |
3. | exercise the powers and rights of a secured party under any legislation; and | |
4. | exercise all such other rights and remedies under the DIP Credit Documentation and Orders of the Court in the CCAA Proceedings. |
DIP LENDER APPROVALS | All consents of the DIP Lender hereunder shall be in writing. Any consent, approval, instruction or other expression of the DIP Lender to be delivered in writing may be delivered by any written instrument, including by way of electronic mail. |
FURTHER ASSURANCES |
The Obligors shall at their expense, from time to time do, execute and deliver, or will cause to be done, executed and delivered, all such further acts, documents (including, without limitation, certificates, declarations, affidavits, reports and opinions) and things as the DIP Lender may reasonably request for the purpose of giving effect to this Agreement and the DIP Lender’s Charge, perfecting, protecting and maintaining the Liens created by the DIP Lender’s Charge or establishing compliance with the representations, warranties and conditions of this Agreement or any other DIP Credit Documentation. |
ENTIRE AGREEMENT | This Agreement, including the Schedules hereto and the DIP Credit Documentation, constitutes the entire agreement between the parties relating to the subject matter hereof. To the extent that there is any inconsistency between this Agreement and any of the other DIP Credit Documentation, this Agreement shall govern. Neither this Agreement nor any other DIP Credit Documentation, nor any terms hereof or thereof, may be amended, unless such amendment is in writing signed by the Obligors and the DIP Lender. |
AMENDMENTS, WAIVERS, ETC. | No waiver or delay on the part of the DIP Lender in exercising any right or privilege hereunder or under any other DIP Credit Documentation will operate as a waiver hereof or thereof unless made in writing and signed by an authorized officer of the DIP Lender. Any consent to be provided by the DIP Lender shall be granted or withheld solely in its capacity, and having regard to its interests, as DIP Lender. |
ASSIGNMENT | This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The Obligors may not assign their rights and obligations under this Agreement without the written consent of the DIP Lender. The DIP Lender’s rights and obligations under this Agreement are fully assignable, to an Affiliate of the DIP Lender without the consent of (but with prior notice to) the Obligors. In addition, the DIP Lender’s rights and obligations under this Agreement are assignable, with the consent of the Obligors, acting reasonably, before an Event of Default to any other entity, and are freely assignable, without the consent of the Obligors (but with prior notice to), after an Event of Default has occurred and is continuing. Each of the Obligors hereby consents to the disclosure of any confidential information in respect of the Borrower to any potential assignee provided such potential assignee agrees in writing to keep such information confidential. A copy of all notices delivered pursuant to this section shall be delivered promptly to the Monitor. |
SEVERABILITY | Any provision in any DIP Credit Documentation which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and thereof or affecting the validity or enforceability of such provision in any other jurisdiction. |
PRESS RELEASES |
The Borrowers shall not issue any press releases or other public disclosure, other than Court documents approved in the manner set out herein, naming the DIP Lender without its prior approval, acting reasonably, unless the Borrowers are required to do so by applicable securities laws or other Applicable Law. |
COUNTERPARTS AND FACSIMILE SIGNATURES | This Agreement may be executed in any number of counterparts and by facsimile or e-mail transmission, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same instrument. Any party may execute this Agreement by signing any counterpart of it. |
NOTICES | Any notice, request or other communication hereunder to any of the parties shall be in writing and be well and sufficiently given if delivered personally or sent by electronic mail to the attention of the person as set forth below: |
In the case of the DIP Lender:
With a copy to:
Gowling WLG (Canada) LLP 1 First Canadian Place 100 King Street West, Suite 1600 Toronto, ON M5X 1G5
Attention: Virginie Gauthier, Katherine Yurkovich Email: virginie.gauthier@gowlingwlg.com; kate.yurkovich@gowlingwlg.com
In the case of the Obligors:
With a copy to:
Aird & Berlis LLP Brookfield Place, 181 Bay Street, Suite 1800 Toronto, Canada M5J 2T9
Attention: Kyle Plunkett Email: kplunkett@airdberlis.com
In either case, with a copy to the Monitor:
KSV Restructuring Inc. 222 Bay Street, 13th Floor Toronto ON M5J 2W4
Attention: Noah Goldstein Email: ngoldstein@ksvadvisory.com
In either case, with a copy to the Monitor’s counsel:
Osler Hoskin & Harcourt LLP First Canadian Place, 100, 1 King St W Suite 6200, Toronto, ON M5X 1B8 |
Attention: Marc Wasserman Email : mwasserman@osler.com
| |
GOVERNING LAW AND JURISDICTION |
This Agreement shall be governed by, and construed in accordance with, the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the Obligors irrevocably submits to the non-exclusive courts of the Province of Ontario, waives any objections on the ground of venue or forum non conveniens or any similar grounds, and consents to service of process by mail or in any other manner permitted by relevant law. |
[REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS HEREOF, the parties hereby execute this Agreement as of the date first written above.
ALEAFIA HEALTH INC. | ||
By: | /s/ “Tricia Symmes” | |
Name: Tricia Symmes | ||
Title: CEO | ||
EMBLEM CANNABIS CORPORATION | ||
By: | /s/ “Tricia Symmes” | |
Name: Tricia Symmes | ||
Title: CEO | ||
ALEAFIA FARMS INC. | ||
By: | /s/ “Tricia Symmes” | |
Name: Tricia Symmes | ||
Title: CEO | ||
EMBLEM CORP. | ||
By: | /s/ “Tricia Symmes” | |
Name: Tricia Symmes | ||
Title: CEO | ||
CANABO MEDICAL CORPORATION | ||
By: | /s/ “Tricia Symmes” | |
Name: Tricia Symmes | ||
Title: CEO | ||
ALEAFIA INC. | ||
By: | /s/ “Tricia Symmes” | |
Name: Tricia Symmes | ||
Title: CEO |
EMBLEM REALTY LTD. | |
/s/ “Tricia Symmes” | |
Name: Tricia Symmes | |
Title: CEO |
GROWWISE HEALTH LIMITED. | ||
/s/ “Tricia Symmes” | ||
Name: | Name: Tricia Symmes | |
Title: | Title: CEO |
RED WHITE & BLOOM BRANDS INC. | |
/s/ “Eddie Mattei” | |
Name: Eddie Mattei | |
Title: CFO |
SCHEDULE “A”
Additional Definitions
“Affiliate” means, in respect of any Person at any date, (a) any corporation, company, limited liability company, association, joint venture or other business entity of which securities, membership interests or other ownership interests representing fifty percent (50%) or more of the voting power of all equity interests are owned or held, directly or indirectly, by such Person, (b) any partnership, limited liability company or joint venture wherein the general partner, managing partner or operator is, directly or indirectly, such Person, or (c) any other Person that is otherwise directly or indirectly controlled by such Person.
“Applicable Laws” means all federal, provincial, municipal and local laws, statutes, regulations, codes, acts, permits, licenses, ordinances, orders, by-laws, guidelines, notices, protocols, policies, directions and rules and regulations, including those of any governmental or other public authority, which may now, or at any time hereafter, govern, be applicable to or enforceable against or in respect of the Obligors, the operation of their business or their property, as the case maybe, including Cannabis Laws.
“Business Day” means a day on which banks in Toronto, Ontario are open for business.
“Cannabis Laws” means the Cannabis Licence Act, 2018, S.O. 2018, c.12, Sched. 2, the Cannabis Act, S.C. 2018, c. 16 (Canada), the Cannabis Control Act, 2017, S.O. 2017, c. 26, Schedule 1 (Ontario), and any other applicable governing legislation and the regulations thereunder, all as may be amended, supplemented or replaced from time to time and those which regulate the sale or distribution of cannabis (in various forms), cannabinoid product or paraphernalia commonly associated with cannabis and/or related cannabinoid products.
“Court Ordered Charges” means the Administrative Charge, the Directors’ Charge and the DIP Lender’s Charge.
“Default” means any Event of Default or any condition or event which, after notice or lapse of time or both, would constitute an Event of Default.
“DIP Credit Documentation” means this Agreement, the orders of the Court approving it and any other definitive documentation in respect of the DIP Facility that are in form and substance satisfactory to the DIP Lender.
“DIP Security” means the contractual security and contractual hypothecary documents granted by the Borrower providing for a security interest/hypothec in and lien on all now- owned and hereafter-acquired assets and property of the Borrower, real and personal, tangible or intangible and all proceeds therefrom, but excluding (i) such assets, if any, as the DIP Lender in its discretion determines to be immaterial or to be assets for which the cost and other burdens of establishing and perfecting a security interest outweigh the benefits of establishing and perfecting a security interest, and (ii) other exceptions to be mutually agreed.
“Directors’ Charge” means a super-priority Court-ordered charge against the assets of the Obligors securing the indemnity granted by the Obligors to their respective directors and officers in an amount not to exceed $835,000 under the Initial Order, which amount is not to exceed $2,850,000 under the Restated Initial Order.
“Legal Fees” means all reasonable and documented legal fees that the DIP Lender will have to pay to its legal counsel in connection with any and all tasks related to this Agreement, the orders of the Court, the DIP Facility or the DIP Credit Documentation.
“Liens” means all mortgages, pledges, charges, encumbrances, hypothecs, liens and security interests of any kind or nature whatsoever.
“Monitor” means KSV Restructuring Inc.
“Obligors” means the Borrower and the Guarantors.
“Permitted Liens” means (i) the Court Ordered Charges; (ii) the liens registered against the Obligors in the Provinces of Ontario, British Columbia, Alberta, Manitoba and Saskatchewan as more particularly described in the search summaries attached to the Affidavit of Patricia Symmes-Rizakos sworn on July 24, 2023 in connection with the CCAA Proceedings, and (iii) liens, if any, in respect of amounts payable by an Obligor for wages, vacation pay, deductions, sales tax, excise tax, tax payable pursuant to Part IX of the Excise Tax Act (Canada), income tax and workers compensation claims.
“Person” means an individual, partnership, corporation (including a business trust), joint venture, limited liability company or other entity, or governmental authority.
“Plan” means the implementation of a plan of compromise or arrangement within the CCAA proceedings which has been approved by the requisite majorities of the Borrower’s creditors and by order entered by the Court and by the DIP Lender.
“SISP” means the Court-supervised sales and investment solicitation process to be undertaken by the Borrower and the Guarantors pursuant to the SISP Order.
“SISP Order” means an order of the Court approving the SISP in respect of the assets, undertakings and properties of the Obligors, satisfactory to the DIP Lender, acting reasonably.
SCHEDULE “B”
Initial Cash Flow Projections
(see attached)
SCHEDULE “C”
Outstanding Obligations for Payroll, Employee Source Deductions, Sales Taxes, Value Added Taxes
• As at June 30, 2023, the Obligors had approximately $9.3 million in excise tax arrears (net of deposits) and approximately $2.5 million in sales tax arrears. The Obligors are current on payroll obligations and payroll source deductions.
Exhibit 99.4
STALKING HORSE ASSET PURCHASE AND SUBSCRIPTION AGREEMENT
ALEAFIA HEALTH INC.
-AND-
EMBLEM CANNABIS CORPORATION
-AND-
CANABO MEDICAL CORPORATION
-AND-
ALEAFIA FARMS INC.
-AND-
ALEAFIA RETAIL INC.
AS COMPANIES
-AND-
RED WHITE & BLOOM BRANDS INC.
-AND-
RWB (PV) CANADA INC.
AS PURCHASER
TABLE OF CONTENTS
Page | |||
Article 1 INTERPRETATION | 2 | ||
1.1 | Definitions | 2 | |
1.2 | Statutes | 12 | |
1.3 | Headings, Table of Contents, etc | 12 | |
1.4 | Gender and Number | 12 | |
1.5 | Currency | 12 | |
1.6 | Certain Phrases | 12 | |
1.7 | Invalidity of Provisions | 12 | |
1.8 | Entire Agreement | 13 | |
1.9 | Waiver, Amendment | 13 | |
1.10 | Governing Law; Jurisdiction and Venue | 13 | |
1.11 | Incorporation of Schedules and Exhibits | 13 | |
1.12 | Accounting Terms | 13 | |
1.13 | Non-Business Days | 14 | |
1.14 | Computation of Time Periods | 14 | |
Article 2 subscription and asset purchase | 14 | ||
2.1 | Agreement to Subscribe for and Issue Purchased Shares | 14 | |
2.2 | Agreement to Purchase the Purchased IP | 15 | |
2.3 | Excluded Assets | 15 | |
2.4 | Retained Liabilities | 16 | |
2.5 | Excluded Liabilities | 16 | |
2.6 | Transfer of Excluded Liabilities to Residual Co | 16 | |
2.7 | Transfer of Excluded Assets to Residual Co | 17 | |
2.8 | Pre-Closing and Closing Reorganization | 17 | |
Article 3 PURCHASE PRICE AND RELATED MATTERS | 17 | ||
3.1 | Purchase Price | 17 | |
3.2 | Satisfaction of Purchase Price | 18 | |
3.3 | Taxes | 18 | |
Article 4 REPRESENTATIONS AND WARRANTIES OF COMPANIES AND ALEAFIA HEALTH | 19 |
4.1 | Due Authorization and Enforceability of Obligations 19 | |
4.2 | Existence and Good Standing 19 | |
4.3 | Absence of Conflicts 19 |
-i-
TABLE OF CONTENTS
(continued)
Page | |||
4.4 | Approvals and Consents | 19 | |
4.5 | No Actions | 20 | |
4.6 | Subsidiaries | 20 | |
4.7 | Tax | 20 | |
Article 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER | 20 | ||
5.1 | Due Authorization and Enforceability of Obligations | 20 | |
5.2 | Existence and Good Standing | 21 | |
5.3 | Absence of Conflicts | 21 | |
5.4 | Approvals and Consents | 21 | |
5.5 | No Actions | 21 | |
5.6 | Credit Bid and Cash Consideration; Availability of Funds | 21 | |
5.7 | Residence | 21 | |
Article 6 AS IS, WHERE IS | 22 | ||
Article 7 CONDITIONS | 22 | ||
7.1 | Conditions for the Benefit of the Purchaser and Companies | 22 | |
7.2 | Conditions for the Benefit of the Purchaser | 23 | |
7.3 | Conditions for the Benefit of Companies | 25 | |
Article 8 | 25 | ||
GUARANTEE | 25 | ||
Article 9 ADDITIONAL AGREEMENTS OF THE PARTIES | 27 | ||
9.1 | Expense Reimbursement | 27 | |
9.2 | Access to Information and Properties | 27 | |
9.3 | Regulatory Approvals and Consents | 28 | |
9.4 | Covenants Relating to this Agreement | 29 | |
9.5 | Tax Matters | 31 | |
9.6 | Employee Matters | 32 | |
9.7 | Administrative Expense Amount | 33 | |
Article 10 INSOLVENCY PROVISIONS | 34 | ||
10.1 | Court Orders and Related Matters | 34 | |
Article 11 TERMINATION | 35 | ||
11.1 | Termination | 35 | |
11.2 | Effect of Termination | 36 |
-ii-
TABLE OF CONTENTS
(continued)
Article 12 CLOSING | 36 | ||
12.1 | Location and Time of the Closing | 36 | |
12.2 | Companies’ Deliveries at Closing | 36 | |
12.3 | Purchaser’s Deliveries at Closing | 37 | |
12.4 | Monitor | 38 | |
12.5 | Simultaneous Transactions | 38 | |
12.6 | Further Assurances | 38 | |
Article 13 GENERAL MATTERS | 38 | ||
13.1 | Confidentiality | 38 | |
13.2 | Public Notices | 39 | |
13.3 | Injunctive Relief | 39 | |
13.4 | Survival | 40 | |
13.5 | Non-Recourse | 40 | |
13.6 | Assignment; Binding Effect | 40 | |
13.7 | Notices | 41 | |
13.8 | Counterparts; Electronic Signatures | 42 |
Schedule 1.1(a) Permitted Encumbrances | 1 |
Schedule 1.1(b) INTELLECTUAL PROPERTY | 1 |
Schedule 1.1(c) Sale and Investment Solicitation Process | 1 |
Schedule 2.3 Excluded Assets | 1 |
Schedule 2.3(c)(d) Excluded Contracts and Excluded Leases | 1 |
Schedule 2.4 Retained Liabilities | 1 |
Schedule 2.5 Excluded Liabilities | 1 |
Schedule 2.8(b) Implementation Steps | 1 |
Schedule 4.6 Subsidiaries | 1 |
Schedule 7.1(d) Transaction Regulatory Approvals | 1 |
-iii-
THIS STALKING HORSE ASSET PURCHASE AND SUBSCRIPTION AGREEMENT is made as of August 10, 2023
BETWEEN:
ALEAFIA HEALTH INC. (“Aleafia Health”)
-and-
EMBLEM CANNABIS CORPORATION (“ECC”)
-and-
CANABO MEDICAL CORPORATION (“Canabo”)
-and-
ALEAFIA FARMS INC. (“Aleafia Farms”),
-and-
ALEAFIA RETAIL INC. (“Aleafia Retail”, and collectively with ECC, Canabo and Aleafia Farms, the “Companies”)
-and-
RED WHITE & BLOOM BRANDS INC. (“RWB”),
-and-
RWB (PV) CANADA INC. (“Purchaser”)
RECITALS:
A. | Aleafia Health, through certain of its wholly-owned subsidiaries, is a federally licensed Canadian cannabis company, operating pursuant to the Cannabis Act (Canada) and applicable provincial and municipal legislation in Ontario, Alberta, British Columbia, Saskatchewan and Manitoba, as well as providing virtual health and wellness services across Canada through a virtual cannabis clinic (the “Business”). |
B. | On July 25, 2023, the Applicants (as hereinafter defined) commenced proceedings under the CCAA (as hereinafter defined) before the Ontario Superior Court of Justice (Commercial List) (the “CCAA Court”) to, among other things, seek creditor protection for, and certain relief in respect of, the Applicants (as hereinafter defined). |
C. | The Applicants plan to obtain an order (the “SISP Order”) from the CCAA Court approving, among other things, the SISP (as hereinafter defined). |
D. | Pursuant to the SISP, the Purchaser has been selected as the stalking horse bidder and as such, the Purchaser has agreed to (i) acquire certain assets from Aleafia Health, and (ii) subscribe for, and each of the Companies have agreed to issue, the Purchased Shares on and pursuant to the terms set forth herein if Purchaser becomes the successful bidder pursuant to the SISP. |
-2-
NOW THEREFORE, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 | Definitions |
In this Agreement,
“126” means 1260356 Ontario Limited, a corporation duly constituted under the laws of the Province of Ontario.
“126 Loan Amount” means cash in an amount sufficient to satisfy the outstanding obligations of the Applicants to 126 pursuant to the 126 Mortgage in the approximate amount of $5,444,106 as of July 31, 2023.
“126 Mortgage” means that certain mortgage/charge of land registered against title to real property owned by Aleafia Farms and municipally known as 2560 Regional Road 19, Scugog, Ontario in favour of 126 pursuant to Instrument No. DR2098410 on February 8, 2022. For greater certainty, “126 Mortgage” does not include any other security granted by any Applicant to 126, all of which shall form part of the Excluded Liabilities.
“Administration Charge” has the meaning given to it in the Initial Order.
“Administrative Expense Amount” means cash in the amount of $400,000, which shall be paid to the Monitor on the Closing Date and held by the Monitor, for the benefit of Persons entitled to be paid the Administrative Expense Costs, subject to the terms hereof.
“Administrative Expense Costs” means the reasonable and documented costs and expenses for services performed by the Monitor and its legal counsel after the Closing Date in connection with the CCAA Proceedings, the administration of such proceedings to their conclusion and this Agreement, including any bankruptcy of the remaining Applicants, to the extent such amount has not been pre-funded under the DIP Credit Facility Term Sheet prior to the Closing Date.
“Affiliate” means, with respect to any specified Person, any other Person which, directly or indirectly, through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person (for the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise). For greater certainty, an Affiliate of a Person shall include such Person’s investment funds and managed accounts and any funds managed or directed by the same investment advisor.
“Agreement” means this stalking horse subscription agreement and all attachments and Exhibits, in each case as the same may be supplemented, amended, restated or replaced from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this stalking horse subscription agreement and all attached Schedules and
-3-
Exhibits, and unless otherwise indicated, references to Articles, Sections, Schedules and Exhibits are to Articles, Sections, Schedules and Exhibits in this stalking horse subscription agreement.
“Aleafia” means Aleafia Inc., a corporation duly constituted under the laws of the Province of Ontario.
“Aleafia Brands” means Aleafia Brands Inc., a corporation duly constituted under the laws of the Province of Ontario.
“Aleafia Farms” means Aleafia Farms Inc. a corporation duly constituted under the laws of the Province of Ontario.
“Aleafia Farms Purchased Shares” has the meaning given to such term in Section 2.1(c).
“Aleafia Health” means Aleafia Health Inc., a corporation duly constituted under the laws of the Province of Ontario.
“Aleafia Retail” means Aleafia Retail Inc., a corporation duly constituted under the laws of the Province of Ontario.
“Aleafia Retail Purchased Shares” has the meaning given to such term in Section 2.1(d).
“Applicable Law” means any transnational, domestic or foreign, federal, provincial, territorial, state, local or municipal (or any subdivision of any of them) law (including common law and civil law), statute, ordinance, rule, regulation, restriction, limit, by-law (zoning or otherwise), judgment, order, direction or any consent, exemption, Transaction Regulatory Approval, or any other legal requirements of, or agreements with, any Governmental Authority, that applies in whole or in part to the transactions contemplated by this Agreement, the members of the Applicants, the Purchaser, the Business, or any of the Purchased Shares, the Purchased IP or the Retained Liabilities.
“Applicants” means, collectively, Aleafia Health, Emblem, ECC, Emblem Realty, Growwise, Canabo, Aleafia, Aleafia Farms, Aleafia Brands, Aleafia Retail, 2672533 Ontario Inc., and 2676063 Ontario Inc., and from and after the time Residual Co. becomes an applicant under the Initial Order, “Applicants” shall include Residual Co.
“Approval and Vesting Order” means an order of the CCAA Court in a form to be mutually agreed upon by the Purchaser and the Applicants, each acting reasonably.
“Articles of Amendment” means, to the extent required, articles of amendment or reorganization in respect of each of the Companies’ authorized and issued capital to create a new class of shares of each such entity, as applicable, and effecting such other changes to the articles of each of the Companies, as applicable, in order to consummate the transactions pursuant to this Agreement, such articles of amendment to be in form and substance satisfactory to the Purchaser, acting reasonably.
“Back-up Bid” has the meaning given to such term in the SISP.
“Business” has the meaning given to such term in Recital A.
-4-
“Business Day” means any day, other than a Saturday or Sunday, on which the principal commercial banks in Toronto, Ontario are open for commercial banking business during normal banking hours.
“Canabo” means Canabo Medical Corporation, a corporation duly constituted under the federal laws of Canada.
“Canabo Purchased Shares” has the meaning given to such term in Section 2.1(b).
“Cash Consideration” has the meaning given to such term in Section 3.1(e).
“Causes of Action” means any action, claim, cross claim, third party claim, damage, judgment, cause of action, controversy, demand, right, action, suit, obligation, liability, debt, account, defense, offset, power, privilege, license, lien, indemnity, interest, guaranty, or franchise of any kind or character whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, contingent or non-contingent, liquidated or unliquidated, disputed or undisputed, secured or unsecured, assertable directly or derivatively, matured or unmatured, suspected or unsuspected, in contract or in tort, at law or in equity, or pursuant to any other theory of law or otherwise, of the Purchased Entities against any Person, in each case based in whole or in part on any act or omission, transaction, dealing or other occurrence existing or taking place on or prior to the Closing Time (which Causes of Action for the avoidance of doubt shall be retained by the applicable Purchased Entity on Closing).
“CCAA” means the Companies’ Creditors Arrangement Act (Canada), as amended.
“CCAA Charge Amount” means cash in an amount sufficient to satisfy the amounts owing in respect of obligations secured by the CCAA Charges (without duplication to amounts satisfied as Administrative Expense Costs or by the Priority Payment Amount).
“CCAA Charges” means the Administration Charge and the Directors’ Charge.
“CCAA Court” has the meaning given to such term in Recital B.
“CCAA Proceedings” means the proceedings commenced under the CCAA by the Applicants pursuant to the Initial Order.
“CCAA Process Expense Amount” means cash in an amount of the Administrative Expense Amount and the CCAA Charge Amount.
“Claims” means any and all demands, claims, liabilities, actions, causes of action, counterclaims, expenses, costs, damages, losses, suits, debts, sums of money, refunds, accounts, indebtedness, rights of recovery, rights of set-off, rights of recoupment and liens of whatever nature (whether direct or indirect, absolute or contingent, asserted or unasserted, secured or unsecured, matured or not yet matured due or to become due, accrued or unaccrued or liquidated or unliquidated) and including all costs, fees and expenses relating thereto.
“Closing” means the completion of the purchase of the Purchased Shares and Purchased IP and the transactions in accordance with the provisions of this Agreement.
“Closing Date” means a date no later than five (5) Business Days after the conditions set forth in Article 7 have been satisfied or waived, other than the conditions set forth in Article 7 that by their terms are to be satisfied or waived at the Closing (or such other date agreed to by the Parties in writing); provided that, if there is to be a Closing hereunder, then the Closing Date shall be no later than the Outside Date.
-5-
“Closing Documents” means all contracts, agreements, certificates and instruments required by this Agreement to be delivered at or before the Closing.
“Closing Time” means 10:00 a.m. (Toronto time) on the Closing Date or such other time on the Closing Date as the Parties agree in writing that the Closing Time shall take place.
“Companies” means, collectively, ECC, Canabo, Aleafia Farms and Aleafia Retail.
“Credit Bid Consideration” has the meaning given to such term in Section 3.1(b).
“Credit Bid Releases” means a full and final release of all Applicants of their respective obligations under the Senior Loan Agreement and the DIP Facility Term Sheet, which shall be in form and substance satisfactory to the Applicants and the Monitor, each acting reasonably.
“DIP Facility” means the credit facility in the maximum principal amount of $6,600,000 made available by RWB to the Applicants pursuant to the DIP Facility Term Sheet.
“DIP Facility Term Sheet” means the Amended and Restated DIP Facility Term Sheet effective as of July 24, 2023 among Aleafia Health, ECC and Aleafia Farms, as borrowers, and all other Applicant entities, as guarantors, and RWB as DIP lender, as such agreement may be amended, restated, supplemented and/or otherwise modified from time to time in accordance with the terms thereof.
“Directors Charge” has the meaning given to it in the Initial Order.
“EA” means the Excise Act, 2001 (Canada).
“ECC” means Emblem Cannabis Corporation, a corporation duly constituted under the federal laws of Canada.
“ECC Purchased Shares” has the meaning given to such term in Section 2.1(a).
“Emblem” means Emblem Corp., a corporation duly constituted under the federal laws of Canada.
“Emblem Realty” means Emblem Realty Ltd., a corporation duly constituted under the laws of the Province of Ontario.
“Encumbrance” means any security interest (whether contractual, statutory or otherwise), lien, prior claim, charge, hypothec, reservation of ownership, pledge, encumbrance, mortgage, trust (including any statutory, deemed or constructive trust), option or adverse claim or encumbrance of any nature or kind.
“Environment” means the ambient air, all layers of the atmosphere, all water including surface water and underground water, all land, all living organisms and the interacting natural systems that include components of air, land, water, living organisms and organic and inorganic matter, and includes indoor spaces.
“Environmental” means of, relating to, or pertaining to the Environment.
-6-
“Environmental Disclosure” has the meaning given to such term in Section 9.4(i)
“Environmental Investigations” has the meaning given to such term in Section 9.2(d).
“Equity Interests” means any capital share, capital stock, partnership, membership, joint venture or other ownership or equity interest, participation or securities (whether voting or nonvoting, whether preferred, common or otherwise, and including share appreciation, contingent interest or similar rights) of a Person.
“ETA” means Part IX of the Excise Tax Act (Canada).
“Excluded Assets” has the meaning given to such term in Section 2.3.
“Excluded Contracts” means contracts of the Purchased Entities as specified on Schedule 2.3(c)(d), as such schedule may be supplemented or modified in accordance with Section 2.3(f).
“Excluded Leases” means those leases of the Purchased Entities as specified in Schedule 2.3(c)(d), as such schedule may be supplemented or modified in accordance with Section 2.3(f).
“Excluded Liabilities” has the meaning given to such term in Section 2.5.
“Expense Reimbursement” has the meaning given to such term in Section 9.1.
“Filing Date” means July 25, 2023.
“Final Order” means with respect to any order or judgment of the CCAA Court, or any other court of competent jurisdiction, with respect to the subject matter addressed in the CCAA Proceedings or the docket of any court of competent jurisdiction, that such order or judgement has not been vacated, set aside, reversed, stayed, modified or amended, and as to which the applicable periods to appeal, or seek certiorari or move for a new trial, reargument, or rehearing has expired and no appeal, leave to appeal, or petition for certiorari or other proceedings for a new trial, reargument, or rehearing has been timely taken or filed, or as to which any appeal has been taken or any petition for certiorari or leave to appeal that has been timely filed has been withdrawn or resolved in a manner acceptable to the Companies and the Purchaser, each acting reasonably, by the highest court to which the order or judgment was appealed or from which leave to appeal or certiorari was sought or the new trial, reargument, or rehearing shall have been denied, resulted in no modification of such order or has otherwise been dismissed with prejudice.
“Fundamental Representations and Warranties of Companies” means the representations and warranties of each of the Companies and Aleafia Health included in Sections 4.1 [Due Authorization and Enforceability of Obligations], 4.2 [Existence and Good Standing] and 4.3 [Absence of Conflicts].
“GAAP” means generally accepted accounting principles as set out in the CPA Canada Handbook – Accounting for an entity that prepares its financial statements in accordance with International Financial Reporting Standards, at the relevant time, applied on a consistent basis.
“Governmental Authority” means any government, regulatory authority, governmental department, agency, commission, bureau, official, minister, Crown corporation, court, board, tribunal or dispute settlement panel or other law, rule or regulation-making organization or entity (i) having or purporting to have jurisdiction on behalf of any nation, province, territory or state or any other geographic or political subdivision of any of them, or (ii) exercising, or entitled or purporting to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power.
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“Grimsby Property” means the lands and premises municipally known as 378 South Service Road, Grimsby, Ontario and legally described under PIN 46033-0368 (LT) as 1STLY: PT LT 1 CON 1 NORTH GRIMSBY DESIGNATED AS PT 2 30R13028 & PT 18 30R13499; 2NDLY PT LT A EAST GORE NORTH GRIMSBY DESIGNATED AS PTS 4, 5, 8, 9, 10 30R13028; S/T RO437966; SUBJECT TO AN EASEMENT IN GROSS OVER PART LOT A, EAST GORE, NORTH GRIMSBY, PART 4, 30R13028 AS IN NR529869; TOWN OF GRIMSBY
“Growwise” means Growwise Health Limited, a corporation duly constituted under the laws of the Province of Ontario.
“GST/HST” means all goods and services tax and harmonized sales tax imposed under the ETA.
“Guaranteed Obligations” has the meaning given to such term in Article 8(a).
“Implementation Steps” has the meaning given to such term in Section 2.8(b).
“Initial Order” means the Amended and Restated Initial Order dated August 4, 2023 granted by the CCAA Court pursuant to the CCAA, as may be further amended and restated from time to time.
“Intercompany Claim” means any claim that may be asserted against any of the Purchased Entities by or on behalf of any other Purchased Entity.
“IP Assignment Agreement” means an intellectual property assignment agreement to be entered into between Aleafia Health and the Purchaser, assigning all of Aleafia Health’s right, title and interest throughout the world in and to the Purchased IP to the Purchaser.
“Licences” means, collectively, the following:
(a) | ECC: |
(i) | On August 26, 2015, Health Canada issued producer’s Licence number 10-MM0167 to ECC (the “Paris Licence”), re-issued under LIC- 0CNIN0V9QK in November of 2018, as was later amended, expanded and re-authorized. The Paris Licence has a current term ending on January 20, 2028; |
(ii) | On April 29, 2021, Health Canada issued a research license number under Licence number LIC-28X6T94W2Y (the “Paris Research Licence”) to ECC. The Paris Research Licence has a current term ending on April 7, 2026; |
(iii) | On February 12, 2021, Health Canada issued Licence LIC-CTHF6SVA0C to ECC to operate the distribution centre, which expires on February 12, 2024 and authorizes cannabis storage and the fulfilment of orders to other Licence holders, medical patients and adult-use provincial wholesalers; |
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(iv) | Effective October 17, 2022, Canada Revenue Agency renewed Licence numbers 85070 8975 RD0002 and 85070 8975 RD0005 held by ECC, which are currently set to expire on October 16, 2023. |
(b) | Aleafia Farms: |
(i) | On October 13, 2017, Health Canada issued Licence number LIC- GYAJNCME6L to Aleafia Farms (the “Scugog Licence”), as was variously renewed, re-authorized and amended. The Scugog Licence has a current term ending on October 9, 2023; |
(ii) | On March 13, 2020, Health Canada issued Licence LIC-VTQAQTTMOL to Aleafia Farms, which expires on June 13, 2024; |
(iii) | Effective October 17, 2022, Canada Revenue Agency renewed Licence number 88009 9247 held by Aleafia Farms, which is currently set to expire October 16, 2024; and |
(c) | Any and all other permits, licences, authorizations, consents, concessions, exemptions, leases, grants, permits, rights, privileges, approvals or other evidence of authority from any Governmental Authority and related to the Business and that has been issued to, granted to, conferred upon, or otherwise created for, any Purchased Entity, relating to authorizations or otherwise to plant, grow, cultivate, extract, produce, process, store, destroy, sell, provide, ship, deliver, transport and/or distribute cannabis under Applicable Law. |
“Material Adverse Effect” means any change, effect, event, occurrence, state of facts or development that has had a material adverse effect on: (i) the Business, assets, liabilities, financial conditions or results of operations of the Purchased Entities, taken as a whole; or (ii) prevents the ability of any of the Purchased Entities to perform their obligations under, or to consummate the transactions contemplated by, this Agreement, but excluding any such change, effect, event, occurrence, state of facts or development attributable to or arising from: (A) general economic or business conditions; (B) Canada, the U.S. or foreign economies, or financial, banking or securities markets in general, or other general business, banking, financial or economic conditions (including: (I) any disruption in any of the foregoing markets; (II) any change in the currency exchange rates; or (III) any decline or rise in the price of any security, commodity, contract or index); (C) acts of God or other calamities, pandemics (including COVID-19 and any Governmental Authorities response thereto), national or international political or social conditions, including the engagement and/or escalation by the U.S. or Canada in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the U.S. or Canada or any of their territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the U.S. or Canada; (D) the identity of the Purchaser or its Affiliates; (E) conditions affecting generally the industry in which any of the Purchased Entities participate; (F) the public announcement of, entry into or pendency of, actions required or contemplated by or performance of obligations under, this Agreement or the transactions contemplated by this Agreement, or the identity of the Parties; (G) changes in Applicable Laws or the interpretation thereof; (H) any change in GAAP or other accounting requirements or principles; (I) national or international political, labor or social conditions; (J) the failure of the Purchased Entities to meet or achieve the results set forth in any internal projections (but not the underlying facts giving rise to such failure unless such facts are otherwise excluded pursuant to the clauses contained in this definition); or (K) any change resulting from compliance with the terms of, or any actions taken (or not taken) by any Party pursuant to or in accordance with, this Agreement; provided that the exceptions set forth in clauses (A), (B), (C), (E), (G), (H) or (I) shall not apply to the extent that such event is disproportionately adverse to the Purchased Entities, taken as a whole, as compared to other companies in the industries in which the Purchased Entities operate.
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“Monitor” means KSV Restructuring Inc., as Court-appointed monitor of the Applicants in the CCAA Proceedings, and not in its personal or corporate capacity.
“Monitor’s Certificate” means the certificate delivered to the Purchaser, and filed with the CCAA Court, by the Monitor certifying that the Monitor has received written confirmation in form and substance satisfactory to the Monitor, in its sole discretion, from each of the Companies, Aleafia Health and the Purchaser that all conditions to Closing have been satisfied or waived by the applicable Parties and the transactions contemplated by this Agreement have been completed.
“Order” means any order of the Court made in the CCAA Proceedings, or any order, directive, judgment, decree, injunction, decision, ruling, award or writ of any Governmental Authority.
“Outside Date” has the meaning given to such term in Section 11.1(c).
“Paris Property” means the lands and premises municipally known as 20 Woodslee Avenue, Paris, Ontario and legally described under PIN 23040-0546 (LT) as FIRSTLY: PART LOT 30 CONCESSION 2 SOUTH DUMFRIES PARTS 1 2 AND 3 2R5663; SECONDLY: PART LOT 30 CONCESSION 2 SOUTH DUMFRIES PARTS 1 AND 2 2R7264; COUNTY OF BRANT
“Parties” means the Companies, Aleafia Health and the Purchaser collectively, and “Party” means any of the Companies, Aleafia Health or the Purchaser, as the context requires.
“Permitted Encumbrances” means the Encumbrances listed in Schedule 1.1(a) .
“Person” includes an individual, partnership, firm, joint venture, venture capital fund, limited liability company, unlimited liability company, association, trust, entity, corporation, unincorporated association, or organization, syndicate, committee, court appointed representative, the government of a country or any political subdivision thereof, or any agency, board, tribunal, commission, bureau, instrumentality, or department of such government or political subdivision, or any other entity, howsoever designated or constituted, including any Taxing Authority, and the trustees, executors, administrators, or other legal representatives of an individual, and for greater certainty includes any Governmental Authority.
“Post-Closing Straddle Tax Period” has the meaning given to such term in Section 9.5(c).
“Pre-Closing Straddle Tax Period” has the meaning given to such term in Section 9.5(c).
“Priority Payment Amount” means an amount equal to those priority payments prescribed under subsections 6(3), 6(5)(a) and 6(6) of the CCAA.
“Property” has the meaning given to such term in Schedule 1.1(a).
“Purchase Price” has the meaning given to such term in Section 3.1.
“Purchased Entities” means ECC, Growwise, Canabo, Aleafia Retail and Aleafia Farms, and “Purchased Entity” means any one of them.
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“Purchased IP” means (i) any and all of Aleafia Health’s registered or unregistered proprietary rights, including rights licensed or leased by Aleafia Health, anywhere in the world provided under patent law, copyright law, trademark law, design patent or industrial design law, trade secret law, plant breeders rights law, or any other statutory provision or common law principle that provides a right in either intellectual property or the expression or use of intellectual property, including, without limitation, patents and inventions, copyrights and works of authorship, whether or not copyrightable, and the trademarks, however depicted, listed in Schedule 1.1(b) hereto, all registrations and applications and all issuances, extensions and renewals thereof, all goodwill and reputation associated with the foregoing, any and all legal actions and rights and remedies at law or in equity for past infringements of the foregoing, and all rights to file for, obtain and maintain registrations for the foregoing; and (ii) any and all domain names registered on behalf of Aleafia Health including the domains listed in Schedule 1.1(b) hereto.
“Purchased Shares” has the meaning given to such term in Section 2.1(b).
“Purchaser” has the meaning given to such term in the preamble to this Agreement.
“Residual Co.” means a company to be formed by an Applicant, or one of the Applicants, that is not a Purchased Entity, such entity in form satisfactory to the Purchaser, acting reasonably, prior to the Closing; provided, that (i) no such entity shall be a flow through entity for Canadian purposes unless approved by the Purchaser; and (ii) if required by the Purchaser or the Applicants, each acting reasonably, or the Monitor, in order to effect the transactions contemplated herein a tax efficient manner mutually agreed upon by the Parties, or allow the Monitor to better administer the CCAA Proceedings following the Closing Date, there may need to be more than one “Residual Co.”, and, in that case, the term “Residual Co.” shall refer to any or all such entities, as the context requires.
“Restructuring Period Claim” means any Claim owed by any Applicant arising out of the restructuring, disclaimer, resiliation, termination or breach by such Applicant on or after the Filing Date, of any contract, lease or other agreement, whether written or oral.
“Restructuring Period D&O Claim” means any Claim against one or more of the directors and/or officers of the Applicants, arising after the Filing Date, whether or not such right or Claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, unsecured, perfected, unperfected, present, future, known, or unknown, by guarantee, surety or otherwise, and whether or not such right is executory or anticipatory in nature, including any assessments and any right or ability of any Person to advance a Claim for contribution, indemnity or otherwise against any of such directors and/or officers with respect to any matter, action, cause or chose in action, whether existing at present or arising or commenced in the future, for which any such director or officer is alleged to be, by statute or otherwise by law or equity, liable to pay in his or her capacity as a director or officer.
“Retained Liabilities” has the meaning given to such term in Section 2.4.
“RWB” means Red White & Bloom Brands Inc.
“Scugog Property” means the lands and premises municipally known as 2560 Regional Road 19, Scugog, Ontario and legally described under PIN 26764-0137 (LT) as PT LT 2, CON 2, CARTWRIGHT; BEING PT 1, 40R3687 AND PT 1, 40R25294; TOWNSHIP OF SCUGOG
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“Senior Loan Agreement” means that certain loan agreement dated as of December 24, 2021 between each of Aleafia Health, ECC and Aleafia Farms, as borrowers, each of ECC, Canabo and Aleafia, as guarantors, and NE SPC II LP, as lender, as amended on March 28, 2022, June 17, 2022, April 26, 2023, May 15, 2023 and May 31, 2023, as such loan agreement and all security and ancillary documents granted in favour of NE SPC II LP was assigned by NE SPC II LP to RWB pursuant to an assignment of indebtedness and security agreement dated as of June 6, 2023, as the same may have been further amended from time to time.
“SISP” means the Sale and Investment Solicitation Process approved by the SISP Order, as may be amended by the CCAA Court from time to time, which must be acceptable to the Purchaser, acting reasonably, and substantially in the form of the Sale and Investment Solicitation Process attached hereto as Schedule 1.1(c).
“SISP Order” has the meaning ascribed to it in Recital C.
“Stalking Horse Bid” has the meaning given to such term in the SISP.
“Straddle Period” has the meaning given to such term in Section 9.5(c).
“Straddle Period Tax Returns” has the meaning given to such term in Section 9.5(d).
“Successful Bid(s)” has the meaning given to such term in the SISP.
“Successful Bidder(s)” has the meaning given to such term in the SISP.
“Tax” and “Taxes” means taxes, duties, fees, premiums, assessments, imposts, levies and other charges of any kind whatsoever (including withholding on amounts paid to or by any Person) imposed by any Taxing Authority, including all interest, penalties, fines, additions to tax or other additional amounts imposed by any Taxing Authority in respect thereof, and including those levied on, or measured by, or referred to as, income, gross receipts, profits, capital, transfer, land transfer, GST/HST, value added, consumption, sales, use, excise, stamp, withholding, business, franchising, escheat, property, development, occupancy, employer health, payroll, employment, health, disability, severance, unemployment, social services, education and social security taxes, all surtaxes, all customs duties and import and export taxes, countervail and anti-dumping, all license, franchise and registration fees and all employment insurance, health insurance and Canada, Ontario, and other government pension plan premiums or contributions.
“Tax Act” means the Income Tax Act (Canada) and shall also include a reference to any applicable and corresponding provisions under the income tax laws of a province or territory of Canada, as applicable.
“Tax Return” means any return, declaration, report, statement, information statement, form, election, amendment, claim for refund, schedule or attachment thereto or other document filed or required to be filed with a Taxing Authority with respect to Taxes.
“Taxing Authorities” means His Majesty the King in right of Canada, His Majesty the King in right of any province or territory of Canada, the Canada Revenue Agency, any similar revenue or taxing authority of Canada and each and every province or territory of Canada and any political subdivision thereof, and any Canadian or other Governmental Authority exercising taxing authority or power, and “Taxing Authority” means any one of the Taxing Authorities.
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“Terminated Employees” means those individuals currently employed by a Purchased Entity who have not been offered employment by the Purchaser prior to Closing, or who shall be terminated by the applicable Purchased Entity effective as of the Closing Date, such individuals deemed to be Terminated Employees pursuant to Section 9.6(c).
“Transaction Regulatory Approvals” means any material license, permits approvals and/or grants required from any Governmental Authority or under any Applicable Laws relating to the business and operations of the Purchased Entities or the Purchaser that would be required to be obtained in order to permit the Companies and the Purchaser to complete the transactions contemplated by this Agreement and for the Purchased Entities to carry on the Business following the Closing Date.
1.2 | Statutes |
Except as otherwise provided in this Agreement, any reference in this Agreement to a statute refers to such statute and all rules and regulations made under it, as it or they may have been or may from time to time be amended, re-enacted or replaced.
1.3 | Headings, Table of Contents, etc. |
The provision of a table of contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenient reference only and do not affect the interpretation of this Agreement. The recitals to this Agreement are an integral part of this Agreement.
1.4 | Gender and Number |
In this Agreement, unless the context otherwise requires, words importing the singular include the plural and vice versa, and words importing gender include all genders.
1.5 | Currency |
Except where otherwise expressly provided, all amounts in this Agreement are stated and shall be paid in Canadian dollars. References to “$” are to Canadian dollars.
1.6 | Certain Phrases |
In this Agreement (i) the words “including”, “includes” and “include” and any derivatives of such words mean “including (or includes or include) without limitation” and (ii) the words “the aggregate of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the aggregate (or total or sum), without duplication, of”. The expression “Article”, “Section” and other subdivision followed by a number, mean and refer to the specified Article, Section or other subdivision of this Agreement.
1.7 | Invalidity of Provisions |
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon (i) such a determination of invalidity or
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unenforceability or (ii) any change in Applicable Law or other action by any Governmental Authority which materially detracts from the legal or economic rights or benefits, or materially increases the obligations, of any Party or any of its Affiliates under this Agreement, the Parties shall negotiate to modify this Agreement in good faith so as to effect the original intent of the Parties as closely as possible in an acceptable manner so that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible.
1.8 | Entire Agreement |
This Agreement and the agreements and other documents required to be delivered pursuant to this Agreement, constitute the entire agreement among the Parties, and set out all the covenants, promises, warranties, representations, conditions and agreements among the Parties in connection with the subject matter of this Agreement, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, pre-contractual or otherwise. There are no covenants, promises, warranties, representations, conditions, understandings or other agreements, whether oral or written, pre-contractual or otherwise, express, implied or collateral among the Parties in connection with the subject matter of this Agreement, except as specifically set forth in this Agreement and any document required to be delivered pursuant to this Agreement.
1.9 | Waiver, Amendment |
Except as expressly provided in this Agreement, no amendment or waiver of this Agreement shall be binding unless executed in writing by all Parties hereto, and provided that such amendment is consented to by the Monitor. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided.
1.10 | Governing Law; Jurisdiction and Venue |
This Agreement, the rights and obligations of the Parties under this Agreement, and any Claim or controversy directly or indirectly based upon or arising out of this Agreement or the transactions contemplated by this Agreement (whether based on contract, tort or any other theory), including all matters of construction, validity and performance, shall in all respects be governed by, and interpreted, construed and determined in accordance with, the laws of the Province of Ontario and the federal laws of Canada applicable therein, without regard to the conflicts of law principles thereof. The Parties consent to the exclusive jurisdiction and venue of the CCAA Court for the resolution of any such disputes arising under this Agreement. Each Party agrees that service of process on such Party as provided in Section 13.7 shall be deemed effective service of process on such Party.
1.11 | Incorporation of Schedules and Exhibits |
Any schedule or exhibit attached thereto, and any schedule or exhibit attached to this Agreement, is an integral part of this Agreement.
1.12 | Accounting Terms |
All accounting terms used in this Agreement are to be interpreted in accordance with GAAP unless otherwise specified.
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1.13 | Non-Business Days |
Whenever payments are to be made or an action is to be taken on a day which is not a Business Day, such payment will be made or such action will be taken on or not later than the next succeeding Business Day.
1.14 | Computation of Time Periods |
If any action may be taken within, or any right or obligation is to expire at the end of, a period of days under this Agreement, then the first day of the period is not counted, but the day of its expiry is counted.
ARTICLE 2
SUBSCRIPTION AND ASSET PURCHASE
2.1 | Agreement to Subscribe for and Issue Purchased Shares |
(a) | Upon and subject to the terms and conditions of this Agreement, at the Closing and effective as of the Closing Time, and subject to the completion of the Implementation Steps required to be completed prior to the Closing Time, ECC shall issue to the Purchaser, and the Purchaser shall subscribe for that number of shares in the share capital of ECC from treasury, to be specified by the Purchaser at least seven (7) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order, which shares shall be free and clear of all Encumbrances (the “ECC Purchased Shares”). |
(b) | Upon and subject to the terms and conditions of this Agreement, at the Closing and effective as of the Closing Time, and subject to the completion of the Implementation Steps required to be completed prior to the Closing Time, Canabo shall issue to the Purchaser, and the Purchaser shall subscribe for that number of shares in the share capital of Canabo from treasury, to be specified by the Purchaser at least seven (7) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order, which shares shall be free and clear of all Encumbrances (the “Canabo Purchased Shares”). |
(c) | Upon and subject to the terms and conditions of this Agreement, at the Closing and effective as of the Closing Time, and subject to the completion of the Implementation Steps required to be completed prior to the Closing Time, Aleafia Farms shall issue to the Purchaser, and the Purchaser shall subscribe for that number of shares in the share capital of Aleafia Farms from treasury, to be specified by the Purchaser at least seven (7) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order, which shares shall be free and clear of all Encumbrances (the “Aleafia Farms Purchased Shares”). |
(d) | Upon and subject to the terms and conditions of this Agreement, at the Closing and effective as of the Closing Time, and subject to the completion of the Implementation Steps required to be completed prior to the Closing Time, Aleafia Retail shall issue to the Purchaser, and the Purchaser shall subscribe for that number of shares in the share capital of Aleafia Retail from treasury, to be specified by the Purchaser at least seven (7) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order, which shares shall be free and clear of all Encumbrances (the “Aleafia Retail Purchased Shares”, and together with the ECC Purchased Shares, the Canabo Purchased Shares and the Aleafia Farms Purchased Shares, the “Purchased Shares”). |
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(e) | Pursuant to the Approval and Vesting Order and, if required, the Articles of Amendment, in accordance with the Implementation Steps, all Equity Interests of each of ECC, Canabo, Aleafia Farms and Aleafia Retail as applicable, outstanding prior to the issuance of the Purchased Shares, other than the Purchased Shares, shall be cancelled, without consideration, and the Purchased Shares shall represent 100% of the outstanding Equity Interests in each of ECC, Canabo, Aleafia Farms and Aleafia Retail after such cancellation and issuance. | |
(f) | For the avoidance of doubt, upon the Closing and after the completion of the Implementation Steps, each of the Purchased Entities shall be wholly owned, directly or indirectly, by the Purchaser. |
2.2 | Agreement to Purchase the Purchased IP |
Subject to the terms and conditions of this Agreement, effective as and from the Closing Time, Aleafia Health shall sell, assign and transfer the Purchased IP to the Purchaser (or as the Purchaser may direct), and the Purchaser shall Purchase the Purchased IP from Aleafia Health, free and clear of all Encumbrances and liabilities, with the result that the Purchaser shall become the owner of the Purchased IP and Aleafia Health shall agree to irrevocably and perpetually waive any and all moral rights and other non-assignable rights throughout the world which Aleafia Health may now or at any time possess in respect of the works comprised within the Purchased IP, to the full extent permitted by applicable laws.
2.3 | Excluded Assets |
Notwithstanding any provision of this Agreement to the contrary, as of the Closing, the assets of the Purchased Entities shall not include any of the following assets, together with any other assets as set forth on Schedule 2.3 (collectively, the “Excluded Assets”):
(a) | the Cash Consideration; | |
(b) | the Tax records and returns, and books and records pertaining thereto and other documents, in each case, that primarily or solely relate to any of the Excluded Liabilities or Excluded Assets, provided that the applicable Purchased Entity may take copies of all Tax records and books and records pertaining to such records to the extent necessary or useful for the carrying on of the Business after Closing, including the filing of any Tax Return; | |
(c) | the Excluded Contracts; | |
(d) | the Excluded Leases; | |
(e) | any rights which accrue to Residual Co. under the transaction documents; and |
(f) | any other asset, including contracts and leases, identified by the Purchaser to the Companies in writing as an Excluded Asset at least seven (7) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order. |
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2.4 | Retained Liabilities |
Pursuant to this Agreement and the Approval and Vesting Order, as of the Closing Time, in accordance with Section 2.7 hereof, the only obligations and liabilities of the Purchased Entities shall consist of only the items specifically set forth below (collectively, the “Retained Liabilities”); provided, for the avoidance of doubt, that the Retained Liabilities of any Purchased Entity pursuant to this Section 2.4 shall continue to be liabilities of the applicable Purchased Entity as of the Closing:
(a) | all post-filing Claims set out in Schedule 2.4; | |
(b) | all liabilities of the Purchased Entities arising from and after Closing; | |
(c) | Tax liabilities of the Purchased Entities for any period, or the portion thereof, beginning on or after the Closing Date; and | |
(d) | those specific Retained Liabilities set forth in Schedule 2.4. |
2.5 | Excluded Liabilities |
Except as expressly retained pursuant to, or specifically contemplated by, Section 2.4, all Claims and all debts, obligations and liabilities of the Purchased Entities or any predecessors thereof, of any kind or nature, shall be assigned to, and become the sole obligation of, Residual Co. pursuant to the terms of the Approval and Vesting Order and this Agreement, and, as of the Closing, the Purchased Entities shall not have any obligation, duty, or liability of any kind whatsoever, except as expressly retained pursuant to Section 2.4, whether accrued, contingent, known or unknown, express or implied, primary or secondary, direct or indirect, liquidated, unliquidated, absolute, accrued, contingent or otherwise, and whether due or to become due, and such liabilities or obligations shall be the sole responsibility of Residual Co., including inter alia, the non-exhaustive list of those certain liabilities set forth in Schedule 2.5 and any and all liability relating to any change of control provision that may arise in connection with the change of control contemplated by the transactions hereunder and to which the Purchased Entities may be bound as at Closing, all liabilities relating to or under the Excluded Contracts, the Excluded Leases and Excluded Assets, liabilities for employees whose employment with the Purchased Entities is terminated on or before Closing, including the Terminated Employees, the Restructuring Period Claims, and the Restructuring Period D&O Claims (collectively, the “Excluded Liabilities”). Purchaser may, with the consent of the Companies and the Monitor, which consent shall not be unreasonably withheld, amend the clarifying items listed in Schedule 2.5 as specifically enumerated Excluded Liabilities at least seven (7) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order.
2.6 | Transfer of Excluded Liabilities to Residual Co. |
On the Closing Date, pursuant to the terms of the Approval and Vesting Order, the Purchased Entities shall assign and transfer the Excluded Liabilities to Residual Co., and Residual Co. shall assume the Excluded Liabilities for the consideration set out in Section 2.7. All of the Excluded
Liabilities shall be discharged from the Purchased Entities as of the Closing, pursuant to the Approval and Vesting Order.
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2.7 | Transfer of Excluded Assets to Residual Co. |
On the Closing Date, pursuant to the terms of the Approval and Vesting Order and in consideration for Residual Co. assuming the Excluded Liabilities pursuant to Section 2.6 of this Agreement, the Purchased Entities shall assign and transfer the Excluded Assets to Residual Co., and the Excluded Assets shall vest in Residual Co. pursuant to the Approval and Vesting Order.
2.8 | Pre-Closing and Closing Reorganization |
(a) | The specific mechanism for implementing the Closing, payment of the Credit Bid Consideration and Cash Consideration, and the structure of the transactions contemplated by this Agreement shall be structured in a tax efficient manner mutually agreed upon by the Parties, each acting reasonably. |
(b) | On or prior to the Closing Date, Aleafia Health shall effect, or cause any other Applicant to effect, the transaction steps and pre-closing reorganization (collectively, the “Implementation Steps”) as set forth on a schedule to be agreed upon by Aleafia Health, the Companies and the Purchaser, each acting reasonably, and in consultation with the Monitor, at least seven (7) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order; provided that in no event will the Implementation Steps described in Schedule 2.8(b) be materially prejudicial to the interests of the Purchaser or the Purchased Entities under the other sections of this Agreement. The Implementation Steps may include, without limitation, the formation of new entities required to implement the transactions contemplated by this Agreement in a tax efficient manner, consistent with Section 2.8(a). | |
(c) | The Implementation Steps, including the compromises and releases to be effective on the Closing Date, shall occur, and be deemed to have occurred in the order, manner and at such time to be set out in Schedule 2.8(b) | |
(d) | If the Purchaser is the Successful Bidder, the timing and/or sequence of the Implementation Steps and the Closing on the Closing Date may be altered at the request of the Purchaser, acting reasonably, and after consultation with the Monitor. |
ARTICLE 3
PURCHASE PRICE AND RELATED MATTERS
3.1 | Purchase Price |
The total aggregate consideration payable by the Purchaser for the Purchased Shares and Purchased IP (the “Purchase Price”) is equal to:
(a) | a release of all amounts outstanding and obligations payable by the Applicants under the Senior Loan Agreement and all related loan and security documentation, which amount as of July 31, 2023 is $15,230,687, including the principal amount of such claim, plus all accrued and unpaid interest thereon through to and including the Closing Date, plus any fees and expenses associated therewith; |
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(b) | a release of all amounts outstanding and obligations payable by the Applicants as of the Closing Date pursuant to the DIP Facility Term Sheet and all related loan and security documentation, including the principal amount of such claims and interest accrued as of the Closing Date, plus all accrued and unpaid interest thereon through to and including the Closing Date, plus any unpaid fees and expenses associated therewith (the amounts in (a) and (b) together, the “Credit Bid Consideration”); | |
(c) | the CCAA Process Expense Amount; | |
(d) | the 126 Loan Amount; and |
(e) | the Priority Payment Amount (the amounts in (c), (d) and (e) together, the “Cash Consideration”). |
3.2 | Satisfaction of Purchase Price |
The Credit Bid Consideration shall be paid and satisfied on the Closing Date by the Purchaser releasing the Applicants from repayment of all amounts owing in connection with the Credit Bid Consideration pursuant to the Credit Bid Releases.
The Cash Consideration shall be paid and satisfied on the Closing Date by the Purchaser paying the Cash Consideration to the Purchased Entities, it being understood that, in the order and manner contemplated by the Implementation Steps, in connection with the Closing, the Cash Consideration will be transferred from the Purchased Entities to Residual Co. as an Excluded Asset in accordance with Section 2.3 hereof.
3.3 | Taxes |
(a) | The Parties agree that: |
(i) | the Purchase Price is exclusive of all applicable Taxes and the Purchaser shall be liable for and shall pay any and all applicable Taxes pertaining to the acquisition of the Purchased IP; |
(ii) | the Purchaser shall pay any applicable Taxes on the acquisition of the Purchased IP in addition to the Purchase Price, either to the Monitor on behalf of Aleafia Health, as vendor, or directly to the appropriate Governmental Authority, as required by Applicable Law; |
(iii) | if applicable, Aleafia Health and the Purchaser shall jointly elect under section 167 of the EA that no HST will be payable pursuant to the EA with respect to the purchase and sale of the Purchased IP under this Agreement, and the Purchaser shall file such election no later than the due date for the Purchaser’s HST returns for the first reporting period in which HST would, in the absence of filing such election, become payable in connection with the purchase and sale of the Purchased IP under this Agreement. Notwithstanding this election, in the event it is determined by a Governmental Authority that there is liability of the Purchaser to pay, or of Aleafia Health to collect and remit, HST in respect of the purchase and sale of the Purchased IP hereunder, the Purchaser shall forthwith pay such HST to the applicable Governmental Authority and the Purchaser shall indemnify and save harmless Aleafia Health from any such payments, penalties and interest which may be payable by or assessed against Aleafia Health (or its representatives, agents, employees, directors or officers) under the EA in respect thereof. |
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANIES AND ALEAFIA HEALTH
Each of Aleafia Health and the Companies represents and warrants on behalf of itself and its subsidiaries who are Purchased Entities, to the Purchaser, as follows, and acknowledges that the Purchaser is relying upon the following representations and warranties in connection with its purchase of the Purchased Shares, in the case of the Companies, and the Purchased IP, in the case of Aleafia Health:
4.1 | Due Authorization and Enforceability of Obligations |
Subject to the granting of the Approval and Vesting Order, this Agreement has been duly authorized, executed and delivered by it, and constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.
4.2 | Existence and Good Standing |
Each of Aleafia Health and the Purchased Entities is validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and (i) has all requisite power and authority to execute and deliver this Agreement and (ii) has taken all requisite corporate or other action necessary for it to execute and deliver this Agreement and to perform its obligations hereunder and consummate the transaction contemplated hereunder.
4.3 | Absence of Conflicts |
The execution and delivery of this Agreement by each of Aleafia Health and the Companies and the completion by each of Aleafia Health and the Companies of its obligations hereunder and the consummation of the transactions contemplated herein do not and will not violate or conflict with any Applicable Law, (subject to the receipt of any Transaction Regulatory Approvals and the granting of the Approval and Vesting Order) and will not result (with due notice or the passage of time or both) in a violation, conflict or breach of, or constitute a default under, or require any consent to be obtained under the certificate of incorporation, articles, by-laws or other constituent documents of any Applicant. Subject to the granting of the Approval and Vesting Order, the execution, delivery and performance by each of Aleafia Health and the Companies does not and will not violate any Order.
4.4 | Approvals and Consents |
The execution and delivery of this Agreement by each of Aleafia Health and the Companies, the completion by each of Aleafia Health and the Companies of its respective obligations hereunder
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and the consummation by each of the Companies of the transactions contemplated herein, do not and will not require any consent or approval or other action, with or by, any Governmental Authority, other than as contemplated by the applicable Transaction Regulatory Approvals and the entry of the Approval and Vesting Order by the CCAA Court.
4.5 | No Actions |
There is not, as of the date hereof, pending or, to any of Aleafia Health’s and the Companies’ knowledge, threatened against any Applicant or any of its properties, nor has any Applicant received any written notice in respect of, any Claim, potential Claim, litigation, action, suit, arbitration, investigation or other proceeding before any Governmental Authority or legislative body, other than the CCAA Court, that, would prevent either of Aleafia Health and the Companies from executing and delivering this Agreement, performing its obligations hereunder and consummating the transactions and agreements contemplated by this Agreement.
4.6 | Subsidiaries |
Schedule 4.6 sets forth a complete and correct list of the name and jurisdiction of organization of each Purchased Entity.
4.7 | Tax |
Schedule 4.6 sets forth a complete and correct list of the name, jurisdiction of organization and Tax registrations of each Purchased Entity. Each Purchased Entity is validly registered for the collection and payment of all Taxes as required under Applicable Law. All Taxes reported on the Tax Returns and any related notices of assessment or reassessment of each Purchased Entity for all of the Purchased Entity’s Tax periods ending on or prior to the Closing Date have been duly and timely paid, except as otherwise disclosed to the Purchaser with respect to certain pre-filing amounts outstanding in respect of excise Tax, GST/HST. Each Purchased Entity has withheld and has duly and timely remitted, or shall duly and timely remit, to the appropriate Taxing Authority all Taxes required by Applicable Law to be withheld or deducted.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to each of the Companies and Aleafia Health as follows, and acknowledges that the Companies and Aleafia Health are relying upon the following representations and warranties in connection with the sale of the Purchased Shares and the Purchased IP:
5.1 | Due Authorization and Enforceability of Obligations |
This Agreement has been duly authorized, executed and delivered by the Purchaser, and, assuming the due authorization, execution and delivery by it, this Agreement constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.
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5.2 | Existence and Good Standing |
Purchaser is validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder and consummate the transactions contemplated by this Agreement.
5.3 | Absence of Conflicts |
The execution and delivery of this Agreement by the Purchaser and the completion by the Purchaser of its obligations hereunder and the consummation of the transactions contemplated herein do not and will not violate or conflict with any Applicable Law, or any of its properties or assets, (subject to the receipt of any applicable Transaction Regulatory Approvals) and will not result (with due notice or the passage of time or both) in a violation, conflict or breach of, or constitute a default under, or require any consent to be obtained under its certificate of incorporation, articles, by-laws or other constituent documents.
5.4 | Approvals and Consents |
The execution and delivery of this Agreement by the Purchaser, the completion by the Purchaser of its obligations hereunder and the consummation by the Purchaser of the transactions contemplated herein, do not and will not require any consent, approval or other action, with or by, any Governmental Authority, other than as contemplated by the applicable Transaction Regulatory Approvals and the granting of the Approval and Vesting Order by the CCAA Court.
5.5 | No Actions |
There is not, as of the date hereof, pending or, to the Purchaser’s knowledge, threatened against it or any of its properties, nor has the Purchaser received notice in respect of, any Claim, potential Claim, litigation, action, suit, arbitration, investigation or other proceeding before any Governmental Authority or legislative body, other than the CCAA Court, that, would prevent it from executing and delivering this Agreement, performing its obligations hereunder and consummating the transactions and agreements contemplated by this Agreement.
5.6 | Credit Bid and Cash Consideration; Availability of Funds |
(a) | The Purchaser has executed, on or prior to the date hereof, the requisite instruction letters to fully authorize the Purchaser, and the Purchaser is duly authorized, to, among other things, deliver the Credit Bid Consideration in connection with the consummation of the Closing hereunder, which instruction letters shall have been delivered by the Purchaser to the Companies. | |
(b) | RWB has, and the Purchaser will have on Closing, sufficient unrestricted funds and financial capacity to consummate the transactions contemplated by this Agreement, including payment of the Cash Consideration. |
5.7 | Residence |
Purchaser is not a non-resident of Canada within the meaning of the Tax Act.
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ARTICLE 6
AS IS, WHERE IS
The Purchaser acknowledges and agrees that it has conducted to its satisfaction an independent investigation and verification of the Business, the Purchased Shares, the Purchased IP, the Retained Liabilities and all related operations of the Purchased Entities, and, based solely thereon and the advice of its financial, legal and other advisors, has determined to proceed with the transactions contemplated by this Agreement. The Purchaser has relied solely on the results of its own independent investigation and verification and, except for the representations and warranties of the Companies and Aleafia Health expressly set forth in Article 4, the Purchaser understands, acknowledges and agrees that all other representations, warranties, conditions and statements of any kind or nature, expressed or implied (including any relating to the future or historical financial condition, results of operations, prospects, assets or liabilities of the Purchased Entities or the Business, or the quality, quantity or condition of the Purchased Shares or the Purchased IP) are specifically disclaimed by each of the Companies and Aleafia Health, the other Purchased Entities, their respective financial and legal advisors and the Monitor and its legal counsel. THE PURCHASER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND ALEAFIA HEALTH EXPRESSLY AND SPECIFICALLY SET FORTH IN Article 4: (A) THE PURCHASER IS ACQUIRING THE PURCHASED SHARES AND THE PURCHASED IP ON AN “AS IS, WHERE IS” BASIS; AND (B) NONE OF THE COMPANIES, ALEAFIA HEALTH, THE OTHER APPLICANTS, THE MONITOR OR ANY OTHER PERSON (INCLUDING ANY REPRESENTATIVE OF EITHER OF THE COMPANIES, ALEAFIA HEALTH, THE OTHER APPLICANTS OR THE MONITOR WHETHER IN ANY INDIVIDUAL, CORPORATE OR ANY OTHER CAPACITY) IS MAKING, AND THE PURCHASER IS NOT RELYING ON, ANY REPRESENTATIONS, WARRANTIES, CONDITIONS OR OTHER STATEMENTS OF ANY KIND WHATSOEVER, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, AS TO ANY MATTER CONCERNING THE PURCHASED ENTITIES, THE BUSINESS, THE PURCHASED SHARES, THE PURCHASED IP, THE RETAINED LIABILITIES, THE EXCLUDED ASSETS, THE EXCLUDED LIABILITIES, THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT, OR THE ACCURACY OR COMPLETENESS OF ANY INFORMATION PROVIDED TO (OR OTHERWISE ACQUIRED BY) THE PURCHASER OR ANY OF ITS RESPECTIVE REPRESENTATIVES, INCLUDING WITH RESPECT TO MERCHANTABILITY, PHYSICAL OR FINANCIAL CONDITION, DESCRIPTION, FITNESS FOR A PARTICULAR PURPOSE, OR IN RESPECT OF ANY OTHER MATTER OR THING WHATSOEVER, INCLUDING ANY AND ALL CONDITIONS, WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, PURSUANT TO ANY APPLICABLE LAWS IN ANY JURISDICTION, WHICH THE PURCHASER CONFIRMS DO NOT APPLY TO THIS AGREEMENT, AND ARE HEREBY WAIVED IN THEIR ENTIRETY BY THE PURCHASER.
ARTICLE 7
CONDITIONS
7.1 | Conditions for the Benefit of the Purchaser and Companies |
The respective obligations of the Purchaser and each of the Companies and Aleafia Health to consummate the transactions contemplated by this Agreement are subject to the satisfaction of, or compliance with, at or prior to the Closing Time, each of the following conditions:
(a) | No Law – no provision of any Applicable Law and no Order preventing or otherwise frustrating the consummation of the purchase of the Purchased Shares and the Purchased IP or any of the other transactions pursuant to this Agreement shall be in effect; |
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(b) | Final Orders – each of the SISP Order and the Approval and Vesting Order shall have been issued and entered and shall be Final Orders; | |
(c) | Successful Bid – this Agreement will be the Successful Bid (as determined pursuant to the SISP); and | |
(d) | Transaction Regulatory Approvals – the Parties shall have received the required Transaction Regulatory Approvals set forth in Schedule 7.1(d), and all such Transaction Regulatory Approvals shall be in full force and effect, except for Transaction Regulatory Approvals that need not be in full force and effect prior to Closing. |
The Parties acknowledge that the foregoing conditions are for the mutual benefit of each of the Companies and the Purchaser. Any condition in this Section 7.1 may be waived by any of the Companies, Aleafia Health and by the Purchaser, in whole or in part, without prejudice to any of their respective rights of termination in the event of non-fulfillment of any other condition in whole or in part. Any such waiver will be binding on any of the Companies, Aleafia Health or the Purchaser, as applicable, only if made in writing.
7.2 | Conditions for the Benefit of the Purchaser |
The obligation of the Purchaser to consummate the transactions contemplated by this Agreement is subject to the satisfaction of, or compliance with, or waiver by the Purchaser of, at or prior to the Closing Time, each of the following conditions (each of which is acknowledged to be for the exclusive benefit of the Purchaser):
(a) | Performance of Covenants – the covenants contained in this Agreement to be performed or complied with by each of the Companies and / or Aleafia Health at or prior to the Closing Time shall have been performed or complied with in all material respects as at the Closing Time; |
(b) | Truth of Representations and Warranties – (i) the Fundamental Representations and Warranties of each of the Companies and Aleafia Health shall be true and correct in all respects as of the Closing Date, as if made at, and as of, such date (except for de minimus inaccuracies) and (ii) all other representations and warranties of the Companies and Aleafia Health contained in Article 4 shall be true and correct in all respects as of the Closing Date, as if made at, and as of, such date (except for representations and warranties made as of specified date, the accuracy of which shall be determined as of such specified date) except where the failure to be so true and correct would not, in the aggregate, have a Material Adverse Effect (and, for this purpose, any reference to “material”, “Material Adverse Effect” or other concepts of materiality in such representation and warranties shall be ignored); |
(c) | Officer’s Certificates – The Purchaser shall have received a certificate confirming the satisfaction of the conditions contained in Sections 7.2(a) (Performance of Covenants) and 7.2(b) (Truth of Representations and Warranties), signed for and on behalf of each of the Companies and Aleafia Health by an executive officer of each of the Companies and Aleafia Health or other Persons acceptable to the Purchaser, without personal liability, in each case in form and substance reasonably satisfactory to the Purchaser; |
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(d) | No Material Adverse Effect – since the date hereof, no change effect, event, occurrence, state of facts or development shall have occurred that resulted in, or would reasonably be expected to result in, a Material Adverse Effect; | |
(e) | Companies’ Deliverables – each of the Companies and Aleafia Health shall have delivered to the Purchaser all of the deliverables contained in Section 12.2 in form and substance reasonably satisfactory to the Purchaser; | |
(f) | Implementation Steps – Aleafia Health shall have completed, or caused any of the Applicants to have completed, the Implementation Steps that are required to be completed prior to Closing, in form and substance reasonably acceptable to the Purchaser, acting reasonably; | |
(g) | Terminated Employees - the applicable Purchased Entity shall have terminated the employment of the Terminated Employees, and all liabilities owing to any such Terminated Employees in respect of such terminations, including all amounts owing on account of or damages in lieu of, statutory notice, termination payments, severance, benefits, bonuses or other compensation or entitlements, shall be Excluded Liabilities which, pursuant the Approval and Vesting Order, shall be assigned and transferred as against the applicable Purchased Entity to, and assumed by, Residual Co. | |
(h) | Licence Condition - the Licences are in good standing and will continue in good standing, and not be suspended or terminated, following the Closing Date, which shall be satisfied upon, among other things, evidence from the applicable Governmental Authority that such Licences are in good standing and will not be suspended or terminated by such Governmental Authority as a result of any events, or amounts owing by any Applicants, relating to the period preceding the Closing Date. | |
(i) | Licence Holder Retention – the Purchaser shall be satisfied that the employees of the Purchased Entities who hold the Licences will accept the Purchaser’s offers of employment pursuant to Section 9.6. | |
(j) | Updated Financial Information – in contemplation of the Purchaser’s identification of any Excluded Asset or Excluded Liability in accordance with Sections 2.3(f) and 2.5, respectively, Aleafia Health and the Purchased Entities shall provide the Purchaser with current consolidated financial statements for each of the Applicants at least ten (10) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order. | |
(k) | Environmental Condition – the Purchaser, acting reasonably, shall be satisfied that the Environmental Disclosure and/or the Environmental Investigation does not reveal the potential for material Environmental liability for the Purchaser upon Closing. |
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(l) | Ownership of Domains – to the extent any of the domains identified in Schedule 1.1(b) hereto are owned or otherwise registered on behalf of any Person other than Aleafia Health or any of the Purchased Entities, Aleafia Health shall, or shall cause the registration and ownership of such domain(s) to be transferred to Aleafia Health or such other Purchased Entity as identified by the Purchaser by no later than ten (10) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order. |
7.3 | Conditions for the Benefit of Companies |
The obligation of each of the Companies and Aleafia Health to consummate the transactions contemplated by this Agreement is subject to the satisfaction of, or compliance with, or waiver where applicable by the Companies and Aleafia Health of, at or prior to the Closing Time, each of the following conditions (each of which is acknowledged to be for the exclusive benefit of each of the Companies and Aleafia Health, as applicable):
(a) | Truth of Representations and Warranties – the representations and warranties of the Purchaser contained in Article 5 will be true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date as if made on and as of such date (except for representations and warranties made as of specified date, the accuracy of which shall be determined as of such specified date) except where the failure to be so true and correct would not reasonably be expected to have a material and adverse effect on Purchaser’s ability to consummate the transactions contemplated by this Agreement; |
(b) | Performance of Covenants – the covenants contained in this Agreement to be performed by the Purchaser at or prior to the Closing Time shall have been performed in all material respects as at the Closing Time; |
(c) | Officer’s Certificate – Each of the Companies and Aleafia Health shall have received a certificate confirming the satisfaction of the conditions contained in Sections 7.3(a) and 7.3(b) signed for and on behalf of the Purchaser without personal liability by an executive officer of the Purchaser or other Persons acceptable to the Companies, acting in a commercially reasonable manner, in each case, in form and substance satisfactory to the Companies and Aleafia Health, acting in a commercially reasonable manner; and | |
(d) | Purchaser Deliverables – Purchaser shall have delivered to each of the Companies and Aleafia Health all of the deliverables contained in Section 12.3 in form and substance satisfactory to the Companies and Aleafia Health, acting in a commercially reasonable manner. |
ARTICLE 8
GUARANTEE
(a) | RWB hereby irrevocably, absolutely and unconditionally guarantees to Aleafia Health and the Companies (i) the due and punctual performance, when and as due, of all obligations, covenants and agreements of Purchaser (and any Affiliates to which this Agreement is assigned pursuant to Section 13.6) to be performed on or prior to the Closing Date arising under or pursuant to this Agreement and (ii) the punctual payment of all sums or amounts to be paid by the Purchaser (and such Affiliates) on or prior to the Closing Date under and in accordance with the terms of this Agreement, including the payment obligations set forth in Section 3.1 (the matters set forth in clauses (i) and (ii), collectively, the “Guaranteed Obligations”). | |
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(b) | If the Purchaser (of its Affiliates) fails to perform any of the Guaranteed Obligations, then RWB shall itself be jointly and severally liable for the Guaranteed Obligations and shall perform or take whatever steps as may be necessary to procure performance of the same. | |
(c) | Nothing herein shall be construed as imposing greater obligations or liabilities on RWB than for which the Purchaser itself (or its Affiliates themselves) would be liable under this Agreement or obliging RWB to indemnify and hold harmless Aleafia Health and the Companies against any losses, costs, or expenses for which the Purchaser itself would not be liable under this Agreement, except as set forth in this Article 8. | |
(d) | The obligations of the Companies under this Agreement shall conclusively be deemed to have been created, contracted, or incurred in reliance upon this Article 8 and all dealings between the Aleafia Health and the Companies, on the one hand, and the Purchaser (or its Affiliates), on the other hand, shall likewise be conclusively presumed to have been consummated in reliance upon this Article 8. | |
(e) | The guarantee by RWB contained herein shall remain in full force and effect and shall continue to be enforceable by the Companies until the (i) consummation of the Closing and the payment in full by the Purchaser of any and all amounts required to be paid by Purchaser pursuant to this Agreement, including the Cash Consideration or (ii) the earlier valid termination of this Agreement pursuant to Section 11.1, upon which this guarantee and the obligations of RWB pursuant to this Article 8 shall terminate automatically and be of no further force or effect without the need for any further action by any Person and RWB shall stand discharged of all of its obligations under this guarantee. RWB’s obligations under this Article 8 shall not be terminated, modified, affected or impaired by reason of any relief or discharge of Purchaser (or its Affiliates) from any Purchaser’s (or its Affiliates’) respective obligations in bankruptcy or similar proceedings, or by liquidation or dissolution. Notwithstanding anything contained herein, the guarantee shall remain in full force and effect and shall continue to be enforceable by the Companies in the event of any willful breach of this Agreement by the Purchaser (or its Affiliates) or RWB. | |
(f) | Except as otherwise set forth in this Agreement, the liability of RWB under this Article 8 shall be unlimited and unconditional, and this Article 8 shall be a continuing guarantee. | |
(g) | RWB hereby makes the representations and warranties set forth in Article 5 as to itself, and such representations and warranties shall apply mutatis mutandis as if RWB were substituted for the Purchaser therein. The Parties agree that RWB shall be entitled to, and RWB does not waive, any defenses to the payment or performance of the Guaranteed Obligations that are available to the Purchaser under this Agreement. |
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ARTICLE 9
ADDITIONAL AGREEMENTS OF THE PARTIES
9.1 | Expense Reimbursement |
In consideration for Purchaser’s expenditure of time and money (including professional fees) in connection with the preparation of this Agreement, and in performing due diligence pursuant to this Agreement, Purchaser shall be entitled to an Expense Reimbursement of up to $500,000 (the “Expense Reimbursement”). The Expense Reimbursement is subject to Court approval and shall be approved in the SISP Order and shall be payable to the Purchaser out of the sale proceeds derived from, and upon completion of, a Successful Bid other than the Stalking Horse Bid. Each of the Companies, Aleafia Health and the Purchaser acknowledges and agrees that the Expense Reimbursement (i) represents a fair and reasonable estimate of the costs and damages that will be incurred by the Purchaser as a result of non-completion of this Agreement, and (ii) is not intended to be punitive in nature nor to discourage competitive bidding with respect to the SISP. The Expense Reimbursement shall be paid joint and severally by the Companies and Aleafia Health to the Purchaser without deduction or withholding for Taxes unless required by Applicable Law.
9.2 | Access to Information and Properties |
(a) | Until the Closing Time, each of the Companies and Aleafia Health, with oversight of the Monitor, shall give to the Purchaser’s personnel engaged in the transactions contemplated by this Agreement and their accountants, legal advisers, consultants, financial advisors and representatives during normal business hours reasonable access to its premises and to all of the books, records, and other information relating to the Business, and shall furnish them with all such information relating to the Business, the Applicants, the Retained Liabilities and the list of employees as Purchaser may reasonably request in connection with the transactions contemplated by this Agreement, such requests to be made to the Monitor; provided that such access shall be conducted at Purchaser’s expense, in accordance with Applicable Law and under supervision of the Monitor or the applicable Company’s or Aleafia Health’s senior management and in such a manner as to maintain confidentiality, and the Companies and Aleafia Health will not be required to provide access to or copies of any such books and records if: (i) the provision thereof would cause applicable Company to be in contravention of any Applicable Law; (ii) breach the terms of the SISP Order; or (iii) making such information available would: (1) result in the loss of any lawyer-client or other legal privilege; or (2) cause applicable Company to be found in contravention of any Applicable Law, or contravene any fiduciary duty or agreement (including any confidentiality agreement to which either of the Companies, Aleafia Health or any of their Affiliates are a party). Notwithstanding anything in this Section 9.2 to the contrary, any such investigation shall be conducted upon reasonable advance notice and in such manner as does not materially disrupt the conduct of the Business or the possible sale thereof to any other Person. | |
(b) | Following the Closing, the Purchaser shall make all books and records of the Applicants reasonably available to the Monitor and any trustee in bankruptcy of any of the Applicants upon at least five (5) Business Days prior notice, for a period of seven (7) years after Closing, and shall, at such Party’s expense, permit the Monitor and any trustee in bankruptcy of the Applicants to take copies thereof as they may determine to be necessary or useful to accomplish their respective roles; provided that Purchaser shall not be obligated to make such books and records available to the extent that doing so would: (i) violate Applicable Law; (ii) jeopardize the protection of a solicitor-client privilege; or (iii) unreasonably interfere with the ongoing business and operations of the Purchased Entities and their Affiliates, as determined by the Applicants, acting reasonably. |
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(c) | Following the Closing, the Applicants shall make all books and records comprising Excluded Assets reasonably available to the Monitor and any trustee in bankruptcy of any of the Applicants upon at least five (5) Business Days prior notice, for a period of seven (7) years after Closing, and shall, at such Party’s expense, permit the Monitor and any trustee in bankruptcy of the Applicants to take copies thereof as they may determine to be necessary or useful to accomplish their respective roles; provided that such Applicant shall not be obligated to make such books and records available to the extent that doing so would: (i) violate Applicable Law; (ii) jeopardize the protection of a solicitor-client privilege; or (iii) unreasonably interfere with the ongoing business and operations of the Applicants and their Affiliates, as determined by the Applicants, acting reasonably. | |
(d) | The Companies shall provide access to the Property, and permit the Purchaser to conduct its own Environmental investigations, inspections and tests of the Property, including any surface or subsurface testing, drilling and sampling, and any other invasive testing (the “Environmental Investigations”). |
9.3 | Regulatory Approvals and Consents |
(a) | The Parties shall use commercially reasonable efforts to apply for and obtain any Transaction Regulatory Approvals as soon as reasonably practicable and no later than the time limits imposed by Applicable Laws, in accordance with Section 9.3(b), in each case at the sole cost and expense of the Companies and Aleafia Health. | |
(b) | The Parties shall use commercially reasonable efforts to apply for and obtain the Transaction Regulatory Approvals and shall co-operate with one another in connection with obtaining such Transaction Regulatory Approvals. Without limiting the generality of the foregoing, the Parties shall: (i) give each other reasonable advance notice of all meetings or other oral communications with any Governmental Authority relating to the Transaction Regulatory Approvals, as applicable, and provide as soon as practicable but in any case, if any, within the required time, any additional submissions, information and/or documents requested by any Governmental Authority necessary, proper or advisable to obtain the Transaction Regulatory Approvals; (ii) not participate independently in any such meeting or other oral communication without first giving the other Party (or their outside counsel) an opportunity to attend and participate in such meeting or other oral communication, unless otherwise required or requested by such Governmental Authority; (iii) if any Governmental Authority initiates an oral communication regarding the Transaction Regulatory Approvals, promptly notify the other Party of the substance of such communication; (iv) subject to Applicable Laws relating to the exchange of information, provide each other with a reasonable advance opportunity to review and comment upon and consider in good faith the views of the other in connection with all written communications (including any filings, notifications, submissions, analyses, presentations, memoranda, briefs, arguments, opinions and proposals) made or submitted by or on behalf of a Party with a Governmental Authority regarding the Transaction Regulatory Approvals as applicable; and (v) promptly provide each other with copies of all written communications to or from any Governmental Authority relating to the Transaction Regulatory Approvals as applicable. |
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(c) | Each of the Parties may, as advisable and necessary, reasonably designate any competitively or commercially sensitive material provided to the other under this Section 9.3 as “Outside Counsel Only Material”, provided that the disclosing Party also provides a redacted version to the receiving Party. Such materials and the information contained therein shall be given only to the outside legal counsel of the recipient and, subject to any additional agreements between the Parties, will not be disclosed by such outside legal counsel to employees, officers or directors of the recipient unless express written permission is obtained in advance from the source of the materials or its legal counsel. | |
(d) | The obligations of either Party to use its commercially reasonable efforts to obtain the Transaction Regulatory Approvals does not require either Party (or any Affiliate thereof) to undertake any divestiture of any business or business segment of such Party, to agree to any material operating restrictions related thereto or to incur any material expenditure(s) related therewith, unless agreed to by the Parties. In connection with obtaining the Transaction Regulatory Approvals, no Purchased Entity shall agree to any of the foregoing items without the prior written consent of the Purchaser. |
9.4 | Covenants Relating to this Agreement |
(a) | Each of the Parties shall perform all obligations required to be performed by the applicable Party under this Agreement, co-operate with the other Parties in connection therewith and do all such other acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated by this Agreement and, without limiting the generality of the foregoing, from the date hereof until the Closing Date, each Party shall and, where appropriate, shall cause each of its Affiliates to: |
(i) | negotiate in good faith and use its commercially reasonable efforts to take or cause to be taken all actions and to do, or cause to be done, all things necessary, proper or advisable to satisfy the conditions precedent to the obligations of such Party hereunder (including, where applicable, negotiating in good faith with the applicable Governmental Authorities and/or third Persons in connection therewith), and to cause the fulfillment at the earliest practicable date of all of the conditions precedent to the other Party’s obligations to consummate the transactions contemplated hereby; and |
(ii) | not take any action, or refrain from taking any action, or permit any action to be taken or not taken, which would reasonably be expected to prevent, materially delay or otherwise impede the consummation of the transactions contemplated by this Agreement. |
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(b) | From the date hereof until the Closing Date, Purchaser hereby agrees, and hereby agrees to cause its representatives to, keep the Companies and Aleafia Health informed on a reasonably current basis, and no less frequently than on a weekly basis through teleconference or other meeting, and as reasonably requested by each of the Companies, Aleafia Health or the Monitor, as to the Purchaser’s progress in terms of the satisfaction of the conditions precedent contained herein. | |
(c) | From the date hereof until the Closing Date, each Company hereby agrees, and hereby agrees to cause its representatives to, keep Purchaser informed on a reasonably current basis, and no less frequently than on a weekly basis through teleconference or other meeting, and as reasonably requested by the Purchaser or the Monitor, as to the applicable Company’s progress in terms of the satisfaction of the conditions precedent contained herein. | |
(d) | Each of the Companies, Aleafia Health and the Purchaser agree to execute and deliver such other documents, certificates, agreements and other writings, reasonably necessary for the consummation of the transactions contemplated by this Agreement, and to take such other actions to consummate or implement as soon as reasonably practicable, the transactions contemplated by this Agreement. | |
(e) | From the date hereof until the Closing Date, the Companies and Aleafia Health hereby agree, and hereby agree to cause their representatives to, promptly notify the Purchaser of (i) any event, condition, or development that has resulted in the inaccuracy in a material respect or material breach of any representation or warranty, covenant or agreement contained in this Agreement, or (ii) any Material Adverse Effect occurring from and after the date hereof prior to the Closing Date. | |
(f) | Each of the Companies, Aleafia Health and the Purchaser agree to use commercially reasonable efforts to timely prepare and file all documentation and pursue all steps reasonably necessary to obtain any material third-party consents and approvals, including without limitation the Transaction Regulatory Approvals, as may be required in connection with the transaction contemplated by this Agreement. | |
(g) | Aleafia Health shall, and in cooperation with the Purchaser, take all such action and do or cause to be done all such things as are reasonably necessary in order to (a) transfer or otherwise vest all domain names included in the Purchased IP, together with any applicable registrant and account holder agreements, passwords and registrations, to or in the Purchaser, (b) have the Purchaser recorded, or otherwise permit the Purchaser to be recorded, as the registrant or account holder in the applicable domain name registry, and (c) permit the Purchaser to administer the corresponding registrations and accounts. | |
(h) | Each of the Companies and Aleafia Health agree to use best efforts to timely prepare and file all documentation and pursue all steps necessary to renew (i) any of the Licences held by ECC or Aleafia Farms that are currently set to expire before January 1, 2024; and (ii) any security clearances required in connection with the maintenance of any of the Licences held by ECC or Aleafia Farms. | |
(i) | Each of the Companies and Aleafia Health agree to use commercially reasonable efforts to promptly provide all documentation, copies of agreements and information reasonably required by the Purchaser to complete and finalize the Schedules to this Agreement. Such information and documentation shall be provided to the Purchaser on an ongoing basis following execution of this Agreement and in any event shall be provided to the Purchaser no later than ten (10) days prior to the hearing of the Applicants’ motion to the CCAA Court seeking the Approval and Vesting Order. |
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(j) | Within fifteen (15) days of the date hereof, each of the Companies shall provide to the Purchaser, all Environmental information and Environmental records regarding or related to any real property currently or previously owned or leased by any of the Companies, including all Environmental reports, audits, policies, correspondence, permits, approvals and agreements (the “Environmental Disclosure”). | |
(k) | Within fifteen (15) days of the date hereof, Aleafia Health shall provide to the Purchaser confirmation of the registered owner of each of the domains listed in Schedule 1.1(B) attached hereto. | |
(l) | If Purchaser is the Successful Bidder, at the request of the Purchaser, the Companies shall proceed with the liquidation, winding-up, dissolution and/or amalgamation of any of the Purchased Entities designated by the Purchaser on or prior to the Closing Date. |
9.5 | Tax Matters |
(a) | The Purchaser, the Purchased Entities and Aleafia Health agree to furnish or cause to be furnished to each other, as promptly as practicable, such information and assistance relating to the Purchased Shares, the Purchased IP and the Retained Liabilities as is reasonably necessary for the preparation and filing of any Tax Return, claim for refund or other required filings relating to Tax matters, for the preparation for and proof of facts during any Tax audit, for the preparation for any Tax protest, for the prosecution of any suit or other proceedings relating to Tax matters and for the answer to any governmental or regulatory inquiry relating to Tax matters. Purchaser, each of the Purchased Entities and Aleafia Health also agree to furnish or cause to be furnished to each other, as promptly as practicable, such information and assistance relating to the Purchased Entities, the Purchased Shares, the Purchased IP and the Retained Liabilities as is reasonably necessary for Purchaser to acquire them in a tax efficient manner for both the Purchaser and the Purchased Entities. | |
(b) | Purchaser, each of the Purchased Entities and Aleafia Health shall each be responsible for the preparation of their own statements required to be filed under the Tax Act, the ETA, the EA and other Tax forms and returns in accordance with Applicable Law. | |
(c) | For all purposes under this Agreement for which it is necessary to apportion Taxes in a period which includes (but does not end on) the Closing Date (a “Straddle Period”), all real property Taxes, personal property Taxes and similar ad valorem obligations shall be apportioned between the period up to and including the Closing Date (such portion of such Straddle Period, the “Pre-Closing Straddle Tax Period”) and the taxable period after the Closing Date (such portion of such Straddle Period, the “Post-Closing Straddle Tax Period”), on a per diem basis. Except as otherwise provided herein, with respect to the Purchased Shares, each applicable Purchased Entity shall be liable for the proportionate amount of such real property Taxes, personal property Taxes and similar ad valorem obligations that are attributable to the Pre-Closing Straddle Tax Period, and the Purchaser shall be liable for the proportionate amount of such real property Taxes, personal property Taxes and similar ad valorem obligations that are attributable to the Post- Closing Straddle Tax Period. For all purposes under this Agreement, in the case of any Tax based upon or related to receipts, sales, use, payroll, or withholding, in respect of any Straddle Period, the portion of such Tax allocable to the Pre-Closing Straddle Tax Period shall be deemed to be the amount that would be payable if the relevant Straddle Period ended on and included the Closing Date. To the extent such closing of the books method is not incorporated under the law of a jurisdiction for particular types of entities, allocations of income among the periods shall be made to replicate the closing of the books method to the maximum extent possible. |
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(d) | The Purchaser shall (a) cause each Purchased Entity, as applicable, to prepare, or cause to be prepared, and file, or cause to be filed, all Tax Returns for each Purchased Entity for all Tax periods ending on or prior to the Closing Date and for which Tax Returns have not been filed as of such date; and (b) cause each Purchased Entity, as applicable, to duly and timely make or prepare all Tax Returns required to be made or prepared by them and to duly and timely file all Tax Returns required to be filed by them for periods beginning before and ending after the Closing Date. All such Tax Returns in clauses (a) and (b) of this Section 9.5(d) constitute the “Straddle Period Tax Returns”. Each Company, Purchased Entity, the Monitor and the Purchaser shall co-operate reasonably with each other and make available to each other in a timely fashion such data and other information as may reasonably be required for the preparation of any Straddle Period Tax Return and the Purchaser shall preserve (or cause the applicable Purchased Entities to preserve) such data and other information until the expiration of any applicable limitation period under Applicable Law with respect to Taxes. The Purchaser will use commercially reasonable best efforts to provide drafts of all Straddle Period Tax Returns required to be prepared by the Purchaser or the Purchased Entities to the then remaining Applicants and the Monitor in advance of their filing with the relevant Taxing Authority. The Purchaser, the then remaining Applicants and the Monitor shall, subject only to Applicable Law, cooperate in considering any amendments to such Tax Returns as the then remaining Applicants and the Monitor may request. The Purchaser shall, unless otherwise agreed to by the then remaining Applicants and the Purchaser in writing, cause each Purchased Entity to make an election pursuant to subsection 256(9) of the Tax Act in respect of the taxation year ending as a result of the acquisition of control of it by the Purchaser. |
9.6 | Employee Matters |
(a) | The Purchaser may, in as many separate instances as it may require, notify the Companies that the Purchaser wishes to interview any employees or contractors or consultants of the Purchased Entities, and upon receipt of a request thereof, the Companies will use all commercially reasonable efforts to facilitate such interviews as soon as reasonably practicable. The Purchaser may, but is not obligated to, in the name of the applicable Purchased Entity, make conditional (upon Closing) continued or new (as applicable) offers of employment on such terms as it may determine in its absolute and sole discretion. | |
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(b) | The Purchaser shall make commercially reasonable efforts to make such offers in writing on or prior to the date that is ten (10) days prior to the anticipated Closing Date, provided that such offers shall be made no later than five (5) days prior to the anticipated Closing Date, and leave such offers open for acceptance up to and including one (1) day prior to the Closing Date, provided that the Purchaser notifies the Companies, in writing, on or prior to the date that is five (5) days prior to the anticipated Closing Date, of the list of individuals to whom it has made or intends to make offers of employment. | |
(c) | In the event: |
(i) | no conditional offer of employment is made to an employee of the Purchased Entities; or |
(ii) | an employee who receives an offer of employment rejects such offer in writing or fails to accept such offer of employment up to and including two (2) days prior to the Closing Date, such employee shall be deemed to be a “Terminated Employee” and the applicable Purchased Entity shall terminate such Terminated Employee effective upon the Closing Date. |
9.7 | Administrative Expense Amount |
(a) | On the Closing Date, the Administrative Expense Amount shall be paid to the Monitor, which the Monitor shall hold for the benefit of Persons entitled to be paid the Administrative Expense Costs. | |
(b) | From time to time after the Closing Date, the Monitor may pay, from the Administrative Expense Amount, the Administrative Expense Costs, in each case to the Persons entitled to receive payment of these amounts, in its sole discretion and without further authorization from the Purchased Entities or Purchaser. Any unused portion of the Administrative Expense Amount after payment or reservation for all Administrative Expense Costs, as determined by the Monitor, in its sole discretion, shall be transferred by the Monitor to the Purchaser, or as directed by it. |
(c) | Notwithstanding the foregoing or anything else contained herein or elsewhere, each of the Companies, Aleafia Health and the Purchaser acknowledges and agrees that: (i) the Monitor’s obligations under this Agreement are and shall remain limited to those specifically set out in this Section 9.7; and (ii) Monitor is acting solely in its capacity as the CCAA Court-appointed Monitor of the Applicants pursuant to the Initial Order and not in its personal or corporate capacity, and the Monitor has no liability in connection with this Agreement whatsoever, in its personal or corporate capacity or otherwise, save and except for and only to the extent of the Monitor’s gross negligence or intentional fault. |
(d) | The Parties acknowledge that the Monitor may rely upon the provisions of this Section 9.7 notwithstanding that the Monitor is not a party to this Agreement. |
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The provisions of Sections 9.7(c) and (d) above shall survive the termination or non-completion of the transactions contemplated by this Agreement.
ARTICLE 10
INSOLVENCY PROVISIONS
10.1 | Court Orders and Related Matters |
(a) | From and after the date of this Agreement and until the Closing Date, the Companies and Aleafia Health shall deliver to the Purchaser drafts of any and all pleadings, motions, notices, statements, applications, schedules, and other papers to be filed or submitted by any of the Applicants in connection with or related to this Agreement, including with respect to the Approval and Vesting Order, for Purchaser’s prior review at least two (2) days in advance of service and filing of such materials (or where circumstances make it impracticable to allow for two (2) days’ review, with as much opportunity for review and comment as is practically possible in the circumstances). Each of the Companies and Aleafia Health acknowledge and agree (i) that any such pleadings, motions, notices, statements, applications, schedules, or other papers shall be in form and substance satisfactory to the Purchaser, acting reasonably, and (ii) to consult and cooperate with Purchaser regarding any discovery, examinations and hearing in respect of any of the foregoing, including the submission of any evidence, including witnesses testimony, in connection with such hearing. | |
(b) | Notice of the motions seeking the issuance of the Approval and Vesting Order shall be served or be caused to be served by the Applicants on all Persons required to receive notice under Applicable Law and the requirements of the CCAA, the CCAA Court, and any other Person determined necessary by the Applicants or Purchaser, acting reasonably. | |
(c) | As soon as practicable if Purchaser is selected or deemed to be the Successful Bidder in accordance with the SISP, the Applicants shall file a motion seeking the issuance of the Approval and Vesting Order. | |
(d) | Notwithstanding any other provision herein, it is expressly acknowledged and agreed that in the event that the Approval and Vesting Order has not been issued and entered by the CCAA Court by October 17, 2023 or such later date agreed to in writing by the Purchaser, acting reasonably, Purchaser, may terminate this Agreement. | |
(e) | If the Approval and Vesting Order relating to this Agreement is appealed or a motion for leave to appeal, rehearing, reargument or reconsideration is filed with respect thereto, each of the Applicants agree (subject to the available liquidity of each of the Applicants) to take all action as may be commercially reasonable and appropriate to defend against such appeal, petition or motion. | |
(f) | Each of the Companies and Aleafia Health acknowledge and agree, that the Approval and Vesting Order shall provide that, on the Closing Date and concurrently with the Closing, the Purchased Shares and the Purchased IP shall be transferred to the Purchaser free and clear of all Encumbrances, other than Permitted Encumbrances. |
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ARTICLE 11
TERMINATION
11.1 | Termination |
This Agreement may be terminated at any time prior to Closing as follows:
(a) | by mutual written consent of each of the Companies, Aleafia Health and the Purchaser; | |
(b) | by the Purchaser or the Companies and Aleafia Health, if (i) this Agreement is not the Successful Bid or the Back-up Bid (as determined pursuant to the SISP); or (ii) this Agreement is the Back-up Bid and the transaction contemplated by the Successful Bid is closed; |
(c) | by the Purchaser or the Companies and Aleafia Health, if Closing has not occurred on or before November 22, 2023 or such later date agreed to by each of the Companies, Aleafia Health and the Purchaser in writing in consultation with the Monitor (the “Outside Date”), provided that the terminating Party is not in breach of any representation, warranty, covenant or other agreement in this Agreement which would prevent the satisfaction of the conditions in Article 7 by the Outside Date; | |
(d) | by the Purchaser or the Companies and Aleafia Health, if at any time after the date hereof any of the conditions in Article 7 is not capable of being satisfied by the applicable dates required in Article 7 of this Agreement or if not otherwise required, by the Outside Date; | |
(e) | by the Purchaser, pursuant to Section 10.1(d); | |
(f) | by the Purchaser, upon the appointment of a receiver, trustee in bankruptcy or similar official in respect of any Applicant or any of the property of any Applicant, other than with the prior written consent of the Purchaser; | |
(g) | by the Purchaser or the Companies and Aleafia Health, upon the termination, dismissal or conversion of the CCAA Proceedings; | |
(h) | by the Purchaser or the Companies and Aleafia Health, upon dismissal of the motion for the Approval and Vesting Order (or if any such order is stayed, vacated or varied without the consent of the Purchaser); | |
(i) | by the Purchaser or the Companies and Aleafia Health, if a court of competent jurisdiction, including the CCAA Court or other Governmental Authority has issued an Order or taken any other action to restrain, enjoin or otherwise prohibit the consummation of Closing and such Order or action has become a Final Order; | |
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(j) | by the Companies and Aleafia Health, if there has been a material violation or breach by the Purchaser of any covenant, representation or warranty which would prevent the satisfaction of the conditions set forth in Section 7.1 or Section 7.3, as applicable, by the Outside Date, and such violation or breach has not been waived by the Companies and Aleafia Health, or cured by the Purchaser within ten (10) Business Days after written notice thereof from the Companies and Aleafia Health, unless any Company or Aleafia Health is in material breach of its obligations under this Agreement which would prevent the satisfaction of the conditions set forth in Section 7.1 or Section 7.2, as applicable, by the Outside Date; and | |
(k) | by the Purchaser, if there has been a material violation or breach by any of the Companies or Aleafia Health of any covenant, representation or warranty which would prevent the satisfaction of the conditions set forth in Section 7.1 or Section 7.2, as applicable, by the Outside Date, and such violation or breach has not been waived by the Purchaser, or cured by the applicable Company and/or Aleafia Health within ten (10) Business Days after written notice thereof from the Purchaser, unless the Purchaser is in material breach of its obligations under this Agreement which would prevent the satisfaction of the conditions set forth in Section 7.1 or Section 7.3, as applicable, by the Outside Date. |
The Party desiring to terminate this Agreement pursuant to this Section 11.1 (other than pursuant to Section 11.1(a)) shall give written notice of such termination to the other Party or Parties, as applicable, specifying in reasonable detail the basis for such Party’s exercise of its termination rights.
11.2 | Effect of Termination |
In the event of termination of this Agreement pursuant to Section 11.1, this Agreement shall become void and of no further force or effect without liability of any Party to any other Party to this Agreement except that: (i) Section 9.1, Sections 9.7(c) and 9.7(d), this Section 11.2, Section 13.1, Section 13.3, Section 13.5, Section 13.6, Section 13.7 and Section 13.8 shall survive; and (ii) no termination of this Agreement shall relieve any Party of any liability for any wilful breach by it of this Agreement, or impair the right of any Party to compel specific performance by any other Party of its obligations under this Agreement in accordance with Section 13.3.
ARTICLE 12
CLOSING
12.1 | Location and Time of the Closing |
The Closing shall take place at the Closing Time on the Closing Date at the offices of Gowling WLG (Canada) LLP in Toronto, or at such other location as may be agreed upon by the Parties.
12.2 | Companies’ Deliveries at Closing |
At Closing, each of the Companies and Aleafia Health, as applicable, shall deliver to the Purchaser the following: | ||
(a) | a true copy of each of the Approval and Vesting Order and the SISP Order, each of which shall be final; | |
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(b) | a certificate of a senior officer or director of each of the Companies and Aleafia Health (in such capacity and without personal liability) in form and substance reasonably satisfactory to the Purchaser: (i) certifying that the board of directors of the applicable Company and Aleafia Health, has adopted resolutions (in a form attached to such certificate) authorizing the execution, delivery and performance of this Agreement and the transactions contemplated herein, as applicable, which resolutions are in full force and effect and have not been superseded, amended or modified as of the Closing Date; and (ii) certifying as to the incumbency and signatures of the officers and directors of the applicable Company and Aleafia Health; | |
(c) | the certificates contemplated by Section 7.2(c); | |
(d) | confirmation of the due incorporation and organization of Residual Co. on the terms set forth herein; | |
(e) | evidence of completion of the Implementation Steps; | |
(f) | evidence of the filing of the Articles of Amendment, as applicable; | |
(g) | executed copy of the IP Assignment Agreement; and | |
(h) | all other documents as reasonably requested by the Purchaser in good faith. |
12.3 | Purchaser’s Deliveries at Closing |
At Closing, the Purchaser shall deliver to the Companies and Aleafia Health or, in the case of the amount described in 11.3(b), to the Monitor:
(a) | the Credit Bid Releases; | |
(b) | the Cash Consideration; | |
(c) | a certificate of a senior officer or director of the Purchaser (in such capacity and without personal liability), in form and substance reasonably satisfactory to the Companies and Aleafia Health: (i) certifying that the board of directors has adopted resolutions (in a form attached to such certificate) authorizing the execution, delivery and performance of this Agreement and the transactions contemplated herein, as applicable, which resolutions are in full force and effect and have not been superseded, amended or modified as of the Closing Date; and (ii) certifying as to the incumbency and signature of the authorized signatory of the Purchaser executing this Agreement and the other transaction documents contemplated herein, as applicable; | |
(d) | the certificate contemplated by Section 7.3(c); and | |
(e) | all other documents required to effect to the transaction contemplated by this Agreement, as reasonably requested by the Companies and / or Aleafia Health in good faith. |
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12.4 | Monitor |
When all conditions to Closing set out in Article 7 have been satisfied and/or waived by the Companies, Aleafia Health or the Purchaser, as applicable, the Companies, Aleafia Health and the Purchaser, or their respective counsel, shall each deliver to the Monitor written confirmation, in form and substance satisfactory to the Monitor, that all conditions to Closing have been satisfied or waived, subject to the Monitor’s delivery of the Monitor’s Certificate to the Purchaser in accordance with the Approval and Vesting Order. Upon receipt of such written confirmation, the Monitor shall: (i) issue forthwith its Monitor’s Certificate in accordance with the Approval and Vesting Order; and (ii) file as soon as practicable a copy of the Monitor’s Certificate with the CCAA Court (and shall provide a true copy of such filed certificate to each of the Companies, Aleafia Health and the Purchaser). The Parties hereby acknowledge and agree that the Monitor will be entitled to file the Monitor’s Certificate with the CCAA Court without independent investigation upon receiving written confirmation from the Companies, Aleafia Health and the Purchaser that all conditions to Closing have been satisfied or waived, and the Monitor will have no liability whatsoever to any of the Companies, Aleafia Health or Purchaser or any other Person as a result of filing the Monitor’s Certificate.
12.5 | Simultaneous Transactions |
All actions taken and transactions consummated at the Closing shall be deemed to have occurred in the manner and sequence set forth in the Implementation Steps and the Approval and Vesting Order (subject to the terms of any escrow agreement or arrangement among the Parties relating to the Closing), and no such transaction shall be considered consummated unless all are consummated.
12.6 | Further Assurances |
As reasonably required by a Party in order to effectuate the transactions contemplated by this Agreement, Purchaser and each of the Applicants shall execute and deliver at (and after) the Closing such other documents, and shall take such other actions, as are necessary or appropriate, to implement and make effective the transactions contemplated by this Agreement.
ARTICLE 13
GENERAL MATTERS
13.1 | Confidentiality |
After the Closing Time, the remaining Applicants shall maintain the confidentiality of all confidential information relating to the Business and the Purchased Entities, except any disclosure of such information and records as may be required by Applicable Law. If any remaining Applicant, or any of their respective representatives, becomes legally compelled by deposition, interrogatory, request for documents, subpoena, civil investigative demand, or similar judicial or administrative process, to disclose any such information, such party shall, or shall cause its representative to, provide the Purchaser with reasonably prompt prior oral or written notice of such requirement (including any report, statement, testimony or other submission to such Governmental Authority) to the extent legally permissible and reasonably practicable, and cooperate with Purchaser, at Purchaser’s expense, to obtain a protective order or similar remedy to cause such information not to be disclosed; provided that in the event that such protective order or other similar remedy is not obtained, the applicable Applicant shall, or shall cause its representative to, furnish only that portion of such information that has been legally compelled, and shall, or shall cause such representative to, exercise its commercially reasonable efforts to obtain assurance that confidential treatment will be accorded to such disclosed information. The remaining Applicants shall instruct their representatives having access to such information of such obligation of confidentiality and shall be responsible for any breach of the terms of this Section 13.1 by any of their representatives.
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13.2 | Public Notices |
No press release or other announcement concerning the transactions contemplated by this Agreement shall be made by any of the Applicants or Purchaser without the prior consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed); provided, however, that subject to the last sentence of this Section 13.2, any Party may, without such consent, make such disclosure if the same is required by Applicable Law (including the CCAA Proceedings) or by any stock exchange on which any of the securities of such Party or any of its Affiliates are listed, or by any insolvency or other court or securities commission, or other similar Governmental Authority having jurisdiction over such Party or any of its Affiliates, and, if such disclosure is required, the Party making such disclosure shall use commercially reasonable efforts to give prior oral or written notice to the other Party to the extent legally permissible and reasonably practicable, and if such prior notice is not legally permissible or reasonably practicable, to give such notice reasonably promptly following the making of such disclosure. Notwithstanding the foregoing: (i) this Agreement may be filed by either Party, as applicable: (A) with the CCAA Court; and (B) on their respective profiles on www.sedarplus.ca; and (ii) the transactions contemplated in this Agreement may be disclosed by the Companies and Aleafia Health to the CCAA Court. The Parties further agree that:
(a) | the Monitor may prepare and file reports and other documents with the CCAA Court containing references to the transactions contemplated by this Agreement and the terms of such transactions; and | |
(b) | the Applicants, the Purchaser and their respective professional advisors may prepare and file such motions, affidavits, materials, reports and other documents with the CCAA Court containing references to the transactions contemplated by this Agreement and the terms of such transactions as may reasonably be necessary to complete the transactions contemplated by this Agreement or to comply with their obligations in connection therewith. |
Purchaser shall be afforded an opportunity to review and comment on such materials prior to their filing; provided in the case of reports or other documents prepared or to be filed by the Monitor with the CCAA Court the Purchaser shall be entitled to review only factual information contained therein relating to the terms of the transactions contemplated in this Agreement. The Parties may issue a joint press release announcing the execution and delivery of this Agreement, in form and substance mutually agreed to them.
13.3 | Injunctive Relief |
(a) | The Parties agree that irreparable harm would occur for which money damages would not be an adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to seek specific performance, injunctive and other equitable relief to prevent breaches or threatened breaches of this Agreement, and to enforce compliance with the terms of this Agreement, without any requirement for the securing or posting of any bond in connection with the obtaining of any such specific performance, injunctive or other equitable relief, this being in addition to any other remedy to which the Parties may be entitled at law or in equity. | |
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(b) | Each Party hereby agrees not to raise any objections to the availability of the equitable remedies provided for herein and the Parties further agree that by seeking the remedies provided for in this Section 13.3, a Party shall not in any respect waive its right to seek any other form of relief that may be available to a Party under this Agreement. | |
(c) | Notwithstanding anything herein to the contrary herein, under no circumstances shall a Party be permitted or entitled to receive both monetary damages and specific performance and election to pursue one shall be deemed to be an irrevocable waiver of the other. |
13.4 | Survival |
None of the representations, warranties, covenants (except the covenants in Article 2, Article 3, Article 13 and Sections 9.2(b), and 9.5 to the extent they are to be performed after the Closing) of any of the Parties set forth in this Agreement, in any Closing Document to be executed and delivered by any of the Parties (except any covenants included in such Closing Documents, which, by their terms, survive Closing) or in any other agreement, document or certificate delivered pursuant to or in connection with this Agreement or the transactions contemplated hereby shall survive the Closing.
13.5 | Non-Recourse |
No past, present or future director, officer, employee, incorporator, member, partner, security holder, Affiliate, agent, lawyer or representative of the respective Parties, in such capacity, shall have any liability for any obligations or liabilities of the Purchaser, either of the Companies or Aleafia Health, as applicable, under this Agreement, or for any causes of action based on, in respect of or by reason of the transactions contemplated hereby.
13.6 | Assignment; Binding Effect |
No Party may assign its right or benefits under this Agreement without the consent of each of the other Parties, except that without such consent Purchaser may, upon prior notice to each of the Companies and Aleafia Health, assign this Agreement, or any or all of its rights and obligations hereunder, to one or more of its Affiliates; provided that no such assignment or direction shall relieve Purchaser or RWB of its obligations hereunder, including with respect to the Guaranteed Obligations. This Agreement shall be binding upon and enure to the benefit of the Parties and their respective permitted successors and permitted assigns. Although not Parties to this Agreement, the Monitor and its respective Affiliates and advisors shall have the benefits expressed to be conferred upon them in this Agreement, including in Article 6, Section 9.7 and Section 12.4 (in respect of the Monitor) hereof. Subject to the preceding sentence, nothing in this Agreement shall create or be deemed to create any third Person beneficiary rights in any Person not a Party to this Agreement.
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13.7 | Notices |
Any notice, request, demand or other communication required or permitted to be given to a Party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed given under this Agreement on the earliest of: (i) the date of personal delivery; (ii) the date of transmission by email, with confirmed transmission and receipt (if sent during normal business hours of the recipient, if not, then on the next Business Day); (iii) two (2) days after deposit with a nationally-recognized courier or overnight service such as Federal Express; or (iv) five (5) days after mailing via certified mail, return receipt requested. All notices not delivered personally or by email will be sent with postage and other charges prepaid and properly addressed to the Party to be notified at the address set forth for such Party:
(a) | If to the Purchaser at:
RWB (PV) CANADA INC. | |
c/o Red White & Bloom Brands Inc. 789 West Pender Street, Suite 810 Vancouver, British Columbia V6C 1H2 | ||
Attention: Eddie Mattei | ||
Email: eddie.mattei@redwhitebloom.com | ||
and to: | ||
Gowling WLG (Canada) LLP 1 First Canadian Place 100 King Street West, Suite 1600 Toronto, ON M5X 1G5 | ||
Attention: Virginie Gauthier, Kate Yurkovich | ||
Email: virginie.gauthier@gowlingwlg.com; | ||
kate.yurkovich@gowlingwlg.com |
(b) | If to the Companies and Aleafia Health at: | |
Aleafia Health Inc. c/o Aird & Berlis LLP Brookfield Place, 181 Bay Street, Suite 1800 Toronto, Canada M5J 2T9 | ||
Attention: Tricia Symmes / Mike Paris | ||
Email: triciasymmes@AleafiaHealth.com / mikeparis@aleafiahealth.com | ||
and to: | ||
Aird & Berlis LLP | ||
Brookfield Place, 181 Bay Street, Suite 1800 | ||
Toronto, Canada | ||
M5J 2T9 | ||
-42-
Attention: Kyle Plunkett | ||
Email: kplunkett@airdberlis.com | ||
and to: | ||
KSV Restructuring Inc. | ||
222 Bay Street, 13th Floor | ||
Toronto ON M5J 2W4 | ||
Attention: Noah Goldstein | ||
Email: ngoldstein@ksvadvisory.com |
Any Party may change its address for service from time to time by notice given in accordance with the foregoing and any subsequent notice shall be sent to such Party at its changed address.
13.8 | Counterparts; Electronic Signatures |
This Agreement may be signed in counterparts and each of such counterparts shall constitute an original document and such counterparts, taken together, shall constitute one and the same instrument. Execution of this Agreement may be made by electronic signature which, for all purposes, shall be deemed to be an original signature.
[Signature pages to follow]
IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first written above.
ALEAFIA HEALTH INC. | |
/s/ Patricia Symmes-Rizakos | |
Per: | |
Name: Patricia Symmes-Rizakos | |
Title: Chief Executive Officer | |
I have the authority to bind the corporation. | |
EMBLEM CANNABIS CORPORATION | |
/s/ Patricia Symmes-Rizakos | |
Per: | |
Name: Patricia Symmes-Rizakos | |
Title: Director | |
I have the authority to bind the corporation. | |
CANABO MEDICAL CORPORATION | |
/s/ Patricia Symmes-Rizakos | |
Per: | |
Name: Patricia Symmes-Rizakos | |
Title: Director | |
I have the authority to bind the corporation. |
Signature Page to Subscription Agreement
- 2 -
ALEAFIA FARMS INC.
| |
/s/ Patricia Symmes-Rizakos | |
Per: | |
Name: Patricia Symmes-Rizakos | |
Title: Director | |
I have the authority to bind the corporation. | |
ALEAFIA RETAIL INC.
| |
/s/ Patricia Symmes-Rizakos | |
Per: | |
Name: Patricia Symmes-Rizakos | |
Title: Director | |
I have the authority to bind the corporation. | |
RWB (PV) CANADA INC.
| |
/s/ Eddie Mattei | |
Per: | |
Name: Eddie Mattei | |
Title: CFO | |
I have the authority to bind the corporation. | |
RED WHITE & BLOOM BRANDS INC., solely | |
/s/ Eddie Mattei | |
Per: | |
Name: Eddie Mattei | |
Title: CFO | |
I have the authority to bind the corporation. |
SCHEDULE 1.1(A)
PERMITTED ENCUMBRANCES
REAL PROPERTY
REAL PROPERTY GENERAL ENCUMBRANCES
With respect to the Grimsby Property, Scugog Property and Paris Property (together “the Property”, and each a “Property”):
1. | The reservations, limitations, provisos and conditions expressed in the original grant from the Crown. |
2. | Any registered or unregistered easements, servitudes, rights-of-way, licences, or restrictions, in favour of any governmental authority or public utility, that run with the land and other encumbrances and/or agreements with respect thereto including, without limiting the generality of the foregoing, easements, rights-of-way and agreements for sewers, drains, gas and water mains or electric light and power or telephone, telecommunications or cable conduits, poles, wires and cables). |
3. | Any encroachments, minor defects or irregularities indicated on any survey of the Property; |
4. | Any subdivision agreements, site plan agreements, development agreements and any other agreements with the municipality, region, publicly regulated utilities or other governmental authorities having jurisdiction registered on title to the Property. |
SPECIFIC ENCUMBRANCES
Grimsby Property
· | Instrument No. RO437966 registered on October 15, 1981 and being an Agreement re: Easement to The Corporation of the Town of Grimsby. |
· | Instrument No. NR529869 registered on December 12, 2019 and being a Transfer Easement for Aleafia Farms Inc. to Grimsby Power Incorporated. |
· | Instrument No. NR262008 registered on February 16, 2011 and being a Bylaw for Public Highway from The Regional Municipality of Niagara. |
· | Instrument No. NR384106 registered on June 19, 2015 and being a Notice from The Corporation of the Town of Grimsby. |
Scugog Property
· | Instrument No. N32525 registered on March 13, 1967 and being an Order designating areas of subdivision control under The Planning Act. |
· | Instrument No. DR685199 registered on February 4, 2008 and being an Application (General) amending the legal description from Audrey Gwendoline Metcalf. |
- 2 -
Paris Property
· | Instrument No. A331750 registered on August 13, 1987 and being an Agreement to the Town of Paris. |
· | Instrument No. A462029 registered on September 25, 1995 and being an Agreement re: Site Plan to Town of Paris. |
· | Instrument No. LT22629 registered on June 18, 2001 and being a Notice Agreement from The Corporation of the County of Brant. |
· | Instrument No. LT22633 registered on June 18, 2001 and being a Notice Agreement from The Corporation of the County of Brant. |
· | Instrument No. BC3838 registered on September 20, 2002 and being a Notice Agreement from The Corporation of the County of Brant. |
Instrument No. BC328156 registered on November 7, 2017 and being a Notice from Emblem Cannabis Corporation to The Corporation of the County of Brant. |
SCHEDULE 1.1(b)
INTELLECTUAL PROPERTY
Canadian Trademark Applications and Registrations
Date of Search: July 21, 2023
No | Mark | Details |
Aleafia Health Inc. | ||
1 |
ALEAFIA HEALTH SCIENCE SEEDING WELLNESS Design
|
Reg No.: TMA1109543 Status: REGISTERED Reg. Date: 2021-09-15 Owner: Aleafia Health Inc. |
2 |
N&N Design
|
App No.: 2148922 Status: FORMALIZED Filing Date: 2021-11-22 Owner: Aleafia Health Inc. |
3 | NITH & GRAND |
App No.: 2079596 Status: FORMALIZED Filing Date: 2021-01-25 Owner: Aleafia Health Inc. |
-2-
No | Mark | Details |
4 |
Leaf Design
|
Reg No.: TMA1109544 Status: REGISTERED Reg. Date: 2021-09-15 Owner: Aleafia Health Inc. |
5 | ALEAFIA |
Reg No.: TMA1095537 Status: REGISTERED Reg. Date: 2021-03-11 Owner: Aleafia Health Inc. |
6 |
ALEAFIA MEDICAL CANNABIS CARE Design
|
Reg No.: TMA1095540 Status: REGISTERED Reg. Date: 2021-03-11 Owner: Aleafia Health Inc. |
7 | ALEAFIA MEDICAL CANNABIS CARE |
Reg No.: TMA1095541 Status: REGISTERED Reg. Date: 2021-03-11 Owner: Aleafia Health Inc. |
8 |
ALEAFIA Design
|
Reg No.: TMA1095539 Status: REGISTERED Reg. Date: 2021-03-11 Owner: Aleafia Health Inc. |
-3-
No | Mark | Details |
9 |
A Design
|
Reg No.: TMA1095538 Status: REGISTERED Reg. Date: 2021-03-11 Owner: Aleafia Health Inc. |
10 | NOON & NIGHT |
App No.: 2081049 Status: FORMALIZED Filing Date: 2021-01-29 Owner: Aleafia Health Inc. |
11 | SUNDAY MARKET |
App No.: 2079600 Status: FORMALIZED Filing Date: 2021-01-25 Owner: Aleafia Health Inc. |
12 | WELL & NESS |
App No.: 1947909 Status: DEFAULT Filing Date: 2019-02-25 Owner: Aleafia Health Inc. |
13 |
ALEAFIA HEALTH Design
|
Reg No.: TMA1109545 Status: REGISTERED Reg. Date: 2021-09-15 Owner: Aleafia Health Inc. |
14 | DIVVY |
App No.: 2079598 Status: FORMALIZED Filing Date: 2021-01-25 Owner: Aleafia Health Inc. |
-4-
No | Mark | Details |
15 |
Icon Design
|
App No.: 1947908 Status: SEARCHED Filing Date: 2019-02-25 Owner: Aleafia Health Inc. |
16 |
KESARA WELLNESS Design
|
App No.: 1947907 Status: DEFAULT Filing Date: 2019-02-25 Owner: Aleafia Health Inc. |
17 |
FOLIEDGE ACADEMY Design
|
App No.: 1947904 Status: DEFAULT Filing Date: 2019-02-25 Owner: Aleafia Health Inc. |
18 | DIVVY CANNABIS CO. |
App No.: 2079599 Status: FORMALIZED Filing Date: 2021-01-25 Owner: Aleafia Health Inc. |
19 | BOGART'S KITCHEN |
App No.: 2079597 Status: FORMALIZED Filing Date: 2021-01-25 Owner: Aleafia Health Inc. |
-5-
No | Mark | Details |
20 | WE GROW TOGETHER |
App No.: 1962713 Status: FORMALIZED Filing Date: 2019-05-14 Owner: Aleafia Health Inc. |
21 | SCIENCE SEEDING WELLNESS |
App No.: 1962712 Status: FORMALIZED Filing Date: 2019-05-14 Owner: Aleafia Health Inc. |
22 | W & N |
App No.: 1947910 Status: DEFAULT Filing Date: 2019-02-25 Owner: Aleafia Health Inc. |
23 |
Crest Design
|
App No.: 1947905 Status: DEFAULT Filing Date: 2019-02-25 Owner: Aleafia Health Inc. |
24 | NITH & GRIND |
Reg No.: TMA1179414 Status: REGISTERED Reg. Date: 2023-05-10 Owner: Aleafia Health Inc. |
25 |
ALEAFIA CAMPUS Design
|
Reg No.: TMA1109542 Status: REGISTERED Reg. Date: 2021-09-15 Owner: Aleafia Health Inc. |
26 | ALEAFIA CAMPUS |
Reg No.: TMA1109541 Status: REGISTERED Reg. Date: 2021-09-15 Owner: Aleafia Health Inc. |
-6-
No | Mark | Details |
27 | ALEAFIA HEALTH |
Reg No.: TMA1109546 Status: REGISTERED Reg. Date: 2021-09-15 Owner: Aleafia Health Inc. |
28 | everso |
App No.: 1962492 Status: FORMALIZED Filing Date: 2019-05-13 Owner: Aleafia Health Inc. |
29 | KESARA WELLNESS |
App No.: 1947906 Status: DEFAULT Filing Date: 2019-02-25 Owner: Aleafia Health Inc. |
30 | FOLIEDGE ACADEMY |
App No.: 1947903 Status: DEFAULT Filing Date: 2019-02-25 Owner: Aleafia Health Inc. |
Foreign Trademark Applications and Registrations
Date of Search: July 21, 2023
No | Mark | Details |
Aleafia Health Inc. | ||
31 |
A ALEAFIA HEALTH SCIENCE SEEDING WELLNESS
|
Jurisdiction: Australia Reg No.: 2010171 Status: REGISTERED Reg. Date: 2019-05-17 Owner: Aleafia Health Inc. |
32 | ALEAFIA HEALTH |
Jurisdiction: Australia Reg No.: 2010170 Status: REGISTERED Reg. Date: 2019-05-17 Owner: Aleafia Health Inc. |
33 | everso |
Jurisdiction: Australia Reg No.: 2009082 Status: REGISTERED Reg. Date: 2019-05-14 Owner: Aleafia Health Inc. |
-7-
No | Mark | Details |
34 | everso |
Jurisdiction: Germany Reg No.: 302019011831 Status: REGISTERED Reg. Date: 2019-08-28 Owner: Aleafia Health Inc. |
35 | ALEAFIA HEALTH |
Jurisdiction: Germany Reg No.: 302019012527 Status: REGISTERED Reg. Date: 2019-10-24 Owner: Aleafia Health Inc. |
36 |
Aleafia Health SCIENCE SEEDING WELLNESS
|
Jurisdiction: Germany Reg No.: 302019012528 Status: REGISTERED Reg. Date: 2019-10-24 Owner: Aleafia Health Inc. |
37 | FOLIEDGE ACADEMY |
Jurisdiction: Germany Reg No.: 302019019962 Status: REGISTERED Reg. Date: 2021-08-25 Owner: Aleafia Health Inc. |
38 |
|
Jurisdiction: Germany Reg No.: 302019020063 Status: REGISTERED Reg. Date: 2021-08-09 Owner: Aleafia Health Inc. |
39 |
FOLIEDGE ACADEMY
|
Jurisdiction: Germany Reg No.: 302019020134 Status: REGISTERED Reg. Date: 2021-08-05 Owner: Aleafia Health Inc. |
-8-
DOMAINS
Domain Name |
Status |
Expiration Date |
Auto- renew |
Lock |
Nameservers |
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Active |
2022-10- 13 |
On |
Locked |
ns63.domaincontrol.com ns64.domaincontrol.com |
aleafia.health |
Active |
2023-01- 30 |
On |
Locked |
ns01.domaincontrol.com ns02.domaincontrol.com |
aleafia.me |
Active |
2023-01- 30 |
On |
Locked |
ns01.domaincontrol.com ns02.domaincontrol.com |
aleafiahealth.ca |
Active |
2022-10- 15 |
On |
Locked |
ns31.domaincontrol.com ns32.domaincontrol.com |
aleafiahealth.com |
Active |
2022-03- 27 |
On |
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ns-797.awsdns-35.net ns-1036.awsdns- 01.org ns-1759.awsdns-27.co.uk ns-481.awsdns- 60.com |
aleafiahealth.info |
Active |
2023-01- 30 |
On |
Locked |
ns01.domaincontrol.com ns02.domaincontrol.com |
aleafiahealth.life |
Active |
2023-01- 30 |
On |
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ns01.domaincontrol.com ns02.domaincontrol.com |
aleafiahealth.me |
Active |
2023-01- 30 |
On |
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ns01.domaincontrol.com ns02.domaincontrol.com |
aleafiahealth.net |
Active |
2023-01- 30 |
On |
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ns01.domaincontrol.com ns02.domaincontrol.com |
aleafiahealth.org |
Active |
2023-01- 30 |
On |
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ns01.domaincontrol.com ns02.domaincontrol.com |
aleafiahealthinc.c a |
Active |
2022-10- 15 |
On |
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ns31.domaincontrol.com ns32.domaincontrol.com |
aleafiahealthinc.c om |
Active |
2022-10- 15 |
On |
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ns31.domaincontrol.com ns32.domaincontrol.com |
aleafiainc.ca |
Active |
2022-10- 13 |
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ns63.domaincontrol.com ns64.domaincontrol.com |
aleafiainc.com |
Active |
2022-01- 11 |
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aleafialabs.ca |
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On |
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ns75.domaincontrol.com ns76.domaincontrol.com |
aleafiatech.ca |
Active |
2023-02- 15 |
On |
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ns31.domaincontrol.com ns32.domaincontrol.com |
aleafiatech.com |
Active |
2023-02- 15 |
On |
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ns57.domaincontrol.com ns58.domaincontrol.com |
aleafiatechlabs.ca |
Active |
2023-02- 15 |
On |
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ns57.domaincontrol.com ns58.domaincontrol.com |
aleafiatechlabs.co m |
Active |
2023-02- 15 |
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ns31.domaincontrol.com ns32.domaincontrol.com |
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assurehome.deliv ery |
Active |
2023-04- 03 |
On |
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ns47.domaincontrol.com ns48.domaincontrol.com |
assurehomedelive ry.ca |
Active |
2023-04- 03 |
On |
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ns47.domaincontrol.com ns48.domaincontrol.com |
assurehomedelive ry.com |
Active |
2023-04- 03 |
On |
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ns-581.awsdns-08.net ns-1180.awsdns- 19.org ns-1927.awsdns-48.co.uk ns- 211.awsdns-26.com |
asterixx.ca |
Active |
2022-01- 15 |
On |
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ns01.domaincontrol.com ns02.domaincontrol.com |
asterixx.co |
Active |
2022-01- 15 |
On |
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ns01.domaincontrol.com ns02.domaincontrol.com |
asterixx.info |
Active |
2022-01- 15 |
On |
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ns01.domaincontrol.com ns02.domaincontrol.com |
asterixx.net |
Active |
2022-01- 15 |
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ns01.domaincontrol.com ns02.domaincontrol.com |
asterixx.org |
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2022-01- 15 |
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ns01.domaincontrol.com ns02.domaincontrol.com |
canabo.ca |
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ns-2035.awsdns-62.co.uk ns-108.awsdns- 13.com ns-1007.awsdns-61.net ns- 1473.awsdns-56.org |
canabocorp.com |
Active |
2022-04- 02 |
On |
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ns67.domaincontrol.com ns68.domaincontrol.com |
canabomedicalclin ic.ca |
Active |
2022-10- 30 |
On |
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ns49.domaincontrol.com ns50.domaincontrol.com |
canabomedicalclin ic.com |
Active |
2021-10- 30 |
On |
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ns49.domaincontrol.com ns50.domaincontrol.com |
canabomedicalclin ic.org |
Active |
2021-10- 30 |
On |
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ns49.domaincontrol.com ns50.domaincontrol.com |
cmclinic.ca |
Active |
2022-06- 03 |
On |
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ns11.domaincontrol.com ns12.domaincontrol.com |
cmclinic.org |
Active |
2022-06- 03 |
On |
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ns45.domaincontrol.com ns46.domaincontrol.com |
cmclinics.ca |
Active |
2022-06- 03 |
On |
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ns39.domaincontrol.com ns40.domaincontrol.com |
cmclinics.org |
Active |
2022-06- 03 |
On |
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ns11.domaincontrol.com ns12.domaincontrol.com |
collectivecannabis .ca |
Active |
2022-09- 12 |
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ns75.domaincontrol.com ns76.domaincontrol.com |
emblemacademy. ca |
Active |
2022-07- 19 |
On |
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ns69.domaincontrol.com ns70.domaincontrol.com |
emblemanswers.c a |
Active |
2022-10- 15 |
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ns63.domaincontrol.com ns64.domaincontrol.com |
emblemanswers.c om |
Active |
2022-10- 15 |
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ns65.domaincontrol.com ns66.domaincontrol.com |
emblemcan.co |
Active |
2022-01- 15 |
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ns01.domaincontrol.com ns02.domaincontrol.com |
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emblemcannabis. ca |
Active |
2022-01- 11 |
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ns09.domaincontrol.com ns10.domaincontrol.com |
emblemcannabis. com |
Active |
2022-01- 11 |
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aragorn.ns.cloudflare.com lola.ns.cloudflare.com |
emblemcannabis.i nfo |
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2022-01- 11 |
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ns09.domaincontrol.com ns10.domaincontrol.com |
emblemcannabis. net |
Active |
2022-01- 11 |
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ns1.mediatemple.net ns2.mediatemple.net |
emblemcannabis. org |
Active |
2022-01- 11 |
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ns09.domaincontrol.com ns10.domaincontrol.com |
emblemcannabiss hop.com |
Active |
2022-01- 11 |
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ns09.domaincontrol.com ns10.domaincontrol.com |
emblemcorp.com |
Active |
2021-07- 28 |
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ns61.domaincontrol.com ns62.domaincontrol.com |
emblemcorp.de |
Active |
2022-06- 21 |
On |
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ns81.domaincontrol.com ns82.domaincontrol.com |
emblemexperienc e.ca |
Active |
2023-03- 08 |
On |
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ns43.domaincontrol.com ns44.domaincontrol.com |
emblemexperienc e.com |
Active |
2023-03- 08 |
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ns43.domaincontrol.com ns44.domaincontrol.com |
emblemexperienc e.info |
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2023-03- 08 |
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ns43.domaincontrol.com ns44.domaincontrol.com |
emblemexperienc e.net |
Active |
2023-03- 08 |
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ns43.domaincontrol.com ns44.domaincontrol.com |
emblemexperienc e.org |
Active |
2023-03- 08 |
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ns43.domaincontrol.com ns44.domaincontrol.com |
emblemgermany.c om |
Active |
2022-06- 21 |
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ns35.domaincontrol.com ns36.domaincontrol.com |
emblemgermany. de |
Active |
2022-06- 21 |
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ns81.domaincontrol.com ns82.domaincontrol.com |
emblemgermanyg mbh.de |
Active |
2022-06- 21 |
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ns81.domaincontrol.com ns82.domaincontrol.com |
emblemmed.ca |
Active |
2022-02- 09 |
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ns31.domaincontrol.com ns32.domaincontrol.com |
emblemmed.com |
Active |
2022-02- 09 |
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ns73.domaincontrol.com ns74.domaincontrol.com |
emblemmedical.c a |
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2022-02- 09 |
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ns31.domaincontrol.com ns32.domaincontrol.com |
emblemmedical.c o |
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ns73.domaincontrol.com ns74.domaincontrol.com |
emblemmedical.c om |
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ns73.domaincontrol.com ns74.domaincontrol.com |
emblemmedical.n et |
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ns73.domaincontrol.com ns74.domaincontrol.com |
emblemmedical.o rg |
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2022-02- 09 |
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ns73.domaincontrol.com ns74.domaincontrol.com |
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emblempharma.c a |
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2022-02- 09 |
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ns31.domaincontrol.com ns32.domaincontrol.com |
emblempharma.c o |
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2022-02- 09 |
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ns73.domaincontrol.com ns74.domaincontrol.com |
emblempharma.c om |
Active |
2022-02- 09 |
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ns73.domaincontrol.com ns74.domaincontrol.com |
emblempharma.n et |
Active |
2022-02- 09 |
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ns73.domaincontrol.com ns74.domaincontrol.com |
emblempharma.o rg |
Active |
2022-02- 09 |
On |
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ns73.domaincontrol.com ns74.domaincontrol.com |
eversocannabis.ca |
Active |
2021-12- 10 |
On |
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ns19.domaincontrol.com ns20.domaincontrol.com |
eversocannabis.co m |
Active |
2021-12- 10 |
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ns19.domaincontrol.com ns20.domaincontrol.com |
eversocannabis.ne t |
Active |
2021-12- 10 |
On |
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ns19.domaincontrol.com ns20.domaincontrol.com |
gettangled.ca |
Active |
2022-02- 08 |
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ns31.domaincontrol.com ns32.domaincontrol.com |
gettangled.co |
Active |
2022-02- 08 |
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ns47.domaincontrol.com ns48.domaincontrol.com |
gettangled.info |
Active |
2022-02- 08 |
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ns47.domaincontrol.com ns48.domaincontrol.com |
gettangled.net |
Active |
2022-02- 08 |
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ns47.domaincontrol.com ns48.domaincontrol.com |
gettangled.org |
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2022-02- 08 |
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ns47.domaincontrol.com ns48.domaincontrol.com |
itsjustaplant.ca |
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2022-04- 16 |
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ns59.domaincontrol.com ns60.domaincontrol.com |
iwillchangewellne ss.com |
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2023-01- 08 |
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ns05.domaincontrol.com ns06.domaincontrol.com |
kesara.ca |
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ns27.domaincontrol.com ns28.domaincontrol.com |
kesarawellness.ca |
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ns27.domaincontrol.com ns28.domaincontrol.com |
kesarawellness.co m |
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ns-455.awsdns-56.com ns-859.awsdns- 43.net ns-1212.awsdns-23.org ns- 1973.awsdns-54.co.uk |
kesarawellness.lif e |
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2022-12- 20 |
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ns27.domaincontrol.com ns28.domaincontrol.com |
KINDCANN.ORG |
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2025-01- 02 |
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ns51.domaincontrol.com ns52.domaincontrol.com |
KINDCANNMM.CA |
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ns51.domaincontrol.com ns52.domaincontrol.com |
KINDCANNMM.CO M |
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ns51.domaincontrol.com ns52.domaincontrol.com |
KINDMEDICALMA RIJUANA.COM |
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ns61.domaincontrol.com ns62.domaincontrol.com |
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KINDMM.CA |
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KINDMM.COM |
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ns51.domaincontrol.com ns52.domaincontrol.com |
lenustra.com |
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SCHEDULE 1.1(C)
SALE AND INVESTMENT SOLICITATION PROCESS
See attached.
Schedule “A”
Bidding Procedures for
the Sale and Investment Solicitation Process
Pursuant to an order of the Ontario Superior Court of Justice (Commercial List) (the “Court”) made on July 25, 2023 (as amended and restated, the “Initial Order”), Aleafia Health Inc., Emblem Corp., Emblem Cannabis Corporation, Emblem Realty Ltd., Growwise Health Limited, Canabo Medical Corporation, Aleafia Inc., Aleafia Farms Inc., Aleafia Brands Inc., Aleafia Retail Inc., 2672533 Ontario Inc. and 2676063 Ontario Inc. (collectively, the “Applicants” or the “Aleafia Group”) were granted protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA” and the proceedings thereunder, the “CCAA Proceedings”), and KSV Restructuring Inc. (“KSV”) was appointed monitor of the Applicants (in such capacity, the “Monitor”).
On August 15, 2023, the Court granted an order (the “SISP Order”), authorizing the Monitor, with the assistance of the Aleafia Group’s management team, to undertake a sale and investment solicitation process (“SISP”) for the sale of the Aleafia Group’s (i) property, assets and undertaking or shares in the capital of one or more of the Applicants (collectively, the “Property”) and (ii) business operations (the “Business”). The SISP will be conducted by the Monitor in the manner set forth herein and in accordance with the SISP Order.
Among other things, the SISP Order also: (a) approved the procedures set out in this Schedule (the “Bidding Procedures”) for the solicitation of offers or proposals (each, a “Bid”) for the acquisition of the Property and the Business or some portion thereof; and (b) approved the form of stalking horse agreement (as same may be amended from time to time pursuant to its terms and the SISP Order, the “Stalking Horse Agreement”) to be entered into between each of Aleafia Health Inc., Emblem Cannabis Corporation, Canabo Medical Corporation, Aleafia Farms Inc. and Aleafia Retail Inc., as vendors, and (PV) Canada Inc.2 (a wholly-owned subsidiary of the DIP Lender, the “Stalking Horse Bidder”), as purchaser, for the purposes of serving as the stalking horse bid in the SISP (the “Stalking Horse Bid”). For the avoidance of doubt, the implementation of the transactions contemplated by the Stalking Horse Agreement is conditional upon the Stalking Horse Bid being selected as the Successful Bid (as defined below) in accordance with the Bidding Procedures and Court approval of the Stalking Horse Agreement and the transactions contemplated therein on a subsequent motion to be brought by the Applicants following the completion of the SISP.
Defined Terms
1. | Capitalized terms used in these Bidding Procedures and not otherwise defined herein have the meanings given to them in Appendix “A” hereto. |
2 Stalking Horse Agreement and Implementation Steps contemplate the assignment/pledge of the DIP and Senior Loans and security to the Purchaser.
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Bidding Procedures
Opportunity
2. | The SISP is intended to solicit interest in and opportunities for a sale of, or investment in, all or part of the Aleafia Group's Property and Business (the "Opportunity"). The Opportunity may include one or more of a restructuring, refinancing, recapitalization or other form of reorganization of the business and affairs of one or more entity comprising the Aleafia Group as a going concern, or a sale of all, substantially all or one or more components of the Aleafia Group’s Property and Business as a going concern or otherwise. |
3. | Any sale of the Property or investment in the Business will be on an "as is, where is" basis and without surviving representations or warranties of any kind, nature, or description by the Monitor, the Aleafia Group or any of their respective agents, advisors or estates, and, in the event of a sale, all of the right, title and interest of the Aleafia Group in and to the Property to be acquired will be sold free and clear of, inter alia, all pledges, liens, security interests, encumbrances, claims, charges, options, and interests therein and thereon pursuant to Court orders, except as otherwise provided in such Court orders and definitive documents. |
4. | The Stalking Horse Agreement constitutes a Binding Offer (as defined below) by the Stalking Horse Bidder (which constitutes a Binding Offer Bidder (as defined below)) for all purposes and at all times under this SISP and will serve as the Stalking Horse Bid for purposes of this SISP and the Bidding Procedures and have the right to participate in the Auction (as defined below), if any. Notwithstanding the Stalking Horse Agreement and proposed transactions therein, all interested parties are encouraged to submit bids based on any form of Opportunity that they may elect to advance pursuant to the SISP, including as a Sale Proposal (as defined below), a Partial Sale Proposal (as defined below) or an Investment Proposal (as defined below). A copy of the Stalking Horse Agreement will be made available to all Qualified Bidders (as defined below) and a form of such agreement, to be uploaded to the VDR (as defined below), may be used as the basis for any Binding Offer made in the SISP. |
5. | The Bidding Procedures describe the manner in which prospective bidders may gain access to due diligence materials concerning the Aleafia Group, the Property and the Business, the manner in which bidders may participate in the SISP, the requirement of and the receipt and negotiation of bids received, the ultimate selection of a Successful Bidder (as defined below) and the requisite approvals to be sought from the Court in connection therewith. |
Subject to paragraph 18 below, the Monitor, in consultation with the Aleafia Group, may at any time and from time to time, modify, amend, vary or supplement the Bidding Procedures, without the need for obtaining an order of the Court or providing notice to Qualified Bidders, Binding Offer Bidders, the Successful Bidder or the Back-Up Bidder (as defined below) provided that such modification, amendment, variation or supplement is expressly limited to changes that do not alter, amend or prejudice the rights of such bidders (including the rights of the Stalking Horse Bidder, except with the authorization of the Stalking Horse Bidder) and are necessary or useful in order to give effect to the substance of the SISP, the Bidding Procedures or the SISP Order. Notwithstanding the foregoing, the dates or time limits indicated in the table contained below may be extended by the Monitor, as the Monitor deems necessary or appropriate, and with the consent of the DIP Lender, acting reasonably, or by order of the Court. | |
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The Monitor will post on the Monitor’s website and serve on the service list maintained in the CCAA Proceedings, as soon as practicable, any such modification, amendment, variation or supplement to these Bidding Procedures and inform the bidders impacted by such modifications. | |
In the event of a dispute as to the interpretation or application of the SISP Order or these Bidding Procedures, the Court will have exclusive jurisdiction to hear and resolve such dispute. For the avoidance of doubt, all bidders shall be deemed to have consented to the jurisdiction of the Court in connection with any disputes relating to the SISP, including the qualification of bids, the construction and enforcement of the SISP, and closing of the Successful Bid, as applicable. | |
A summary of the key dates pursuant to the SISP is as follows: |
Milestone |
Date |
Commence solicitation of interest from parties, including delivering NDA and Teaser Letter, and upon execution of NDA (each as defined below), Confidential Information Memorandum and access to VDR |
No later than two (2) Business Days after the granting of the SISP Order |
Binding Offer Deadline (as defined below) |
October 2, 2023 at 5:00 p.m. EST |
If no Binding Offers are received other than Stalking Horse Bid | |
Selection of Stalking Horse Bid as Successful Bid |
October 3, 2023 |
Approval Motion (as defined below) |
October 10, 2023 or the earliest date available thereafter |
Closing of Stalking Horse Bid |
As soon as possible but no later than November 22, 2023 |
If Binding Offers selected other than Stalking Horse Bid | |
Deadline to notify Qualified Bidders |
No later than October 6, 2023 |
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Auction, if needed |
October 9, 2023 |
Selection of Successful Bid and Back-Up Bidder, if needed |
October 9, 2023 or such later date immediately thereafter if the Auction is not completed in one day |
Approval Motion |
No later than October 17, 2023 |
Closing of the Successful Bid |
As soon as possible but no later than November 22, 2023 |
Solicitation of Interest: Notice of the SISP
6. | As soon as reasonably practicable, but, in any event, by no later than two (2) Business Days after the granting of the SISP Order: |
(a) | The Monitor, in consultation with the Aleafia Group, will prepare a list of potential bidders, including (i) parties that have approached the Applicants or the Monitor indicating an interest in the Opportunity, (ii) strategic and financial parties who the Monitor, in consultation with the Aleafia Group, believe may be interested in purchasing all or part of the Business or the Property or investing in the Aleafia Group pursuant to the SISP, and (iii) parties that showed an interest in the Aleafia Group and/or their Property prior to the date of the SISP Order including by way of the previous, out-of-court strategic review process, in each case whether or not such party has submitted a letter of intent or similar document (collectively, the “Known Potential Bidders”); |
(b) | a notice of the SISP (and such other relevant information which the Monitor, in consultation with the Aleafia Group, considers appropriate) (the "Notice") will be published by the Monitor in one or more trade industry and/or insolvency-related publications as may be considered appropriate by the Monitor; |
(c) | the Aleafia Group will issue a press release setting out the information contained in the Notice and such other relevant information which the Monitor and the Applicants determine is appropriate; and |
(d) | the Monitor, with the assistance of the Aleafia Group, will prepare (i) a process summary (the “Teaser Letter”) describing the Opportunity, outlining the process under the SISP and inviting recipients of the Teaser Letter to express their interest pursuant to the SISP; and (ii) a non-disclosure agreement in form and substance satisfactory to the Monitor and Aleafia Group and their respective counsel, which shall enure to the benefit of any purchaser of the Business or Property or any part thereof (an “NDA”). |
7. | The Monitor will cause the Teaser Letter and NDA to be sent to each Known Potential Bidder by no later than two (2) Business Days after the granting of the SISP Order, and to any other party who requests a copy of the Teaser Letter and NDA or who is identified to the Monitor as a potential bidder as soon as reasonably practicable after such request or identification, as applicable. |
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Virtual Data Room
8. | A confidential virtual data room (the “VDR”) in relation to the Opportunity will be made available by the Aleafia Group and the Monitor to Potential Bidders (as defined below) that have executed the NDA. The VDR will be made available as soon as practicable. The Monitor, in consultation with the Aleafia Group, may establish or cause the Aleafia Group to establish separate VDRs (including “clean rooms”), if the Aleafia Group reasonably determines that doing so would further the Aleafia Group’s and any Potential Bidder’s compliance with applicable antitrust and competition laws, or would prevent the distribution of commercially sensitive competitive information. The Monitor may also, in consultation with the Aleafia Group, limit the access of any Potential Bidder to any confidential information in the VDR where the Monitor, in consultation with the Aleafia Group, reasonably determines that such access could negatively impact the SISP, the ability to maintain the confidentiality of the information, the Business, the Property or their value. |
Qualified Bidders and Delivery of Confidential Information Memorandum
9. | Any party who wishes to participate in the SISP (a "Potential Bidder") must provide to the Monitor and counsel to the Aleafia Group, at the addresses specified in Appendix "B" hereto (including by email transmission), an NDA executed by it, acceptable to the Monitor, in consultation with the Aleafia Group, and written confirmation of the identity of the Potential Bidder, the contact information for such Potential Bidder and full disclosure of the direct and indirect principals of the Potential Bidder. |
10. | A Potential Bidder (who has delivered the executed NDA and letter as set out above) will be deemed a "Qualified Bidder" if the Monitor, in its reasonable judgment, and in consultation with the Aleafia Group, determines such person is likely, based on the availability of financing, experience and other considerations, to be able to consummate a sale or investment pursuant to the SISP. All Qualified Bidders will receive a Confidential Information Memorandum prepared by the Monitor and will be granted access to the VDR. For the avoidance of doubt, the Stalking Horse Bidder is, and will be deemed to be, a Qualified Bidder. |
11. | The Monitor will prepare and send to each Qualified Bidder a Teaser Letter and provide a copy of the Stalking Horse Agreement, and any material amendment thereto. The Aleafia Group, the Monitor and their respective advisors make no representation or warranty as to the information contained in the VDR, Teaser Letter, Confidential Information Memorandum or otherwise made available pursuant to the SISP. |
12. | At any time during the SISP, the Monitor may, in its reasonable judgment, and in consultation with the Aleafia Group, eliminate a Qualified Bidder from the SISP, in which case such bidder will be eliminated from the SISP and will no longer be a "Qualified Bidder" for the purposes of the SISP. |
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13. | Potential Bidders must rely solely on their own independent review, diligence, investigation and/or inspection of all information and of the Property and Business in connection with their participation in the SISP and any transaction they enter into with one or more of the entities comprising the Aleafia Group. |
Due Diligence
14. | The Monitor and the Aleafia Group, shall, subject to competitive and other business considerations, afford each Qualified Bidder such access to due diligence materials and information relating to the Property and Business as the Monitor, in consultation with the Aleafia Group, may deem appropriate. Due diligence access may include management presentations, access to the VDR, on-site inspections, and other matters which a Qualified Bidder may reasonably request and as to which the Monitor, in its reasonable judgment, and in consultation with the Aleafia Group, may agree. Any access or interactions with the Aleafia Group’s management and personnel shall be coordinated through, and involve a representative of, the Monitor. |
15. | The Monitor will designate one or more representatives of the Monitor to be solely responsible for coordinating and responding to all requests for information and due diligence access from Qualified Bidders and the manner in which such requests must be communicated. Neither the Monitor, nor the Aleafia Group through the Monitor, will be obligated to furnish any information relating to the Property or Business to any person other than to Qualified Bidders. Further, and for the avoidance of doubt, selected due diligence materials may be withheld from certain Qualified Bidders if the Monitor, in consultation with the Aleafia Group, determines such information to represent proprietary or sensitive competitive information. |
Formal Binding Offers
16. | Any Qualified Bidder (other than the Stalking Horse Bidder) that wishes to make a formal offer with respect to its offer to (A) acquire all or substantially all of the Property or Business, whether through an asset purchase, a share purchase or a combination thereof (either one, a “Sale Proposal”) or a portion of the Property or the Business (a “Partial Sale Proposal”); or (B) make an investment in, restructure, recapitalize or refinance the Aleafia Group or the Business or a portion thereof (an “Investment Proposal”) must submit a binding offer (a “Binding Offer”): (a) in the case of a Sale Proposal, in the form of a template purchase agreement provided in the VDR, along with a marked version showing edits to the original form of the template provided in the VDR and otherwise with a marked version compared to the Stalking Horse Agreement; or (b) in the case of an Investment Proposal, a plan or restructuring support agreement in form and substance satisfactory to the Monitor, in consultation with the Aleafia Group (the “Binding Offer Bidder”), in each case to the Monitor, no later 5 p.m. EST on October 2, 2023 (the "Binding Offer Deadline"). |
17. | A Binding Offer will be considered if it: |
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(a) | provides net cash proceeds on closing via provisions that meet the following requirements, that are not less than the aggregate total of: (A) the amount of cash payable under the Stalking Horse Agreement together with the amount of all secured indebtedness, liabilities and obligations owing by the Aleafia Group to the DIP Lender (both in respect of its outstanding pre-filing secured loans and advances under the DIP Facility), plus (B) the amount of cash payable to cover the Expense Reimbursement (as defined in the Stalking Horse Agreement), plus (C) a minimum overbid amount of $200,000, plus (D) the amount of cash payable to repay in full all of the secured indebtedness, liabilities and obligations owing by the Aleafia Group to 1260356 Ontario Limited (the amounts set forth in this paragraph 17(a), the “Minimum Purchase Price”); provided, however, that the Monitor may, in its reasonable judgment, and in consultation with the Aleafia Group, deem this criterion satisfied if the Sale Proposal, Partial Sale Proposal or the Investment Proposal, together with one or more other non-overlapping Sale Proposal, Partial Sale Proposal or Investment Proposal, in the aggregate, meet or exceed the Minimum Purchase Price and such Minimum Purchase Price is payable in full in cash on closing (such bids, “Aggregated Bids”, and each an “Aggregated Bid”) (the amount of the Minimum Purchase Price will be confirmed by the Monitor with Potential Bidders); |
(b) | is submitted on or before the Binding Offer Deadline by a Qualified Bidder; |
(c) | is made by way of binding, definitive transaction document(s) that is/are executed by the Binding Offer Bidder; |
(d) | is a Binding Offer: (i) to purchase all, substantially all, or a portion of the Property or the Business; and/or (ii) to make an investment in, restructure, recapitalize or refinance the Aleafia Group or the Business or a portion thereof, on terms and conditions reasonably acceptable to the Monitor and the Aleafia Group; |
(e) | identifies all executory contracts of the Aleafia Group that the Binding Offer Bidder will assume and clearly describes, for each contract or on an aggregate basis, how all monetary defaults and non-monetary defaults will be remedied, as applicable; |
(f) | is not subject to any financing condition, diligence condition or internal or board approval; |
(g) | is unconditional, other than upon the receipt of the Approval Order(s) (as defined below) and satisfaction of any other conditions expressly set forth in the Binding Offer; |
(h) | contains or identifies the key terms and provisions to be included in any Approval Order, including whether such order will be a “reverse vesting order”; |
(i) | contains the Binding Offer Bidder’s proposed treatment of employees of the applicable Aleafia Group entities (for example, anticipated employment offers and treatment of post-employment benefits); |
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(j) | includes acknowledgments and representations of the Binding Offer Bidder that it: (i) has had an opportunity to conduct any and all due diligence regarding the Opportunity prior to making its Binding Offer; (ii) has relied solely upon its own independent review, investigation and/or inspection of any documents and/or the Property and/or the Business in making its Binding Offer; (iii) did not rely upon any written or oral statements, representations, warranties, or guarantees whatsoever, whether express, implied, statutory or otherwise, regarding the Opportunity or the completeness of any information provided in connection therewith, other than as expressly set forth in the Binding Offer or other transaction document submitted with the Binding Offer; and (iv) promptly will commence any governmental or regulatory review of the proposed transaction by the applicable competition, antitrust or other applicable governmental authorities, including those regulating the cannabis sector; |
(k) | provides for (i) net cash proceeds on closing that are not less than the Minimum Purchase Price; unless it is a part of a bid that qualifies as an Aggregated Bid, as the case may be, in which case the total net cash proceeds of the Aggregated Bids will be not less than the Minimum Purchase Price; and (ii) evidence satisfactory to the Monitor of funds available to pay the Minimum Purchase Price on closing including written evidence of a firm, irrevocable commitment for financing or other evidence of ability to pay the Minimum Purchase Price on closing; |
(l) | is accompanied by a letter that confirms that the Binding Offer: (i) may be accepted by the Aleafia Group by countersigning the Binding Offer, and (ii) is irrevocable and capable of acceptance until the earlier of (A) two (2) Business Days after the date of closing of the Successful Bid; and (B) the Outside Date (as defined below); |
(m) | provides for any anticipated corporate, licensing, securityholder, Health Canada, legal or other regulatory approvals required to close the transaction, and an estimate of the anticipated time frame and any anticipated impediments for obtaining such approvals; |
(n) | does not provide for any break or termination fee, expense reimbursement or similar type of payment, it being understood and agreed that no bidder will be entitled to any bid protections; |
(o) | in the case of a Sale Proposal or Partial Sale Proposal, includes: |
(i) | the specific purchase price in Canadian dollars and a description of any non- cash consideration; |
(ii) | a description of the Property that is expected to be subject to the transaction and any of the Property expected to be excluded; |
(iii) | a specific indication of the sources of capital for the Binding Offer Bidder and the structure and financing of the transaction; and |
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(iv) | a description of those liabilities and obligations (including operating liabilities) which the Binding Offer Bidder intends to assume and which such liabilities and obligations it does not intend to assume and are to be excluded as part of the transaction; |
(p) | in the case of an Investment Proposal, includes: |
(i) | a description of how the Binding Offer Bidder proposes to structure the proposed investment, restructuring, recapitalization, refinancing or reorganization, and a description of any non-cash consideration; |
(ii) | the aggregate amount of the equity and/or debt investment to be made in the Business or the Applicants in Canadian dollars; |
(iii) | the underlying assumptions regarding the pro forma capital structure; |
(iv) | a specific indication of the sources of capital for the Binding Offer Bidder and the structure and financing of the transaction; and |
(v) | a description of those liabilities and obligations (including operating liabilities) which the Binding Offer Bidder intends to assume and which liabilities and obligations it does not intend to assume and are to be excluded as part of the transaction; |
(q) | prior to entering the Auction, the Binding Offer Bidder will be required to deliver to the Monitor a deposit in the amount of not less than 10% of the cash purchase price payable on closing or total new investment contemplated, as the case may be (the “Deposit”); |
(r) | is accompanied by an acknowledgement that (i) if the Binding Offer Bidder is selected as the Successful Bidder, that the Deposit will be non-refundable subject to approval of the Successful Bid by the Court and the terms described in paragraph 27 below; and (ii) if the Binding Offer Bidder is selected as the Back-Up Bidder, that the Deposit will be held and dealt with as described in paragraph 27 below; |
(s) | contemplates and reasonably demonstrates a capacity to consummate a closing of the transaction set out therein on the date that is twenty-one (21) days from the date of the issuance of the Approval Order approving such bid, or such earlier date as is practical for the parties to close the contemplated transaction, following the satisfaction or waiver of the conditions to closing (the “Target Closing Date”) and in any event no later than November 22, 2023 (the “Outside Date”); and |
(t) | such other information as reasonably requested or identified as being necessary or required by the Monitor, in consultation with the Aleafia Group. |
18. | The Monitor, in its reasonable judgment, and in consultation with the Aleafia Group, may waive strict compliance with any one or more of the requirements specified above (with the exception of the requirements contained in paragraphs 17(a) and 17(k), which cannot be waived without the prior written consent of the DIP Lender) and consider such non- compliant Binding Offer. For the avoidance of doubt, the completion of any Binding Offer shall be subject to the approval of the Court. |
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19. | In the circumstance that a Binding Offer, including one or more Binding Offers comprising an Aggregated Bid, does not provide for net cash proceeds on closing that are at least equal to the Minimum Purchase Price, the Monitor will consult with the DIP Lender and, with the consent of the DIP Lender, may elect that such Binding Offer nevertheless be considered as a potential Successful Bid and be entitled to participate in the Auction. |
Selection of Successful Bid
20. | The Monitor, in consultation with the Aleafia Group, may, following the receipt of any Binding Offer, including one or more Binding Offers comprising an Aggregated Bid, seek clarification with respect to any of the terms or conditions of such Binding Offer and/or request and negotiate one or more amendments to such Binding Offer prior to determining if the Binding Offer should be considered. |
21. | The Monitor and the Aleafia Group, will (i) review and evaluate each relevant Binding Offer, valued upon numerous factors as referenced above, including factors affecting the speed, certainty and value of the transaction (including any licensing, Health Canada, regulatory or legal approvals, assignments or third party contractual arrangements required to close the transactions); (ii) pursuant to paragraph 22(j) below, (A) identify the highest and otherwise best Binding Offer (the “Successful Bid”, and the Binding Offer Bidder making such Successful Bid, the “Successful Bidder”), and (B) the next highest and otherwise second best Binding Offer (the “Back-Up Bid”, and the Binding Offer Bidder making such Back-Up Bid, the “Back-Up Bidder”). Provided that the Ad Hoc Committee of Convertible Debentureholders confirms in writing that (i) it has not submitted or participated in the submission of a Binding Offer, and (ii) it is not affiliated or communicating with any Binding Offer Bidder, the Ad Hoc Steering Committee and counsel to the Ad Hoc Committee of Convertible Debentureholders shall be entitled to receive copies of each Binding Offer submitted by the Binding Offer Deadline on a confidential basis pursuant to one or more NDAs satisfactory to the Monitor as soon as reasonably practicable following receipt thereof. |
22. | In the event that no Binding Offer is selected (other than the Stalking Horse Bid), the Aleafia Group will promptly seek Court approval of the Stalking Horse Agreement and the transactions contemplated therein. In the event there is at least one Binding Offer in addition to the Stalking Horse Bid, the Successful Bid will be identified through an auction in accordance with the procedure set out below. |
23. | In the event that an auction (the “Auction”) is required in accordance with the terms of these Bidding Procedures, it will be conducted in accordance with the procedures set forth in this paragraph: |
(a) | The Auction will commence at a time to be designated by the Monitor, on October 9, 2023, and may, in the discretion of the Monitor, be held virtually via videoconference, teleconference or such other reasonable means as the Monitor deems appropriate. The Monitor will consult with the parties permitted to attend the Auction to arrange for the Auction to be so held. Subject to the terms hereof, the Monitor, in consultation with the Aleafia Group, may postpone the Auction. |
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(b) | The identity of each Binding Offer Bidder participating in the Auction will be disclosed, on a confidential basis, to other Binding Offer Bidders participating in the Auction. |
(c) | Except as otherwise permitted in the Monitor’s discretion, only the Aleafia Group, the Monitor and the Binding Offer Bidders, and, in each case, their respective professionals and representatives, will be permitted to attend the Auction. Only Binding Offer Bidders (including, for greater certainty, the Stalking Horse Bidder) are eligible to participate in the Auction. |
(d) | Binding Offer Bidders will participate in the Auction through a duly authorized representative. |
(e) | Except as otherwise set forth herein, the Monitor may waive and/or employ and announce at the Auction additional rules, including rules to facilitate the participation of parties participating in an Aggregated Bid, that are reasonable under the circumstances for conducting the Auction, provided that such rules are: (i) not inconsistent with the Initial Order, the SISP, the Bidding Procedures, the CCAA, or any order of the Court issued in connection with the CCAA Proceedings; (ii) disclosed to each Binding Offer Bidder; and (iii) designed, by the Monitor, in its reasonable judgment, and in consultation with the Aleafia Group, to result in the highest and otherwise best offer. |
(f) | The Monitor may arrange for the actual bidding at the Auction to be transcribed or recorded. Each Binding Offer Bidder participating in the Auction will designate a single individual to be its spokesperson during the Auction. |
(g) | Each Binding Offer Bidder participating in the Auction must confirm on the record, at the commencement of the Auction and again at the conclusion of the Auction, that it has not engaged in any collusion with the Aleafia Group or any other person, without the consent of the Monitor, regarding the SISP, that has not been disclosed to all other Binding Offer Bidders. For greater certainty, communications between the Stalking Horse Bidder and either the Aleafia Group or the Monitor with respect to and in preparation of the Stalking Horse Agreement, the SISP and the Bidding Procedures, prior to the issuance of the SISP Order and the commencement of the SISP will not represent collusion nor communications prohibited by this paragraph. |
(h) | Prior to the Auction, the Monitor will identify the highest and best of the Binding Offers received and such Binding Offers will constitute the opening bid for the purposes of the Auction (the “Opening Bid”). Subsequent bidding will continue in minimum increments valued at not less than $200,000 cash in excess of the Opening Bid. Each Binding Offer Bidder will provide evidence of its financial wherewithal and ability to consummate the transaction at the increased purchase price. Further, in the event that an Aggregated Bid qualifies to participate in the Auction, modifications to the bidding requirements may be made by the Monitor, in consultation with the Aleafia Group, to facilitate bidding by the participants in the Aggregated Bid. |
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(i) | All Binding Offer Bidders will have the right, at any time, to request that the Monitor announce, subject to any potential new bids, the then-current highest and best bid and, to the extent requested by any Binding Offer Bidder, use reasonable efforts to clarify any and all questions such Binding Offer Bidder may have regarding the Monitor’s announcement of the then-current highest and best bid. |
(j) | Each participating Binding Offer Bidder will be given reasonable opportunity to submit an overbid at the Auction to any then-existing overbids. The Auction will continue until the bidding has concluded and there is one remaining Binding Offer Bidder. The Monitor and the Aleafia Group shall determine which Binding Offer Bidders have submitted (i) the highest and otherwise best Binding Offer of the Auction, which shall be the Successful Bid, and (ii) the next highest and otherwise second best Binding Offer of the Auction, which shall be the Back-Up Bid. At such time and upon the conclusion of the bidding, the Auction will be closed, and the Binding Offer Bidder with the highest and otherwise best Binding Offer of the Auction will be the Successful Bidder. The Binding Offer Bidder with the next highest and otherwise second best Binding Offer of the Auction will be the Back- Up Bidder. |
(k) | Upon selection of a Successful Bidder and a Back-Up Bidder, if any, the Successful Bidder and the Back-Up Bidder, if any, shall each deliver to the Monitor and the Aleafia Group, an amended and executed transaction document that reflects their final bid and any other modifications submitted and agreed to during the Auction, prior to the filing of the motion material for the hearing to consider the Approval Motion. |
(l) | Any bids submitted after the conclusion of the Auction will not be considered. |
(m) | The Monitor, in consultation with the Aleafia Group, shall be at liberty to modify or to set additional procedural rules for the Auction as it sees fit, including to conduct the Auction by way of written submissions. |
24. | The Successful Bid and the Back-Up Bid, if any, will be selected by no later than 5:00 p.m. (Eastern Time) on October 9, 2023 (or such later date immediately thereafter if the Auction is conducted and not completed in one day) and the completion and execution of definitive documentation in respect of the Successful Bid and the Back-Up Bid, as applicable, must be finalized and executed no later than October 9, 2023 (or such later date immediately thereafter if the Auction is conducted and not completed in one day) which definitive documentation will be conditional only upon the receipt of the Approval Order(s) and the express conditions set out therein and will provide that the Successful Bidder will use all reasonable efforts to close the proposed transaction by no later than the Target Closing |
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Date, or such longer period as may be agreed to by the Monitor, in consultation with the Aleafia Group and the Successful Bidder, subject to the terms hereof. In any event, the Successful Bid must be closed by no later than the Outside Date. If a Back-Up Bid is identified in accordance with the SISP, then such Back-Up Bid shall remain open until the date (the “Back-Up Bid Outside Date”) on which the transaction contemplated by the Successful Bid is consummated or such earlier date as the Monitor, in consultation with the Aleafia Group, determines. If the transactions contemplated by the Successful Bid have not closed by the Outside Date or the Successful Bid is terminated for any reason prior to the Outside Date, the Aleafia Group and the Monitor may elect to, or by further order of the Court, seek to complete the transactions contemplated by the Back-Up Bid, and will promptly seek to close the transaction contemplated by the Back-Up Bid. The Back-Up Bid will be deemed to be the Successful Bid and the Aleafia Group will be deemed to have accepted the Back-Up Bid only when the Aleafia Group and the Monitor have made such election. |
Approval of Successful Bid
25. | The Aleafia Group will apply to the Court (the “Approval Motion”) for one or more orders: (i) approving the Successful Bid and authorizing the taking of such steps and actions and completing such transactions as are set out therein or required thereby (such order shall also approve the Back-Up Bid(s), if any, should the Successful Bid not close for any reason); and (ii) granting a vesting order and/or reverse vesting order to the extent that such relief is contemplated by the Successful Bid so as to vest title to any purchased assets and/or shares in the name of the Successful Bidder and/or vesting unwanted assets and liabilities out of one or more of the Aleafia Group (collectively, the “Approval Order(s)”). The Approval Motion will be held on a date to be scheduled by the Aleafia Group and confirmed by the Court upon application by the Aleafia Group. With the consent of the Monitor and the Successful Bidder, the Approval Motion may be adjourned or rescheduled by the Aleafia Group without further notice, by an announcement of the adjourned date at the Approval Motion or in a notice to the service list maintained in the CCAA Proceedings prior to the Approval Motion. The Aleafia Group will consult with the Monitor and the Successful Bidder regarding the motion material to be filed by the Aleafia Group for the Approval Motion. |
26. | All Binding Offers (other than the Successful Bid but including the Back-Up Bid) will be deemed rejected on and as of the date of the closing of the Successful Bid, with no further or continuing obligation of the Aleafia Group or the Monitor to any unsuccessful Binding Offer Bidders. |
Deposits
27. | The Deposit(s): |
(a) | will, upon receipt from the Binding Offer Bidder(s), be retained by the Monitor and deposited in a non-interest-bearing trust account; |
(b) | received from the Successful Bidder and the Back-Up Bidder, if any, will: |
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(i) | be applied to the purchase price to be paid by the applicable Successful Bidder or Back-Up Bidder whose Successful Bid or Back-Up Bid, as applicable, is the subject of the Approval Order(s), upon closing of the approved transaction; and |
(ii) | otherwise be held and refunded in accordance with the terms of the definitive documentation in respect of any Successful Bid or Back-Up Bid, provided that (i) all such documentation will provide that the Deposit will be fully refunded to the Back-Up Bidder on the Back-Up Bid Outside Date; and (ii) all such documentation will provide that the Deposit will be retained by the Aleafia Group and forfeited by the Successful Bidder, if the Successful Bid fails to close by the Outside Date, and such failure is attributable to any failure or omission of the Successful Bidder to fulfil its obligations under the terms of the Successful Bid; and |
(c) | received from the Binding Offer Bidder(s) that are not the Successful Bid or the Back-Up Bidder will be fully refunded, to the Binding Offer Bidder(s) that paid the Deposit(s) as soon as practical following the closing of the Successful Bid. |
28. | Notwithstanding anything to the contrary herein, the Stalking Horse Bidder will not be required to provide a Deposit. |
“As is, Where is”
29. | Any sale (or sales) of the Property or the Business or portions thereof will be on an “as is, where is” basis except for representations and warranties that are customarily provided in purchase agreements for a company subject to CCAA proceedings. Any such representations and warranties provided for in the definitive documents will not survive closing. |
Free of Any and All Claims and Interests
30. | In the event of a sale, to the extent permitted by law, all of the rights, title and interests of the Aleafia Group in and to the Property or the Business to be acquired will be sold free and clear of all pledges, liens, security interests, encumbrances, claims, charges, options, and interests thereon and there against (collectively, the “Claims and Interests”) pursuant to section 36(6) of the CCAA, such Claims and Interests to attach to the net proceeds of the sale of such Property or Business and/or excluded assets, as applicable (without prejudice to any claims or causes of action regarding the priority, validity or enforceability thereof), except to the extent otherwise set forth in the relevant transaction documents with a Successful Bidder. |
Credit Bidding
31. | The Stalking Horse Bidder will be entitled pursuant to the Stalking Horse Agreement, including for greater certainty as part of the Auction, as the case may be, to credit bid or retain as Retained Liabilities all or part of the existing secured obligations owing to it, including all interest, costs and fees to which the Stalking Horse Bidder is entitled pursuant to its relevant loan, interim financing, debenture, promissory note and/or security agreements with the Aleafia Group. |
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32. | Any other secured party of the Applicants may include as part of a Binding Offer under this SISP all or part of its existing secured obligations owing to it as a credit bid for the Business and the Property. For the avoidance of doubt, a secured party, including, without limitation, the Stalking Horse Bidder, may only make a credit bid in relation to the Property subject to such secured party’s valid and enforceable security (in each case, the “Encumbered Assets”). To the extent that a secured party wishes to submit a Binding Offer for Property that does not form part of the Encumbered Assets (the “Unencumbered Assets”), such secured party shall specify a cash purchase price allocated to the Unencumbered Assets while making a credit bid for the Encumbered Assets that are included in such Binding Offer. |
Confidentiality
33. | For greater certainty, other than as required in connection with any Auction or Approval Motion and subject to paragraph 21, neither the Aleafia Group nor the Monitor will disclose: (i) the identity of any Potential Bidder or Qualified Bidder (other than the Stalking Horse Bidder); or (ii) the terms of any bid, Sale Proposal, Investment Proposal or Binding Offer (other than the Stalking Horse Agreement), to any other bidder or any of its affiliates (provided that disclosure may be made to the DIP Lender when expressly contemplated by the SISP, such as in the event that no single Binding Offer provides for net cash proceeds that are at least equal to the Minimum Purchase Price), except to the extent the Monitor, with the consent of such applicable parties is seeking to combine separate bids into Aggregated Bids. Potential Bidders, Qualified Bidders (including the Stalking Horse Bidder) and each of their respective affiliates shall not communicate with, or contact, directly or indirectly, any other Potential Bidder, Qualified Bidder or their respective affiliates, or any secured creditors of members of the Aleafia Group, including the Ad Hoc Committee of Convertible Debentureholders, without the express written consent of the Monitor, and such communications or discussions are to take place under the supervision of the Monitor. |
Further Orders
34. | At any time during the SISP, the Aleafia Group or the Monitor may apply to the Court for advice and directions with respect to any aspect of this SISP including, but not limited to, the continuation of the SISP or with respect to the discharge of its powers and duties hereunder. |
Additional Terms
35. | In addition to any other requirement of the SISP: |
(a) | The Aleafia Group and the Monitor, as applicable, will at all times prior to the selection of a Successful Bid use commercially reasonable efforts to facilitate a competitive bidding process in the SISP including, without limitation, by actively soliciting participation by all persons who would be customarily identified as potential bidders in a process of this kind or who may be reasonably proposed by any of the Aleafia Group’ stakeholders as a potential bidder. |
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(b) | Any consent, approval or confirmation to be provided by the Stalking Horse Bidder, the DIP Lender, the Aleafia Group and/or the Monitor is ineffective unless provided in writing and any approval required pursuant to the terms hereof is in addition to, and not in substitution for, any other approvals required by the CCAA or as otherwise required at law in order to implement a Successful Bid. For the avoidance of doubt, a consent, approval or confirmation provided by email will be deemed to have been provided in writing for the purposes of this paragraph. |
(c) | Prior to seeking Court approval for any transaction or bid contemplated by this SISP, the Monitor will provide a report to the Court on the SISP process, parts of which may be filed under seal, including in respect of any and all bids received. |
36. | This SISP does not, and will not be interpreted to create any contractual or legal relationship between the Aleafia Group and any other party, other than as specifically set forth in the NDA or any other definitive agreement executed. |
37. | Notwithstanding anything to the contrary herein, the Monitor shall have no liability whatsoever to any person or entity, including without limitation any Potential Bidder, Qualified Bidder, Binding Offer Bidder, Successful Bidder or any other creditor or stakeholder, or any Applicant, as a result of implementation or otherwise in connection with this SISP, except to the extent that any such liabilities result from the gross negligence or wilful misconduct of the Monitor, as determined by the Court, and all such persons or entities shall have no claim against the Monitor in respect of the SISP for any reason whatsoever. |
38. | Participants in the SISP are responsible for all costs, expenses and liabilities incurred by them in connection with the submission of any Binding Offer, due diligence activities, and any other negotiations or other actions whether or not they lead to the consummation of a transaction. |
APPENDIX A
DEFINED TERMS
“Ad Hoc Committee of the Convertible Debentureholders” means the ad hoc group of holders of Aleafia Health Inc.’s secured convertible debentures issued under the amended and restated debenture indenture providing for the issue of certain convertible debentures dated as of June 27, 2022 between Aleafia Health Inc. and Computershare Trust Company of Canada, as the trustee, as supplemented by: (i) the first supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5% Series A Secured Convertible Debentures Due June 30, 2024); (ii) the second supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5% Series B Secured Convertible Debentures Due June 30, 2026); and (iii) the third supplemental indenture dated as of June 27, 2022 (providing for the issue of 8.50% Series C Secured Debentures Due June 30, 2028).
“Ad Hoc Steering Committee” means the three member committee elected by the Ad Hoc Committee of the Convertible Debentureholders to represent and advance the interests of the Ad Hoc Committee of the Convertible Debentureholders.
“Business Day” means a day on which banks are open for business in Toronto but does not include a Saturday, Sunday or statutory holiday in the Province of Ontario.
“DIP Lender” means Red White & Bloom Brands Inc. and its successors and permitted assigns. “Retained Liabilities” has the meaning given to it in the Stalking Horse Agreement.
APPENDIX “B”
The Monitor:
KSV Restructuring Inc.
150 King Street West, Suite 2308
Toronto, ON M5H 1J9
Attention: Noah Goldstein and Eli Brenner
Email: ngoldstein@ksvadvisory.com / ebrenner@ksvadvisory.com
with copies to:
Osler, Hoskin & Harcourt LLP
100 King Street West
1 First Canadian Place
Suite 6200, P.O. Box 50
Toronto, ON M5X 1B8
Attention: Marc Wasserman and Martino Calvaruso
Email: mwasserman@osler.com / mcalvaruso@osler.com
The Applicants
Aleafia Group
c/o Aird & Berlis LLP
Brookfield Place, 181 Bay St. #1800
Toronto, ON M5J 2T9
Attention: Kyle Plunkett and Mel Cole
Email: kplunkett@airdberlis.com / mcole@airdberslis.com
SCHEDULE 2.3
EXCLUDED ASSETS
· | Equity Interests of Aleafia Health and any other Applicants that are not a Purchased Entity. |
SCHEDULE 2.3(C)(D)
EXCLUDED CONTRACTS AND EXCLUDED LEASES
· | Any and all of the Applicants’ existing directors and officers insurance policies. |
· | Any and all loan and security documents between any of the Purchased Entities and 126. |
· | All leases and contracts that will be terminated pursuant to disclaimer notice pursuant to Section 32 CCAA. |
· | The amended and restated debenture indenture dated as of June 27, 2022 between Aleafia Health and Computershare Trust Company of Canada, as indenture trustee, as supplemented by: (a) the first supplemental indenture providing for the issuance of the 8.50% Series A Secured Convertible Debentures due June 30, 2024, (b) the second supplemental indenture providing for the issuance of the 8.50% Series B Secured Debentures due June 30, 2026 and (c) the third supplemental indenture providing for the issuance of the 8.50% Series C Secured Convertible Debentures due June 30, 2028, and any and all loan and security documents related thereto to which any of the Purchased Entity is a party to. |
· | The collective bargaining agreement between Canabo Medical Corp., a division of Aleafia Health Inc., as employer, and UNIFOR, Local 597, as union, with a term of September 27, 2022 – December 31, 2024 (as such agreement may have been amended, restated, supplemented or modified from time to time). |
SCHEDULE 2.4
RETAINED LIABILITIES
· | Stub-period post-filing Claims contemplated by the DIP but not paid yet on the Closing Date. |
SCHEDULE 2.5
EXCLUDED LIABILITIES
· | Intercompany Claims |
· | Unsecured promissory notes issued to Royal Group Resources Ltd. |
· | All pre-filing Claims and any liabilities arising from the termination of leases or other contracts. |
· | All pre-filing Claims, including without limitation any amounts owing in respect of pre-filing excise Tax, GST/ HST. |
· | All liabilities owing to any Terminated Employees in respect of the termination of employment of such Terminated Employee, including all amounts owing on account of damages in lieu of, statutory notice, termination payments, severance, benefits, bonuses or other compensation or entitlements. |
· | All liabilities of any of the Companies, the Purchased Entities or Aleafia Health in connection with the amended and restated debenture indenture dated as of June 27, 2022 between Aleafia Health and Computershare Trust Company of Canada, as indenture trustee, as supplemented by: (a) the first supplemental indenture providing for the issuance of the 8.50% Series A Secured Convertible Debentures due June 30, 2024, (b) the second supplemental indenture providing for the issuance of the 8.50% Series B Secured Debentures due June 30, 2026 and (c) the third supplemental indenture providing for the issuance of the 8.50% Series C Secured Convertible Debentures due June 30, 2028, and any and all loan and security documents related thereto to which any of the Purchased Entity is a party to. |
SCHEDULE 2.8(B)
IMPLEMENTATION STEPS1
1. | If requested by the Purchaser no less than seven (7) days before the Closing Date, the applicable Companies shall obtain director and shareholder approval of the requested amendments to their respective articles as contemplated by the Articles of Amendment and cause such Articles of Amendment to be filed with the applicable Governmental Authority no later than two (2) days prior to the Closing Date. |
2. | At least three (3) Business Days prior to the Closing Date, the Companies shall form Residual Co. in accordance with the terms contained herein, in form satisfactory to the Purchaser, acting reasonably, and the directors thereof shall not include the directors or related parties of the Purchaser, and no such entity shall be a flow through entity for Canadian or U.S. tax purposes unless approved by the Purchaser. |
3. | At least one (1) Business Day prior to the Closing Date, the Purchaser and RWB shall have entered into an assignment of indebtedness and security agreement, pursuant to which the Senior Loan Agreement, DIP Facility Term Sheet and all security and ancillary documents granted in favour of RWB in connection with each of the Senior Loan Agreement and DIP Facility Term Sheet shall be assigned to the Purchaser. |
4. | On the Closing Date, all employees deemed to be Terminated Employees pursuant to Section 9.6 will be terminated by the applicable Purchased Entity. |
5. | At Closing, the Excluded Assets and the Excluded Liabilities will transferred from the Purchased Entities to Residual Co. and Residual Co. shall assume the Excluded Liabilities in consideration of the transfer of the Excluded Assets. |
6. | At Closing, the Purchaser will deliver the Purchase Price by delivering the Credit Bid Releases to the Applicants and the Cash Consideration to the Purchased Entities (provided that such Purchase Price shall not be applied until the occurrence of (7), below). |
7. | The outstanding Equity Interests in the Companies will be cancelled and the Purchaser will subscribe for the Purchased Shares. |
1 The Implementation Steps and the timing thereof are to be developed in accordance with Section 2.8 and are intended to include or reflect the concepts included below.
SCHEDULE 4.6
SUBSIDIARIES
Name | Jurisdiction of Incorporation | Tax Registration Number | |
1. | Emblem Cannabis Corporation | Federal (Canada) | 85070 8975 RC0002 |
2. | Growwise Heath Limited | Ontario | 81060 7390 RC0001 |
3. | Canabo Medical Corporation | Federal (Canada) | 81275 5635 RC0001 |
4. | Aleafia Farms Inc. | Ontario | 88009 9247 RC0001 |
5. | Aleafia Retail Inc. | Ontario | 72490 7688 RC0001 |
Additional Entity
Name | Jurisdiction of Incorporation | |
6. | One Plant (Retail) Corp. | Ontario |
SCHEDULE 7.1(D)
TRANSACTION REGULATORY APPROVALS
Any consent, approval and / or grant upon change of control of either of the Companies or any of the Purchased Entities as required under Cannabis Laws. For the purposes hereof “Cannabis Laws” shall mean (i) the Cannabis Licence Act, 2018, S.O. 2018, c.12, Sched. 2, the Cannabis Act, S.C. 2018, c. 16 (Canada), the Cannabis Control Act, 2017, S.O. 2017, c. 26, Schedule 1 (Ontario), and any other applicable governing legislation and the regulations thereunder, all as may be amended, supplemented or replaced from time to time and those which regulate the sale or distribution of cannabis (in various forms), cannabinoid product or paraphernalia commonly associated with cannabis and/or related cannabinoid products; and (ii) any and all other applicable provincial or municipal laws or regulations governing the cultivation, manufacture, production, storage, marketing or sale of cannabis that may be in effect from time to time.
Exhibit 99.5
Red White & Bloom Brands Inc.
Condensed Interim Consolidated Financial Statements
For the periods ended June 30, 2023, and 2022
|
TABLE OF CONTENTS
RED WHITE & BLOOM BRANDS, INC.
NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements; they must be accompanied by a notice indicating that the condensed interim consolidated financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim consolidated financial statements of Red White & Bloom Brands, Inc. (the “Company”) have been prepared and are the responsibility of the Company’s management. The unaudited condensed interim consolidated financial statements are prepared in accordance with International Financial Reporting Standards and reflect management’s best estimates and judgment based on information currently available.
The Company’s independent auditor has not performed a review of these condensed interim consolidated financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of the condensed interim consolidated financial statements by an entity’s auditor.
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RED WHITE & BLOOM BRANDS, INC.
MANAGEMENTS’ RESPONSIBILITY FOR FINANCIAL REPORTING
To the Shareholders of Red White & Bloom Brands Inc.:
Management is responsible for the preparation and presentation of the accompanying condensed interim consolidated financial statements (the “Financial Statements”), including responsibility for significant accounting judgments and estimates in accordance with International Financial Reporting Standards. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required.
In discharging its responsibilities for the integrity and fairness of the Financial Statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded, and financial records are properly maintained to provide reliable information for the preparation of the Financial Statements.
The Board of Directors is responsible for overseeing management in the performance of its financial reporting responsibilities. The Board has the responsibility of meeting with management and external auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting issues. The Board is also responsible for recommending the appointment of the Company's external auditors.
August 29, 2023
/s/ “Brad Rogers” Director
/s/ “Colby De Zen” Director
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RED WHITE & BLOOM BRANDS, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In Canadian Dollars)
As
at June 30, 2023 |
As
at December 31, 2022 |
|||||||
$ | $ | |||||||
Assets |
||||||||
Current assets | ||||||||
Cash and cash equivalents (note 8) | 3,884,521 | 2,747,138 | ||||||
Accounts receivable (note 9) | 15,490,015 | 8,439,143 | ||||||
Notes receivable (note 10) | 14,314,566 | |||||||
Prepaid expenses (note 11) | 842,605 | 1,079,424 | ||||||
Deposits (note 12) | 6,557,165 | 4,231,775 | ||||||
Inventory (note 13) | 17,381,072 | 14,457,013 | ||||||
Biological assets (note 14) | 1,779,082 | 4,291,458 | ||||||
Other current assets | 772,332 | — | ||||||
Total current assets | 61,021,358 | 35,245,951 | ||||||
Non-current assets | ||||||||
Property, plant and equipment, net (note 15) | 71,028,316 | 73,873,258 | ||||||
Intangible assets, net (note 16) | 122,535,105 | 125,348,600 | ||||||
Right-of-use assets, net (note 18) | 19,464,272 | 20,703,498 | ||||||
Goodwill (note 17) | 36,653,275 | 37,494,861 | ||||||
Total non-current assets | 249,680,968 | 257,420,217 | ||||||
Total assets | 310,702,326 | 292,666,168 | ||||||
Liabilities and Shareholders’ Equity |
||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities (note 19) | 38,843,047 | 37,320,277 | ||||||
Short-term notes payable (note 20) | 28,332,509 | 1,974,584 | ||||||
Short-term credit facility (note 20) | 18,298,496 | 17,551,668 | ||||||
Short-term convertible debentures (note 20) | 37,083,621 | — | ||||||
Short-term derivative liabilities (note 20) | 429 | — | ||||||
Short-term lease obligations (note 18) | 615,645 | 602,418 | ||||||
Income taxes payable | 15,294,451 | 12,633,699 | ||||||
Other current liabilities | 5,226,682 | 672,064 | ||||||
Total current liabilities | 143,694,880 | 70,754,710 | ||||||
Non-current liabilities | ||||||||
Long-term notes payable (note 20) | 93,597,010 | 87,357,123 | ||||||
Long-term convertible debentures (note 20) | 32,765,279 | 64,897,343 | ||||||
Long-term lease obligations (note 18) | 21,663,975 | 22,285,277 | ||||||
Derivative liabilities (note 20) | 923,172 | 3,230,322 | ||||||
Deferred income tax liability | 13,043,840 | 15,941,348 | ||||||
Total non-current liabilities | 161,993,276 | 193,711,413 | ||||||
Total liabilities | 305,688,156 | 264,466,123 | ||||||
Shareholders' equity |
||||||||
Share capital (note 21) | 342,068,972 | 342,068,972 | ||||||
Contributed surplus | 16,826,996 | 16,368,382 | ||||||
Cumulative translation adjustment | 5,925,999 | 10,705,725 | ||||||
Accumulated deficit | (369,191,809 | ) | (352,649,020 | ) | ||||
Non-controlling interest (note 25) | 9,384,012 | 11,705,986 | ||||||
Total shareholders' equity | 5,014,170 | 28,200,045 | ||||||
Total liabilities and shareholders' equity | 310,702,326 | 292,666,168 |
Nature of operations (note 1) Segmented results (note 29) Subsequent events (note 32) Commitments and contingencies (note 28) |
Approved by the Board
/s/ “Brad Rogers” Director /s/ “Colby De Zen” Director |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Page 3 |
RED WHITE & BLOOM BRANDS, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF PROFIT & LOSS & COMPREHENSIVE PROFIT & LOSS
(In Canadian Dollars)
3
months ended June 30, 2023 |
3
months ended June 30, 2022 |
6
months ended June 30, 2023 |
6
months ended June 30, 2022 |
|||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | ||||||||||||||||
Sales revenue (note 23) | 21,915,629 | 27,402,453 | 48,961,717 | 55,449,254 | ||||||||||||
Cost of goods sold, before fair value adjustments | 15,049,199 | 22,614,856 | 32,685,613 | 39,320,191 | ||||||||||||
Gross Profit before fair market value adjustments | 6,866,430 | 4,787,597 | 16,276,104 | 16,129,063 | ||||||||||||
Unrealized changes in fair value of biological assets | (1,287,157 | ) | (17,973 | ) | (1,737,952 | ) | (2,467,978 | ) | ||||||||
Realized fair value amounts included in inventory sold | 616,685 | (1,351,571 | ) | 10,201 | (1,074,644 | ) | ||||||||||
Gross profit after fair market value adjustments | 6,195,958 | 3,418,053 | 14,548,353 | 12,586,441 | ||||||||||||
Operating Expenses | ||||||||||||||||
General and administration (note 24) | 7,331,809 | 10,211,025 | 16,106,375 | 18,759,367 | ||||||||||||
Marketing expenses | 578,131 | 824,340 | 1,131,908 | 1,469,996 | ||||||||||||
Share-based compensation (note 21) | 142,405 | — | 458,614 | 273,000 | ||||||||||||
Depreciation and amortization (note 15, 16) | 1,402,809 | 1,392,394 | 2,069,149 | 2,873,439 | ||||||||||||
Bad debt expense (note 9) | 379,716 | 891,736 | 934,852 | 1,299,276 | ||||||||||||
Total Operating Expenses | 9,834,870 | 13,319,495 | 20,700,898 | 24,675,078 | ||||||||||||
Loss from operations before other expenses (income) | (3,638,912 | ) | (9,901,442 | ) | (6,152,545 | ) | (12,088,637 | ) | ||||||||
Other expense (income) | ||||||||||||||||
Other expense (income) | (336,747 | ) | — | (384,972 | ) | — | ||||||||||
Accreted interest, leases (note 18) | 663,549 | 1,371,148 | 1,345,114 | 2,000,899 | ||||||||||||
Finance expense, net (note 20) | 7,503,331 | 1,809,731 | 14,422,752 | 9,183,117 | ||||||||||||
(Gain) loss on revaluation of financial instruments (note 20) | (1,276,619 | ) | — | (2,284,312 | ) | — | ||||||||||
(Gain) loss on disposal of assets (note 15) | 144,359 | — | 144,359 | — | ||||||||||||
Foreign exchange | (1,020,309 | ) | 2,754,670 | (995,992 | ) | 1,352,703 | ||||||||||
Total other expenses (income) | 5,677,564 | 5,935,549 | 12,246,949 | 12,536,719 | ||||||||||||
Loss before income taxes | (9,316,476 | ) | (15,836,991 | ) | (18,399,494 | ) | (24,625,356 | ) | ||||||||
Current income tax expense | (147,034 | ) | (1,133,396 | ) | (2,122,431 | ) | (3,204,566 | ) | ||||||||
Deferred income tax recovery | — | — | 1,696,281 | — | ||||||||||||
Net income (loss) from continuing operations | (9,463,510 | ) | (16,970,387 | ) | (18,825,644 | ) | (27,829,922 | ) | ||||||||
Gain (loss) from discontinued operations (note 31) | (4,953 | ) | (675,823 | ) | (39,118 | ) | (1,573,476 | ) | ||||||||
Net loss for the period | (9,468,463 | ) | (17,646,210 | ) | (18,864,762 | ) | (29,403,398 | ) | ||||||||
Translation adjustment | (4,600,484 | ) | 2,772,655 | (4,779,726 | ) | 1,394,057 | ||||||||||
Net income (loss) and Comprehensive income (loss) | (14,068,947 | ) | (14,873,555 | ) | (23,644,488 | ) | (28,009,341 | ) | ||||||||
Net loss attributable to: |
||||||||||||||||
Shareholders | (8,348,525 | ) | (16,140,544 | ) | (16,542,788 | ) | (27,566,328 | ) | ||||||||
Non-controlling interests | (1,119,938 | ) | (1,505,666 | ) | (2,321,974 | ) | (1,837,070 | ) | ||||||||
Net loss and comprehensive loss attributable to: | ||||||||||||||||
Shareholders | (12,949,009 | ) | (13,367,889 | ) | (21,322,514 | ) | (26,172,271 | ) | ||||||||
Non-controlling interests | (1,119,938 | ) | (1,505,666 | ) | (2,321,974 | ) | (1,837,070 | ) | ||||||||
Net loss per share, basic and diluted (note 22) | (0.02 | ) | (0.04 | ) | (0.04 | ) | (0.08 | ) | ||||||||
Weighted average number of outstanding common shares, basic and diluted |
474,738,811 | 401,199,635 | 469,521,901 | 337,503,251 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Page 4 |
RED WHITE & BLOOM BRANDS, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In Canadian Dollars)
Convertible
Series I Preferred Shares |
Convertible
Series I Preferred Shares |
Convertible
Series II Preferred Shares |
Convertible
Series II Preferred Shares |
|
Common Shares |
|
|
Common Shares |
|
Non- Controlling Interests |
|
Contributed surplus |
|
Cumulative translation adjustment |
|
Accumulated Deficit |
|
|
Total equity |
| ||||||||||||||||||||||||
# | $ | # | $ | # | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Balance, January 1, 2022 | 3,181,250 | 5,637,175 | 92,985,275 | 46,736,677 | 260,860,351 | 229,792,308 | 18,062,258 | 14,192,749 | (692,849 | ) | (116,877,562 | ) | 196,850,756 | |||||||||||||||||||||||||||||||
Exercise. restricted share units (note 21) | — | — | — | — | 910,000 | 419,000 | — | (419,000 | ) | — | — | — | ||||||||||||||||||||||||||||||||
Issuance, restricted share units (note 21) | — | — | — | — | — | — | — | 273,000 | — | — | 273,000 | |||||||||||||||||||||||||||||||||
Conversion, Preferred shares (note 21) | — | — | (129,985,275 | ) | (65,976,677 | ) | 139,125,139 | 65,976,677 | — | — | — | — | — | |||||||||||||||||||||||||||||||
Shares issued, Pharmaco Acquisition (note 7) | — | — | 37,000,000 | 19,240,000 | 37,000,000 | 19,240,000 | — | — | — | — | 38,480,000 | |||||||||||||||||||||||||||||||||
Currency translation adjustment | — | — | — | — | — | — | — | — | 1,394,057 | — | 1,394,057 | |||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (1,837,070 | ) | — | — | (27,566,328 | ) | (29,403,398 | ) | ||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 3,181,250 | 5,637,175 | — | — | 437,895,490 | 315,427,985 | 16,225,188 | 14,046,749 | 701,208 | (144,443,890 | ) | 207,594,415 |
Convertible Series I Preferred Shares | Convertible Series I Preferred Shares | Convertible Series II Preferred Shares | Convertible Series II Preferred Shares | Common Shares | Common Shares | Non- Controlling Interests | Contributed surplus | Cumulative translation adjustment | Accumulated Deficit | Total equity | ||||||||||||||||||||||||||||||||||
# | $ | # | $ | # | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Balance, January 1, 2023 | — | — | — | — | 469,521,901 | 342,068,972 | 11,705,986 | 16,368,382 | 10,705,725 | (352,649,020 | ) | 28,200,045 | ||||||||||||||||||||||||||||||||
Stock based compensation (note 21) | — | — | — | — | — | — | — | 479,782 | — | — | 479,782 | |||||||||||||||||||||||||||||||||
Stock option forfeitures (note 21) | — | — | — | — | — | — | — | (21,168 | ) | — | — | (21,168 | ) | |||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | — | — | — | (4,779,726 | ) | — | (4,779,726 | ) | |||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (2,321,974 | ) | — | — | (16,542,789 | ) | (18,864,763 | ) | |||||||||||||||||||||||||||||||
Balance, June 30, 2023 | — | — | — | — | 469,521,901 | 342,068,972 | 9,384,012 | 16,826,996 | 5,925,999 | (369,191,809 | ) | 5,014,170 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Page 5 |
RED WHITE & BLOOM BRANDS, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Canadian Dollars)
For
the 6 months ended June 30, 2023 |
For
the 6 months ended June 30, 2022 |
|||||||
Cash flow from operating activities: | ||||||||
Net loss for the period | (18,864,762 | ) | (29,403,398 | ) | ||||
|
||||||||
Items not involving cash: | ||||||||
Accreted interest on leases (note 18) | 1,345,114 | 2,000,899 | ||||||
Adjustments to lease obligations (note 18) | (77,179 | ) | — | |||||
Depreciation of right-of-use assets (note 18) | 815,247 | 969,934 | ||||||
Adjustment to right-of-use assets (note 18) | (72,244 | ) | ||||||
Depreciation of property, plant and equipment (note 15) | 2,324,745 | 1,903,505 | ||||||
Disposal of property, plant and equipment (note 15) | (310,524 | ) | — | |||||
Accrued interest on interest receivable (note 10) | (161,622 | ) | — | |||||
Amortized discount on note receivable (note 10) | (152,944 | ) | — | |||||
Accrued interest on short-term notes payable (note 20) | 22,251 | — | ||||||
Accrued interest on long-term notes payable (note 20) | 7,040,909 | — | ||||||
Accrued interest on convertible debentures (note 20) | 2,745,997 | — | ||||||
Accreted interest on convertible debentures (note 20) | 2,134,457 | — | ||||||
Accrued interest on credit facility (note 20) | 1,055,287 | — | ||||||
Finance Fees | — | 1,152,965 | ||||||
Revaluation of financial instruments (note 20) | (2,284,312 | ) | — | |||||
Stock based compensation (note 21) | 458,614 | — | ||||||
Issuance of restricted share units (note 21) | — | 273,000 | ||||||
Realized (gain) loss in cost of sales (note 13) | 10,201 | (1,074,644 | ) | |||||
Fair value adjustment on biological assets (note 14) | (1,737,952 | ) | 2,467,978 | |||||
(5,708,718 | ) | (21,709,761 | ) | |||||
Changes in non-cash working capital items: | ||||||||
Accounts receivable (note 9) | (7,230,172 | ) | (303,762 | ) | ||||
Prepaid expenses (note 11) | 124,586 | (210,386 | ) | |||||
Deposits (note 12) | (2,325,390 | ) | — | |||||
Inventory (note 13) | (3,258,753 | ) | (7,197,817 | ) | ||||
Biological Assets (note 14) | 4,154,005 | (223,434 | ) | |||||
Accounts payable and accrued liabilities (note 19) | 1,478,726 | 22,287,601 | ||||||
Current Income tax payable | 3,031,340 | 7,152,511 | ||||||
Deferred income taxes | (2,626,718 | ) | — | |||||
Other assets | (772,332 | ) | — | |||||
Other liabilities | 5,226,682 | — | ||||||
Net cash provided by (used in) operating activities | (7,906,743 | ) | (205,048 | ) | ||||
Cash flows from investing activities | ||||||||
Acquisition of property, plant and equipment | (1,460,269 | ) | (1,496,971 | ) | ||||
Acquisition of right-of use-assets | 152,155 | — | ||||||
Sale of investment, net | — | 55,293,007 | ||||||
Acquisition of PharmaCo, Inc. | — | 747,226 | ||||||
Net cash provided by (used in) investing activities | (1,307,114 | ) | 54,543,262 | |||||
Cash flow from financing activities: | ||||||||
Issuance of long-term note (note 20) | 2,067,225 | — | ||||||
Amendment of long-term notes payable (note 20) | 5,979,150 | — | ||||||
Addition to long-term notes payable (note 20) | 8,946,000 | — | ||||||
Principal payments on short-term notes payable (note 20) | (37,487 | ) | — | |||||
Principal payments on long-term notes payable (note 20) | (1,293,125 | ) | — | |||||
Interest payments on short-term notes payable (note 20) | (1,862,691 | ) | — | |||||
Principal payments on credit facility (note 20) | — | (51,266,132 | ) | |||||
Interest payments on credit facility (note 20) | (354,156 | ) | — | |||||
Amendment fees on credit facility (note 20) | 136,756 | — | ||||||
Amendment fee payments on credit facility (note 20) | (91,059 | ) | — | |||||
Addition of lease obligation | 152,481 | — | ||||||
Principal payments on lease obligations (note 18) | (157,241 | ) | (2,000,899 | ) | ||||
Interest payments on lease obligations (note 18) | (1,345,114 | ) | (264,466 | ) | ||||
Net cash provided by (used in) financing activities | 12,140,738 | (53,531,497 | ) | |||||
Foreign exchange affecting cash | (1,789,497 | ) | 1,352,703 | |||||
Change in cash during the year | 1,137,383 | 2,159,420 | ||||||
Cash, beginning of year | 2,747,138 | 818,753 | ||||||
Cash, end of year | 3,884,521 | 2,978,173 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Page 6 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
1. NATURE OF OPERATIONS AND GOING CONCERN
Red White & Bloom Brands Inc., (the "Company" or "RWB") is publicly traded, with its common shares currently trading on the Canadian Securities Exchange (the “CSE”) under the trading symbol "RWB" and in the United States on the OTCQX under the symbol "RWBYF". The Company was incorporated on March 12, 1980, pursuant to the Business Corporations Act, British Columbia, with its registered office is located at Suite 810 - 789 West Pender Street, Vancouver, British Columbia, V6C 1H2.
The unaudited condensed interim consolidated financial statements for the period ended June 30, 2023 (the “Financial Statements”), have been prepared under the assumption of a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at June 30, 2023, the Company incurred accumulated net comprehensive losses of $369,191,809 (December 31, 2022; $352,649,020) since inception, including non-cash impairments of $214,764,297 realized in fiscal 2022. For the three and six months ended June 30, 2023, the Company incurred a comprehensive net loss of $8,348,526 and $16,542,789, respectively (2022; $16,140,544 and $27,566,328, respectively), and net cash used in operations for the six months ended June 30, 2023, was $7,601,107 (June 30, 2022; $205,048).
The Company's operations are mainly funded with debt and equity financing, which is dependent upon many external factors and may be difficult to raise additional funds when required. The Company may not have sufficient cash to fund ongoing operations, the acquisition and development of assets or servicing of debt requirements and will therefore require additional funding, which if not available by way of the by the aforementioned sources of capital, may result in the delay, postponement, or curtailment of some of its operating or investing activities. In assessing whether the going concern assumption was appropriate, the Company considered all relevant information available for the twelve-month period following June 30, 2023. To address its financing requirements, the Company continues to pursue available options including financing via debt and equity markets to fund ongoing operations and select growth initiatives, both organic and acquisitive and opportunities to monetize captive assets; tangible and intangible, should they present themselves. The Company will also continue to seek to improve its cash flow by prioritizing operating initiatives with greater expected returns and also continue to target a reduction cost by streamlining its operations and support functions. While the Company has been successful in obtaining financing to date, and it remains confident that it will be able to secure sufficient sources of capital in the future and ultimately achieve profitability and positive cash flows from operations, the Company's ability to raise capital, in various formats, may be adversely impacted by: market conditions that may result in a lack of normally available financing in the cannabis industry; increased competition across the industry, and overall negative investor sentiment within the cannabis industry. Accordingly, there can be no assurance that the Company will achieve profitability, or secure financing on terms favorable to the Company or at all. If the going concern assumption were not appropriate for the Financial Statements for the period ended June 30, 2023, then adjustments would be necessary to the carrying values of assets and liabilities, the reported expenses and the condensed interim consolidated statements of financial position classifications used. Such adjustments could be material.
Page 7 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
2. BASIS OF PRESENTATION
A. | STATEMENT OF COMPLIANCE |
These Financial Statements have been prepared in accordance with International Accounting Standards 34, "Interim Financial Reporting" ("IAS 34"), using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the IFRS Interpretations Committee ("IFRIC"), effective for the six months ended June 30, 2023, and 2022. These Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022 (the “2022 Audited Consolidated Financial Statements”).
These Financial Statements were authorized for issuance by the Company's Board of Directors and Audit Committee on August 29, 2023.
B. | BASIS OF MEASUREMENT |
These Financial Statements have been prepared on a historical cost basis except for biological assets and certain financial instruments classified as fair value through profit or loss, which are measured at fair value. In addition, these Financial Statements have been prepared using the accrual basis of accounting, except for cash flow information.
C. | FUNCTIONAL AND PRESENTATION CURRENCY |
All figures presented in these consolidated financial statements are reflected in Canadian dollars, unless otherwise noted, which is the functional currency of the Company. Foreign currency transactions and translation into Canadian dollars is computed in accordance with the Company’s foreign currency and foreign currency translation accounting policies found in note 6 of the Company’s 2022 Audited Consolidated Financial Statements. Functional currencies of subsidiaries included in these Financial Statements can be found in note 3.
3. BASIS OF CONSOLIDATION
SUBSIDIARIES
Subsidiaries are those entities which the Company has power over the investee, is exposed to or has rights to variable returns from its involvement with an investee and has the ability to affect these returns through its power over the investee. The Company has applied the full consolidation method for entities that meet the criteria for consolidation.
Consequently, all significant balances and effects of any transactions taking place between them have been eliminated in the consolidation process. If necessary, adjustments are made to the financial statements of the subsidiaries to adapt the accounting policies used to those used by the Company.
Page 8 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
Subsidiaries with controlling interest within these Financial Statements include:
Subsidiary | Source
Currency |
Jurisdiction | %
Ownership As at June 30, 2023 |
% Ownership |
||||||||
(1) RWB (PV) Canada, Inc. | CAD | Alberta, Canada | 100 | % | — | |||||||
Red White & Bloom Brands Inc. (Parent) | CAD | British Columbia, Canada | 100 | % | 100 | % | ||||||
1251881 B.C. Ltd. | CAD | British Columbia, Canada | 100 | % | 100 | % | ||||||
RWB Licensing Inc. | CAD | British Columbia, Canada | 100 | % | 100 | % | ||||||
MichiCann Medical Inc. | CAD | Ontario, Canada | 100 | % | 100 | % | ||||||
PV CBD, LLC | USD | California, United States | 100 | % | 100 | % | ||||||
(1) RWB California, Inc. | USD | California, United States | 100 | % | — | |||||||
RWB Platinum Vape Inc. | USD | California, United States | 100 | % | 100 | % | ||||||
Vista Prime Management, LLC | USD | California, United States | 100 | % | 100 | % | ||||||
Vista Prime 3, Inc. | USD | California, United States | 100 | % | 100 | % | ||||||
Vista Prime 2, Inc. | USD | California, United States | 100 | % | 100 | % | ||||||
Mid-American Growers, Inc. | USD | Delaware, United States | 100 | % | 100 | % | ||||||
(2) Royalty USA Corp. | USD | Delaware, United States | 100 | % | 100 | % | ||||||
(2) RWB Illinois, Inc. | USD | Delaware, United States | 100 | % | 100 | % | ||||||
RWB Florida LLC | USD | Florida, United States | 77 | % | 77 | % | ||||||
Red White & Bloom, Florida Inc. | USD | Florida, United States | 77 | % | 77 | % | ||||||
Real World Integration, LLC | USD | Illinois, United States | 100 | % | 100 | % | ||||||
GC Ventures 2, LLC | USD | Michigan, United States | 100 | % | 100 | % | ||||||
Pharmaco, Inc. | USD | Michigan, United States | 100 | % | — | |||||||
RWB Michigan LLC | USD | Michigan, United States | 100 | % | 100 | % | ||||||
RWB (PV) Licensing, LLC. | USD | Nevada, United States | 100 | % | — | |||||||
(3) RLTY Beverage 1 LLC | USD | Delaware, United States | Dissolved | 100 | % | |||||||
(3) RLTY Development MA 1 LLC | USD | Delaware, United States | Dissolved | 100 | % | |||||||
(3) Mid-American Cultivation, LLC. | USD | Illinois, United States | Dissolved | 100 | % | |||||||
(3) RWB Freedom Flower, LLC | USD | Illinois, United States | Dissolved | 100 | % | |||||||
(3) RWB Shelby, Inc. | USD | Illinois, United States | Dissolved | 100 | % | |||||||
(3) RLTY Development Orange LLC | USD | Massachusetts, United States | Dissolved | 100 | % | |||||||
(3) RLTY Development Springfield LLC | USD | Massachusetts, United States | Dissolved | 100 | % |
(1) Newly incorporated: RWB (PV) Canada, Inc. (March 7, 2023), RWB California, Inc. (February 7, 2023)
(2) Pending reactivation: Royalty USA Corp., RWB Illinois, Inc.
(3) Dissolved: RLTY Beverage 1 LLC (December 20, 2022), RLTY Development MA 1 LLC (December 9, 2022), Mid-American Cultivation, LLC. (July 5, 2022, RWB Freedom Flower, LLC (August 22, 2022,) RWB Shelby, Inc.(October 25, 2022), RLTY Development Orange LLC (December 20, 2022), RLTY Development Springfield LLC (December 20, 2022).
4. ACCOUNTING PRONOUNCEMENTS
A. | ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED |
Amendments to IAS 37 Onerous Contracts and the Cost of Fulfilling a Contract (“IAS 37”)
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts.
The Company applied the standard prospectively from January 1, 2022. The amendments did not have an impact on the Financial Statements.
Amendments to IAS 1 Presentation of Financial Statements (“IAS 1”)
In January 2020, the IASB issued an amendment to IAS 1, which affects the presentation of liabilities in the statement of financial position and not the amount or timing of their recognition. The amendments clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period and align the wording in all affected paragraphs to refer to the right to defer settlement by at least 12 months. That classification is unaffected by the likelihood that an entity will exercise its deferral right. The amendments are effective for annual periods beginning on or after January 1, 2023, and are to be applied retrospectively. The amendments do not have a material impact on the Financial Statements.
Page 9 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
In October 2022, the IASB issued another amendment to IAS 1, which affects the classification of Liabilities as Current or Non-current, clarifying requirements for the classification of liabilities as non-current which is effective for annual periods beginning on or after January 1, 2024. The Company is currently evaluating the potential impact of these amendments on the Company’s Financial Statements.
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
In February 2021, the IASB issued “Definition of Accounting Estimates,” which amends IAS 8. The amendment replaces the definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty.” The amendment provides clarification to help entities distinguish between accounting policies and accounting estimates. The amendments are effective for annual reporting periods beginning on or after January 1, 2023. The amendments do not have a material impact on the Financial Statements.
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (“IAS 12”)
The amendment narrowed the scope of certain recognition exemptions so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. An entity applies the amendments to transactions that occur on or after the beginning of the earliest comparative period presented. It also, at the beginning of the earliest comparative period presented, recognizes deferred tax for all temporary differences related to leases and decommissioning obligations and recognizes the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date. The amendment is effective for annual periods beginning on or after January 1, 2023, with early application permitted. The Company is currently evaluating the potential impact of these amendments on the Company’s Financial Statements.
B. | STANDARDS, AMENDMENTS, AND INTERPRETATIONS NOT YET EFFECTIVE |
New and amended accounting standards are effective for the Company for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Company has not early adopted new or amended standards in preparing these Financial Statements. The Company has not yet determined the impact of these amendments on its Financial Statements. The following are relevant new and amended standards under review by the Company.
Amendments to IFRS 16, Lease liability in a Sale and Leaseback
The amendment specifies the requirements that a seller-lessee should use in measuring the lease liability arising in a sale and leaseback transaction to ensure the seller-lessee does not recognize any amount of the gain or loss that relates to the right of use it retains that is effective for annual periods beginning on or after January 1, 2024. The Company is currently evaluating the potential impact of these amendments on the Company’s Financial Statements.
Page 10 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
Amendments to IAS 1, Non-current Liabilities with Covenants
In October 2022, the IASB issued amendments to IAS 1, which specifies that covenants whose compliance is assessed after the reporting date do not affect the classification of debt as a current or non-current at the reporting date. Instead, the amendment requires disclosure of information about these covenants in the notes to the financials statements. The amendments are effective for annual reporting periods belonging to January 1, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of these amendments on the Company’s Financial Statements.
5. CRITICAL ASSUMPTIONS AND SOURCES OF UNCERTAINTY
The preparation of these Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues, and expenses. Actual results may differ from these estimates. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Significant estimates and judgments used in the preparation of these Financial Statements are described in the 2022 Audited Consolidated Financial Statements which can be found on the Company’s profile on www.sedarplus.ca.
6. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in these Financial Statements are consistent with those followed in preparation of the 2022 Audited Consolidated Financial Statements, which can be found on www.sedarplus.ca, which were prepared in accordance with IFRS as issued by the IASB.
7. ACQUISITIONS
ACQUISITION OF PHARMACO INC.
On February 7, 2022, the Company closed its acquisition of Pharmaco, Inc. via RWB Michigan, LLC, the Company’s wholly owned subsidiary (“RWB Michigan”), in an all-stock transaction (the “Pharmaco Acquisition”). The closing of the Pharmaco Acquisition met the requirements of a business combination under IFRS 3.
Consideration for the Pharmaco Acquisition included the issuance of 37 million units of RWB (“Units”), a previously held put/call option valued at $94,129,689 on date of acquisition, and $38,064,000 in debt assumed.
Each Unit consists of one common share and one series II convertible preferred share (each, a “Series II Preferred Share” and collectively, the “Series II Preferred Shares”) in the capital of RWB. Each Series II Preferred Share was convertible, in accordance with the formula as set out in the terms in RWB’s articles, at any time or times before April 24, 2022. The Series II Preferred shares were subject to a voluntary lock-up until January 1, 2023. All Series II Preferred Shares issued in relation to the Pharmaco Acquisition were converted into common shares of the Company by April 24, 2022 (note 21).
Page 11 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
The purchase price allocation for the Pharmaco Acquisition is as follows:
Consideration Paid: | $ | |||
Fair value of 37,000,000 common shares @ $0.52/share) | 19,200,750 | |||
Fair value of 37,000,000 preferred shares @ $1.00/share) | 36,946,187 | |||
Put Call Option | 94,129,689 | |||
Debt assumed | 38,064,000 | |||
Total consideration | 188,340,626 | |||
Net identifiable assets acquired: | $ | |||
Cash and cash equivalents | 748,464 | |||
Receivables | 4,010,496 | |||
Prepaid expenses | 986,836 | |||
Inventory | 5,118,746 | |||
Biological assets | 579,964 | |||
Property, plant and equipment | 47,262,675 | |||
Right of use asset | 1,932,142 | |||
Intangible assets | 29,242,034 | |||
Lease obligations | (1,932,142 | ) | ||
Deferred tax liability | (8,358,854 | ) | ||
Accounts payable and accrued liabilities | (83,420,471 | ) | ||
Total identifiable net assets | (3,830,110 | ) | ||
Goodwill (excess consideration over net identifiable assets) | 192,170,736 | |||
Total consideration | 188,340,626 |
During the year ended December 31, 2022, the Company assessed the goodwill acquired as a result of the Pharmaco Acquisition. Refer to note 17 for details on goodwill impairment relating to Pharmaco, Inc.
8. CASH AND CASH EQUIVALENTS
Cash and equivalents as at June 30, 2023 and December 31, 2022, includes the following:
As at June 30, 2023 |
As at December 31, 2022 |
|||||||
$ | $ | |||||||
Cash in bank | 3,233,730 | 2,196,902 | ||||||
Cash on hand | 314,873 | 369,780 | ||||||
Cash in transit | 335,918 | 180,456 | ||||||
Balance, cash and cash equivalents | 3,884,521 | 2,747,138 |
Cash on hand is typically cash amounts at various locations for retail operations and petty cash kept on hand to settle immediate needs of the day-to-day operations. Cash in bank includes cash held by the Company’s various financial institutions. Cash in transit are cash deposits from the Company’s retail locations on route to be deposited into the Company’s financial institution. Cash in transit typically has a 24-to-48-hour transit time before the deposit clears the financial institution.
Page 12 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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9. ACCOUNTS RECEIVABLE
The Company's trade accounts receivable is a result of sales through its Distribution segment. The Company extends credit terms to customers at its sole discretion based on the customers’ credit reference checks. The Company’s typical credit terms, for customers who have met the Company’s creditworthiness criteria, ranges between net 15 and 30 days.
As at June 30, 2023 and December 31, 2022 accounts receivable consists of the following:
As at June 30, 2023 |
As at December 31, 2022 |
|||||||
$ | $ | |||||||
Trade receivables | 17,424,797 | 9,605,460 | ||||||
Sales tax receivable | 559,511 | 450,848 | ||||||
Other receivables | 2,679 | — | ||||||
Total receivables before expected credit losses | 17,986,987 | 10,056,308 | ||||||
Provision for expected credit losses | (2,496,972 | ) | (1,617,165 | ) | ||||
Total | 15,490,015 | 8,439,143 |
Sales tax receivable represents input tax credits on purchased goods or services.
The Company assessed the carrying amount of trade receivables at June 30, 2023, for expected credit loss (“ECL”) and included an expected credit loss of $2,496,972 (December 31, 2022; $1,617,165) against receivables. In the three and six months ended June 30, 2023, the Company expensed $379,716 and $934,852, respectively to bad debt expense on the consolidated interim statement of income (loss) and comprehensive income (loss) relating to expected credit losses (2022; $891,736 and $1,299,276, respectively). The Company does not include sales tax recoverable within its ECL calculations as management deems this as fully collectible.
The aging of the Company’s trade receivables and the corresponding ECL as at June 30, 2023 is as follows:
Rate of expected credit loss: | 0.00% | 1.84% | 4.95% | 35.15% | 53.15% | Total | ||||||||||||||||||
Aging classification | 1-30 Days | 31-60 Days | 61-90 Days | 91-120 Days | 121+ Days | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Trade receivables | 8,920,556 | 2,114,063 | 1,704,661 | 648,057 | 4,037,460 | 17,424,797 | ||||||||||||||||||
Expected credit losses | — | (38,795 | ) | (84,414 | ) | (227,809 | ) | (2,145,954 | ) | (2,496,972 | ) | |||||||||||||
Net trade receivables | 8,920,556 | 2,075,268 | 1,620,247 | 420,248 | 1,891,506 | 14,927,825 | ||||||||||||||||||
Sales tax recoverable | — | — | — | — | — | 559,511 | ||||||||||||||||||
Other receivables | — | — | — | — | — | 2,679 | ||||||||||||||||||
Balance, June 30, 2023 | 8,920,556 | 2,075,268 | 1,620,247 | 420,248 | 1,891,506 | 15,490,015 |
The aging of the Company’s trade receivables and the corresponding ECL as at December 31, 2022 is as follows:
Rate of expected credit loss: | 0.00% | 5.07% | 38.05% | 55.32% | 85.60% | Total | ||||||||||||||||||
Aging classification | 1-30 Days | 31-60 Days | 61-90 Days | 91-120 Days | 121+ Days | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Trade receivables | 6,406,201 | 989,133 | 612,468 | 111,817 | 1,485,841 | 9,605,460 | ||||||||||||||||||
Expected credit losses | — | (50,196 | ) | (233,045 | ) | (61,855 | ) | (1,272,069 | ) | (1,617,165 | ) | |||||||||||||
Net trade receivables | 6,406,201 | 938,937 | 379,423 | 49,962 | 213,772 | 7,988,295 | ||||||||||||||||||
Sales tax recoverable | — | — | — | — | — | 450,848 | ||||||||||||||||||
Balance, December 31, 2022 | 6,406,201 | 938,937 | 379,423 | 49,962 | 213,772 | 8,439,143 |
Page 13 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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10. NOTES RECEIVABLE
The Company had an outstanding note receivable (the “AH Note Receivable”) on its Consolidated Interim Statement of Financial Position of $14,314,566 as at June 30, 2023 (December 31, 2022; $nil).
The AH Note Receivable was established on June 6, 2023, in conjunction with the execution of a binding letter agreement for a potential business combination between the Company and Aleafia Health, Inc. (the “Aleafia Letter Agreement”), the Company acquired senior secured debt held by Aleafia Heath, Inc. (“Aleafia”) at a discounted purchase price of $12.5 million (note 32) from a lender of Aleafia, and loaned Aleafia an additional $1.5 million in cash.
The AH Note Receivable attracts a coupon interest of prime plus 5% and matures on December 24, 2023. The discount on the purchase price, amounting to $1,029,858 will be recognized by the Company over its expected life using the effective interest method and included other income on the Consolidated Interim Statement of Loss and Comprehensive Loss.
On July 24, 2023, the Company delivered a formal notice of default to Aleafia for failing to maintain the terms prescribed under the AH Note Receivable triggering an additional 5% per annum on the outstanding loan balance per the terms of agreement.
Concurrently with the execution of the Aleafia Letter Agreement, Royal Group Resources Ltd. (“RGR”), an existing creditor of both the Company and Aleafia, provided the Company with $14 million as an advance under the Company’s existing CAD RGR Grid Note (note 20).
A continuity of the Company’s notes receivable at June 30, 2023:
$ | ||||
Balance, December 31, 2022 | — | |||
Additions | 15,029,858 | |||
Discount | (1,029,858 | ) | ||
Coupon Interest | 161,622 | |||
Discount amortization | 152,944 | |||
Balance, June 30, 2023 | 14,314,566 | |||
Short-term | 14,314,566 | |||
Long-term | — |
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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11. PREPAID EXPENSES
As at June 30, 2023, and December 31, 2022, the Company’s prepaid expenses are comprised of the following amounts:
As
at |
As
at |
|||||||
$ | $ | |||||||
Prepaid insurance | 30,200 | 268,349 | ||||||
Prepaid professional fees | 85,382 | — | ||||||
Prepaid license | 293,788 | — | ||||||
Prepaid taxes | 63,184 | 77,652 | ||||||
Prepaid dues and subscriptions | 65,434 | 34,548 | ||||||
Prepaid lab Fees | 118,796 | 89,725 | ||||||
Other prepaid fees | 185,821 | 609,150 | ||||||
Total prepaid expenses | 842,605 | 1,079,424 |
Certain prepaid expenses reported for during the year ended December 31, 2022, have been reallocated to deposits (note 12, 30).
12. DEPOSITS
As at June 30, 2023, and December 31, 2022, the Company had the following deposits:
As
at |
|
As
at |
| |||||
$ | $ | |||||||
Vendor deposits | 5,619,776 | 1,272,039 | ||||||
Security deposits | 230,698 | 2,959,736 | ||||||
Other deposits | 203,571 | — | ||||||
Working capital | 503,120 | — | ||||||
Total deposits | 6,557,165 | 4,231,775 |
On June 23, 2023, the Company advanced $3,972,000 to an arm’s length vendor as security for a crop commitment for qualified biomass to be harvested in late 2023.
During the fiscal year ended December 31, 2022, Red White & Bloom Florida, Inc. deposited $2,708,800 (USD$2,000,000) with the Florida Office of Medical Marijuana Use (“OMMU”) in lieu of a Payment and Performance Insurance Bond. Subsequent to the close of the fiscal year end, the Company secured a surety bond which met the Payment and Performance Bond requirement prescribed by the OMMU. As a result, the full amount of the aforementioned deposit was refunded by the OMMU on March 21, 2023.
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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13. INVENTORY
The Company's inventory as at June 30, 2023 and December 31, 2022 consists of the following:
As
at |
As
at |
|||||||
$ | $ | |||||||
Cannabis and CBD derivative finished goods | 3,431,062 | 4,740,066 | ||||||
Cannabis and CBD derivative work-in-process | 4,340,144 | 6,598,751 | ||||||
Raw materials | 9,537,545 | 2,953,773 | ||||||
Consumables and non-cannabis merchandise | 72,321 | 164,423 | ||||||
Total inventory | 17,381,072 | 14,457,013 |
In calculating the value of ending inventory, the Company allocates a portion of direct and indirect costs operating costs and salaries and wages to costs of inventory. During the period ended June 30, 2023, the amount allocated to finished goods inventory included $2,243,592 of salary and wage allocation (December 31, 2022; $4,671,039).
14. BIOLOGICAL ASSETS
The Company's biological assets consist of 6,910 plants growing as at June 30, 2023 (December 31, 2022; 9,183). The continuity of biological assets is as follows:
As
at |
As
at |
|||||||
$ | $ | |||||||
Carrying amount, beginning of year | 4,291,458 | 5,523,061 | ||||||
Acquired from Pharmaco Acquisition | — | 579,964 | ||||||
Capitalized cost | 3,799,686 | 13,546,176 | ||||||
Fair value adjustment over/(under) prior period | (531,470 | ) | 3,301,379 | |||||
Transferred to inventory | (5,695,468 | ) | (19,075,384 | ) | ||||
Effects of foreign exchange | (85,124 | ) | 416,262 | |||||
Carrying value, end of year | 1,779,082 | 4,291,458 |
Sensitivity Analysis
Significant unobservable assumptions used in the valuation of biological assets, including the sensitivities on changes in these assumptions and their effect on the fair value of biological assets, are as follows:
|
For
the 6 months ended June 30, 2023 | For
the 6 months ended | ||||||||||||||
Weighted average assumption |
10% Change of inputs |
Weighted average assumption |
10% Change of inputs |
|||||||||||||
Selling price per gram | $ | 6.28 | $ | 6.91 | $ | 5.94 | $ | 6.53 | ||||||||
Yield by plant (grams) | 591 | 650 | 156.57 | 172.23 | ||||||||||||
Attrition rate (%) | 13.59 | % | 14.94 | % | 28.32 | % | 31.15 | % | ||||||||
Post-harvest costs per gram | $ | 1.77 | $ | 1.95 | $ | 2.59 | $ | 2.84 |
During the year ended December 31, 2022, within the Retail segment, the Company suffered a significant crop loss due to pest pressure resulting in the loss of 5,796 previously viable plants, resulting in a higher-than-expected attrition rate.
During the three months ended June 30, 2023, within the Retail segment, the cultivation facility at Apopka, Florida suffered a crop loss due to disease. A total of 4,232 plants were lost and destroyed due to the hop latent viroid virus.
Page 16 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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15. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net as of June 30, 2023, and December 31, 2022, consists of the following:
Land | Land
Improvements |
Building | Building
Improvements |
Leasehold
Improvements |
Vehicles | Furniture
& Fixtures |
Machinery
& Equipment |
Computer
Hardware |
Construction
In Progress |
Total | ||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 613,787 | 1,172,031 | 7,187,200 | 190,405 | 4,160,961 | 187,944 | 336,879 | 9,104,676 | 66,087 | 1,536,749 | 24,556,719 | |||||||||||||||||||||||||||||||||
Additions | 15,111 | — | 45,550,472 | 273,041 | 1,985,807 | 2,664 | 154,756 | 868,672 | 9,527 | 2,652,761 | 51,512,811 | |||||||||||||||||||||||||||||||||
Disposals | — | — | — | — | (17,424 | ) | — | — | (54,878 | ) | — | — | (72,302 | ) | ||||||||||||||||||||||||||||||
Balance, December 31, 2022 | 628,898 | 1,172,031 | 52,737,672 | 463,446 | 6,129,344 | 190,608 | 491,635 | 9,918,470 | 75,614 | 4,189,510 | 75,997,228 | |||||||||||||||||||||||||||||||||
Additions | — | — | — | 25,222 | 94,825 | — | 7,581 | 538,241 | — | 794,000 | 1,460,269 | |||||||||||||||||||||||||||||||||
Disposals | — | — | — | — | — | (109,410 | ) | (11,490 | ) | (144,783 | ) | — | — | (265,683 | ) | |||||||||||||||||||||||||||||
Balance, June 30, 2023 | 628,898 | 1,172,031 | 52,737,672 | 488,668 | 6,224,169 | 81,198 | 487,726 | 10,311,928 | 75,614 | 4,983,910 | 77,191,814 | |||||||||||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | — | 6,340 | (234,037 | ) | — | 388,578 | 60,768 | 35,286 | 739,651 | 20,242 | — | 1,016,828 | ||||||||||||||||||||||||||||||||
Depreciation for the period | — | 4,528 | 1,131,033 | 105,776 | 852,425 | 34,656 | 99,720 | 2,244,312 | 34,609 | — | 4,507,059 | |||||||||||||||||||||||||||||||||
Disposals | — | — | — | — | — | — | — | (9,740 | ) | — | — | (9,740 | ) | |||||||||||||||||||||||||||||||
Balance, December 31, 2022 | — | 10,868 | 896,996 | 105,776 | 1,241,003 | 95,424 | 135,006 | 2,974,223 | 54,851 | — | 5,514,147 | |||||||||||||||||||||||||||||||||
Depreciation | — | 5,086 | 580,282 | 63,641 | 517,286 | 20,873 | 48,868 | 1,074,065 | 14,643 | — | 2,324,745 | |||||||||||||||||||||||||||||||||
Disposals | — | — | — | — | — | (56,183 | ) | (4,065 | ) | (39,269 | ) | — | — | (99,518 | ) | |||||||||||||||||||||||||||||
Balance, June 30, 2023 | — | 15,954 | 1,477,278 | 169,417 | 1,758,289 | 60,113 | 179,809 | 4,007,903 | 69,494 | — | 7,739,374 | |||||||||||||||||||||||||||||||||
Foreign currency movement | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | 37,449 | 63,610 | 144,072 | 9,036 | 119,048 | 18,119 | 22,654 | 2,861,656 | 9,562 | 104,971 | 3,390,177 | |||||||||||||||||||||||||||||||||
Balance, June 30, 2023 | 22,492 | 35,906 | (1,044,320 | ) | (2,001 | ) | (24,704 | ) | 16,705 | 14,305 | 2,539,975 | 8,939 | 8,579 | 1,575,876 | ||||||||||||||||||||||||||||||
Net book value | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | 666,347 | 1,224,773 | 51,984,748 | 366,706 | 5,007,389 | 113,303 | 379,283 | 9,804,981 | 30,325 | 4,294,481 | 73,873,258 | |||||||||||||||||||||||||||||||||
Balance, June 30, 2023 | 651,390 | 1,191,983 | 50,216,074 | 317,250 | 4,441,176 | 37,790 | 322,222 | 8,842,884 | 15,058 | 4,992,489 | 71,028,316 |
Page 17 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
16. INTANGIBLE ASSETS
A continuity of the intangible assets as at June 30, 2023, and December 31, 2022 is as follows:
Brand | Licenses | Total | ||||||||||
$ | $ | |||||||||||
Costs | ||||||||||||
Balance, December 31, 2021 | 32,848,560 | 83,213,580 | 116,062,140 | |||||||||
Addition – Pharmaco Acquisition (note 7) | — | 29,242,034 | 29,242,034 | |||||||||
Impairment | — | (29,539,510 | ) | (29,539,510 | ) | |||||||
Balance, December 31, 2022 | 32,848,560 | 82,916,104 | 115,764,664 | |||||||||
Balance, June 30, 2023 | 32,848,560 | 82,916,104 | 115,764,664 | |||||||||
Accumulated amortization | ||||||||||||
Balance, December 31, 2021 | — | — | — | |||||||||
Balance, December 31, 2022 | — | — | — | |||||||||
Balance, June 30, 2023 | — | — | — | |||||||||
Foreign currency movement | ||||||||||||
Balance, December 31, 2022 | 2,094,960 | 7,488,976 | 9,583,936 | |||||||||
Balance, June 30, 2023 | 1,310,640 | 5,459,801 | 6,770,441 | |||||||||
Net book value | ||||||||||||
Balance, December 31, 2022 | 34,943,520 | 90,405,080 | 125,348,600 | |||||||||
Balance, June 30, 2023 | 34,159,200 | 88,375,905 | 122,535,105 |
As a result of the Pharmaco Acquisition on February 7, 2022 (note 7), the Company acquired eleven (11) operating medical and adult-use cannabis licenses, which include:
· | Eight (8) fully operating dispensaries (five dually licensed); |
· | Two (2) operational indoor cultivation facilities totaling over 30,000 sq. ft.; and |
· | One (1) municipally licensed 10-acre outdoor cultivation facility. |
The above noted operating licenses have been included in the intangible assets as at June 30, 2023 and December 31, 2022 as indefinite life intangible assets.
Intangible asset Impairments
At the end of each annual reporting period, or when indicators of impairment arise, the Company assesses whether there were events or changes in circumstances that would indicate that a CGU or group of CGUs were impaired. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessment. As at June 30, 2023, there were no material indicators present that necessitated impairment of intangible assets.
During the year ended December 31, 2022, the Company recognized Licenses intangible asset impairment charges totalling $29,539,510, which were identified during its 2022 annual impairment testing process. The impairments stem from the Company commencing its restructuring of its Distribution operations in California as it shifts from a smaller, vertically integrated operation to leveraging third party contracting arrangements in the state to facilitate manufacturing, warehousing, and distribution of its branded cannabis product offerings to licensed retailers in the state.
Page 18 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
The key assumptions utilized in deriving the fair value of the intangible assets during the Company’s year-end 2022 annual impairment review were the applicable discount rate and the revenue growth rate. Should any of these key assumptions materially change from the rates utilized by the Company for the 2022 fair value assessment, the estimated fair value may be impacted and could potentially result in an impairment charge in future periods. The Company has continued to proactively monitor potential impairment conditions in current and future fiscal periods which may result in the Company having to perform a quantitative intangible assets impairment assessment at a time other than at the next fiscal year end of the Company.
17. GOODWILL
Goodwill as of June 30, 2023, and December 31, 2022 was comprised of the following:
As at June 30, 2023 |
As at December 31, 2022 |
|||||||
$ | $ | |||||||
Balance, beginning of the period | 37,494,861 | 11,890,928 | ||||||
Goodwill resulting from acquisitions (note 7) | — | 203,038,803 | ||||||
Goodwill impairment | — | (185,224,787 | ) | |||||
Translation adjustment | (841,586 | ) | 7,789,917 | |||||
Balance, end of the period | 36,653,275 | 37,494,861 |
During the fiscal year ended, December 31, 2022, management completed its assessment of the purchase price allocation related to the Pharmaco Acquisition (note 7). On acquisition, the Company allocated $192,170,736 to goodwill.
In assessing a CGU, including goodwill for impairment, the Company compares the carrying value of the CGU to the recoverable amount, where the recoverable amount is the higher of fair value less cost to sell and the value in use ("VIU"). The reader is referred to note 6 for the Company’s determination of CGUs.
An impairment charge is recognized to the extent that the carrying value exceeds the recoverable amount.
As at June 30, 2023, the were no material conditions present that necessitated a review of the goodwill. Accordingly, the Company did not perform testing, and did not recognize any impairment. For the year ended December 31, 2022, the Company applied the VIU method to assess its goodwill and as a result of the assessment recorded a $185,224,787 impairment.
Page 19 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
Allocation of goodwill to the Company's CGUs for the periods ending June 30, 2023, and December 31, 2022, as follows:
Retail Segment | Distribution Segment | Total | ||||||||||
$ | $ | $ | ||||||||||
Balance, December 31, 2021 | 11,620,363 | 270,565 | 11,890,928 | |||||||||
Allocation to Red White & Bloom, Florida Inc. | 10,868,067 | — | 10,868,067 | |||||||||
Acquisition of Pharmaco, Inc. (note 7) | 192,170,736 | — | 192,170,736 | |||||||||
Goodwill impairment – Red White & Bloom, Florida, Inc. | (10,868,067 | ) | — | (10,868,067 | ) | |||||||
Goodwill impairment – Pharmaco, Inc. | (174,079,006 | ) | — | (174,079,006 | ) | |||||||
Goodwill impairment - RWB Platinum Vape, Inc. | — | (277,714 | ) | (277,714 | ) | |||||||
29,712,093 | (7,149 | ) | 29,704,944 | |||||||||
Effects of foreign exchange | 7,782,768 | 7,149 | 7,789,917 | |||||||||
Balance, December 31, 2022 | 37,494,861 | — | 37,494,861 | |||||||||
Effects of foreign exchange | (841,586 | ) | — | (841,586 | ) | |||||||
Balance, June 30, 2023 | 36,653,275 | — | 36,653,275 |
The key assumptions utilized in deriving the fair value of the goodwill during the Company’s 2022 annual impairment review were the applicable discount rate and the revenue growth rate. Should any of these key assumptions materially change from the rates utilized by the Company for the 2022 fair value assessment, the estimated fair value may be impacted and could potentially result in an impairment charge in future periods. The Company will continue to proactively monitor potential impairment conditions in future periods which may result in the Company having to perform a quantitative goodwill impairment assessment at a time other than at the fiscal year end of the Company.
During the preparation of the December 31, 2022, Financial Statements, the Company became aware of an error regarding the deferred tax liability and goodwill associated with the 2021 acquisition of its Florida operations. In fiscal 2022, the Company identified that the calculation of the deferred tax liability relating to taxable temporary differences of acquired operating licenses totaling $10,868,067 was not recognized as part of the final purchase price adjustments originally reported with the December 31, 2021, audited consolidated financial statements. As such, the Company determined that the goodwill of the acquired business was also understated by the same amount of the understatement of the deferred tax liability in the same fiscal year. The calculation was corrected in the December 31, 2022, audited consolidated financial statements and the residual balance of the goodwill previously understated ($10,868,067) was impaired as of December 31, 2022, as determined during the Company’s 2022 annual impairment review. The error was not considered material to total assets or long-term liabilities reported for the fiscal year ended December 31, 2021.
Page 20 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
18. RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS
A continuity of the Company’s right-of-use assets is as follows:
Right of use | ||||
$ | ||||
Costs | ||||
Balance, December 31, 2021 | 19,408,152 | |||
Additions | 3,110,096 | |||
Balance, December 31, 2022 | 22,518,248 | |||
Additions | 153,155 | |||
Adjustments | (72,244 | ) | ||
Balance, June 30, 2023 | 22,599,159 | |||
Accumulated depreciation | ||||
Balance, December 31, 2021 | 1,144,079 | |||
Depreciation for the period | 1,721,906 | |||
Balance, December 31, 2022 | 2,865,985 | |||
Depreciation for the period | 815,247 | |||
Balance, June 30, 2023 | 3,681,232 | |||
Foreign currency movement | ||||
Balance, December 31, 2022 | 1,051,235 | |||
Balance, June 30, 2023 | 546,345 | |||
Net book value | ||||
Balance, December 31, 2022 | 20,703,498 | |||
Balance, June 30, 2023 | 19,464,272 |
A continuity of the Company’s lease obligations related to right-of-use assets is as follows:
As at June 30, 2022 |
|
As at December 31, 2022 |
| |||||
$ | $ | |||||||
Opening balance | 22,887,695 | 19,274,492 | ||||||
Additions | 152,481 | 3,177,419 | ||||||
Adjustments | (77,179 | ) | — | |||||
Interest accretion | 1,345,114 | 2,666,326 | ||||||
Interest payments | (1,345,114 | ) | (2,666,326 | ) | ||||
Principal payments | (157,241 | ) | (505,244 | ) | ||||
Ending balance | 22,805,755 | 21,946,667 | ||||||
Effects of foreign exchange | (526,134 | ) | 941,028 | |||||
Less: Short-term lease obligations | (615,645 | ) | (602,418 | ) | ||||
Long-term lease obligation | 21,663,975 | 22,285,277 |
Future minimum lease payments (principal and interest) are as follows:
Future minimum lease payments (principal and interest): | As at June 30, 2023 |
|
As at December 31, 2022 |
| ||||||
$ | ||||||||||
2023 | 1,504,621 | 3,075,680 | ||||||||
2024 | 3,718,906 | 3,087,462 | ||||||||
2025 | 3,171,758 | 3,240,855 | ||||||||
2026 | 3,239,439 | 3,309,317 | ||||||||
2027 | 3,154,699 | 3,221,836 | ||||||||
Thereafter | 34,284,990 | 34,921,078 | ||||||||
Total minimum lease payments | 49,074,413 | 50,856,228 | ||||||||
Present value of minimum lease payments | 17,463,686 | 19,022,342 | ||||||||
Effect of discounting | 3,584,644 | 2,660,517 | ||||||||
Current portion lease obligations | 615,645 | 602,418 | ||||||||
Long term lease obligations | 21,663,975 | 22,285,277 |
Page 21 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
19. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The Company had the following accounts payable and accrued liabilities at June 30, 2023 and December 31, 2022:
As at June 30, 2023 |
|
As at December 31, 2022 |
| |||||
$ | $ | |||||||
Trade payables | 15,943,008 | 19,896,024 | ||||||
Accrued liabilities and other | 11,031,409 | 10,799,471 | ||||||
Customer deposits | 31,073 | 28,021 | ||||||
Sales and excise tax payable | 11,837,557 | 6,596,761 | ||||||
Total | 38,843,047 | 37,320,277 |
During the period ending June 30, 2023, the Company had 3 significant suppliers representing 21%, 18% and 12% of its trade payables. During the year December 31, 2022, the Company had two significant suppliers representing 17% and 13% of its trade payables.
20. DEBT
A. | NOTES PAYABLE |
As at June 30, 2023, and December 31, 2022 the Company had the following outstanding notes payable:
Date of Issue | Maturity date | Interest(ii) | As at June 30, 2023 | As at December 31, 2022 | ||||||||||||||
% | $ | $ | ||||||||||||||||
USD$828,200 - City of San Diego | 2021-10-25 | On Demand | 7.00 | % | 660,225 | 686,267 | ||||||||||||
Due to Oakshire | various | On Demand | 0.00 | % | 1,124,076 | 1,149,885 | ||||||||||||
$16,218 - Ford loan | 2020-11-01 | 2023-01-12 | 5.90 | % | — | 325 | ||||||||||||
$26,872 - Ram loan | 2020-09-01 | 2023-08-15 | 7.39 | % | — | 4,739 | ||||||||||||
USD$25,885,000 RGR Note(i) | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 38,629,231 | 36,677,932 | |||||||||||||
USD$2,887,000 TAII Note | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 4,107,690 | 3,939,834 | |||||||||||||
USD$6,349,000 SDIL Note(i) | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 8,943,300 | 8,664,359 | |||||||||||||
USD$269,000 SIL Note | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 386,618 | 367,099 | |||||||||||||
USD$18,300,000 VRT Note | 2022-09-13 | 2024-02-12 | 12.90%+PIK | 24,513,732 | 24,849,083 | |||||||||||||
USD RGR Grid Note(i)(iii) | 2022-11-01 | 2024-09-12 | 12.00 | % | 24,416,491 | 10,765,408 | ||||||||||||
CAD$2,210,000 BJMD Note(i) | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 24,429 | 2,226,776 | |||||||||||||
CAD$2,710,000 BJMDSD Note(i) | 2023-02-01 | 2024-09-12 | 12.50%+PIK | 2,876,791 | — | |||||||||||||
CAD RGR Grid Note(i) | 2023-03-27 | 2024-09-12 | 12.00 | % | 16,246,936 | — | ||||||||||||
Total notes payable | 121,929,519 | 89,331,707 | ||||||||||||||||
Short-term notes payable | 28,332,509 | 1,974,584 | ||||||||||||||||
Long-term notes payable | 93,597,010 | 87,357,123 |
(i)Held by a related party (note 26) / (ii)See below for details on PIK interest / (iii)Note as at December 31, 2022 was referred to as the USD$7,850,000 RGR Note.
Page 22 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
During the six months ended June 30, 2023, the Company had the addition of the following notes payable:
On March 27, 2023, the Company entered into a secured note payable agreement with RGR to document Canadian dollar advances made by RGR to the Company (the “CAD RGR Grid Note”), maturing on September 12, 2024; secured by a first priority security interest in, and pledge of the equity ownership interest of the Company’s subsidiary; RWB Michigan, LLC. The CAD RGR Grid Note will bear interest at an aggregate rate of 12% per annum with interest payments due on the last day of each month. During the period ended June 30, 2023, the Company was advanced an additional $16,067,225 under the CAD RGR Grid Note. Of the amount advanced, $14,000,000 utilized to fund the acquisition of the AH Note Receivable (note 10, 32). Interest incurred for the three and six months ended June 30, 2023, was $178,045, and $179,712, respectively.
On March 10, 2023, the Company entered into a secured note payable amending the agreement with RGR to document US dollar advances made by RGR to the Company (the “USD RGR Grid Note”). The USD RGR Grid Note initially provides for an amendment to an existing USD$5,850,000 RGR Note and an additional $2,000,000 in funding, for a change in principle with all other terms and conditions remaining the same as the USD$5,850,000 RGR Note, with future advances to be documented as part of the USD RGR Grid Note. As at year-end December 31, 2022, the, the Company referred to the USD$5,850,000 RGR Note and the additional $2,000,000 in funding as the USD$7,850,000 RGR Note. During the six months ended June 30, 2023, the Company was advanced an additional USD$10,750,000 in relation to the USD RGR Grid Note and has made principal repayments of USD$950,000. Interest incurred for the three and six months ended June 30, 2023, was USD$414,180, and USD$692,989, respectively. Proceeds from the advances made under the USD RGR Grid Note during the six months ended June 30, 2023, were used for working capital purposes.
On February 1, 2023, the Company amended the secured CAD$2,210,000 BJMD Note to update the principal from $2,210,000 to $2,710,000, renaming the loan from the “CAD$2,210,000 BJMD Note” to the “CAD$2,710,000 BJMDSD Note,” with all other terms and conditions remaining the same. $500,000 in additional funding was received by the Company on amendment. Interest incurred for the three and six months ended June 30, 2023, was $88,293, and $145,257, respectively.
During the six months ended June 30, 2023, the Company substantially satisfied all of its material financial covenants. Covenants include preservation of corporate existence, compliance with laws, maintenance of taxes payable, maintenance of records, maintenance of properties, inspection, insurance coverage, perform obligations, and notice of certain events.
For the year ended December 31, 2022, the Company had the following transactions relating to notes payable.
On February 4, 2022, the Company entered into a note payable amending agreement with Royal Group Resources Ltd. (“RGR”) in the amount of USD$16,750,000 (the "USD$16,750,000 RGR Note"). The secured USD$16,750,000 RGR Note consolidated the USD$11,500,000 RGR Note, along with USD$224,784 in related interest, owing to RGR, and established new funding of USD$4,987,816. The note bears an interest rate of 12%. Blended payments of USD$250,000 are payable monthly, first to interest with the residual to principal. The note matures on January 31, 2023. The amendment resulted in the extinguishment the USD$11,500,000 RGR Note and a resulting loss of $64,076. On September 15, 2022, the USD$16,750,000 RGR Note was consolidated into the USD$25,885,000 RGR Note as noted below.
Page 23 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
On May 27, 2022, the Company entered into a loan extension and amendment agreement with Viridescent Realty Trust, Inc. (“VRT”) (the "Extension Agreement") related to the USD$18,000,000 VRT (Acreage acquisition 2) Note. The Extension Agreement provided for a 60-day extension of the maturity date of the outstanding loan from its original maturity date of May 31, 2022, to an amended maturity date of July 26, 2022. The Extension Agreement also revised the interest rate from 8% to 12.5%, effective May 28, 2022. On July 26, 2022, the Company entered into a second amendment to extend the maturity date to August 5, 2022, with no changes to the existing terms. On August 5, 2022, the Company engaged in a final amendment, extending the maturity date to August 19, 2022. On September 13, 2022, the Company established a new loan with VRT (the "USD$18,300,000 VRT Note"), discharging payment of US$2,666,548 comprising of US$2,246,548 in interest accrued to the date of settlement and US$420,000 in principle on the USD$18,000,000 VRT (Acreage acquisition 2) Note, and the remaining US$17,580,000 in principle was settled on execution of the US$18,300,000 VRT Note. The loan USD$18,300,000 VRT Note also included an administrative fee of US$180,000 and a non-refundable origination discount of US$540,000. The USD$18,300,000 VRT Note is secured by select assets of the Florida operations. Interest is calculated as the greater of a minimum 12.90% base interest rate or 7.40% plus prime. Base interest is payable monthly, with principal and interest above base due on February 12, 2024. The amendment resulted in the extinguishment the Acreage acquisition 2 Note and a resulting loss of $950,400.
On September 15, 2022, the Company completed a comprehensive debt restructuring plan to extend and amend existing debt and to issue new debt via private placement (the “Debt Restructure”). The Company assessed the modification of existing debt under IFRS 9 Financial instruments and recorded gains and losses mentioned below accordingly. Terms of the loans payable incorporated in the debt restructuring were as follows:
a) | Existing debt owing to RGR was consolidated into a new secured USD$25,885,000 promissory note (the "USD$25,885,000 RGR Note"). The USD$25,885,000 RGR Note bears an interest rate of 15%, compounded monthly with principal and interest payable on September 12, 2024. The loan is secured by the Company's interest in its subsidiary, RWB Michigan, LLC. The existing debt consolidated into the USD$25,885,000 RGR Note is as follows: |
• | USD$19,370,020 principal and USD$2,028,441 in related interest thereon |
• | USD$16,750,000 RGR Note: USD$16,750,000 principal and USD$733,917 in related interest thereon |
• | Less: USD$13,000,000 payment made to RGR |
• | Plus: Administrative fee USD$2,622 |
Modification of the USD$19,370,020 RGR Note and the USD$16,750,000 RGR Note resulted in a net gain on extinguishment of $108,293.
b) | New secured debt totaling CAD$2,210,000 (the "CAD$2,210,000 BJMD Note") bearing 12.5% interest, payable monthly, plus 2.5% PIK interest, compounded monthly. Principal and PIK interest due September 12, 2024. |
c) | Amendment to extend the USD$5,000,000 Oakengate Investments Note plus USD$850,000 in related interest into a new secured USD$5,850,000 loan (the "USD$5,850,000 OIL Note") at 12% interest rate. Blended monthly payments of USD$250,000 with payments applied first to interest and residual applied to principal, with the remaining principal balance due September 12, 2024. The modification of the USD$5,000,000 Oakengate Investments Note triggered an extinguishment resulting in a $21,633 loss. |
Page 24 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
d) | New secured debt totaling USD$6,540,000 (the "USD$5,000,000 SDIL Note" and the "USD$1,540,000 TAII Note) bearing 12.5% interest, payable monthly, plus 2.5% PIK interest, compounded monthly. Principal and PIK interest due September 12, 2024. The USD$5,000,000 SDIL Note, the USD$1,540,000 TAII Note and a USD$2,959,495 outstanding balance owing to RGR on an existing total USD$11,550,000 RGR Note were immediately consolidated into the following new loans: |
• | USD$2,887,000 TAII Note |
• | USD$6,349,000 SDIL Note |
• | USD$269,000 SIL Note |
Each of the above secured notes attracts a 12.5% interest rate, payable monthly, plus 2.5% PIK interest, compounded monthly. Principal and PIK interest due September 12, 2024. The modification to the USD$11,550,000 RGR Note resulted in an extinguishment loss of $4,298.
e) | Existing debt owing on the USD$5,400,000 DICL Note was amended to extend the maturity dates to September 12, 2024. The modification resulted in a $1,683,573 loss on extinguishment. On extinguishment, the new secured loan (the USD$5,400,000 DICL Convertible Note) was established and reclassified to convertible debt with along with a related derivative liability component (note 20). |
f) | Existing debt owing on the USD$5,400,000 SIDL Note was amended to extend the maturity dates to September 12, 2024. The modification resulted in a $1,683,573 loss on extinguishment. On extinguishment, the new secured loan (the USD$5,400,000 SIDL Convertible Note) was established and reclassified to convertible debt with along with a related derivative liability component (note 20). |
On October 14, 2022, RGR entered into a Note Purchase Agreement Oakengates Investments Limited (“OIL”) to purchase the USD $5,850,000 OIL Note (the “OIL Note Purchase Agreement”). The rights and title of the USD $5,850,000 OIL Note, plus all accrued interest thereon were transferred to RGR at upon execution of the OIL Note Purchase Agreement, establishing the secured USD $5,850,000 RGR Note. The Company assessed the modification under IFRS 9 and recorded a debt modification gain of $67,489.
On November 1, 2022, RGR advanced an additional USD$2,000,000 to the Company; amending the USD $5,850,000 RGR Note. The amendment constituted an extinguishment when assessing debt modification under IFRS 9. As a result, the Company recorded a $64,657 loss on extinguishment related to the extinguishment and established the secured USD $7,850,000 RGR Note.
During the year ended December 31, 2022, the Company satisfied all financial covenants. Covenants include preservation of corporate existence, compliance with laws, maintenance of taxes payable, maintenance of records, maintenance of properties, inspection, insurance coverage, perform obligations, and notice of certain events.
Page 25 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
A continuity of the Company’s notes payable for the six months ended June 30, 2023, and the year ended December 31, 2022, is as follows:
$ | ||||
Balance, December 31, 2021 | 89,731,228 | |||
Additions | 120,197,021 | |||
Coupon interest | 8,612,871 | |||
Interest paid-in-kind | 1,942,905 | |||
Principal payments | (17,894,275 | ) | ||
Interest payments | (5,993,161 | ) | ||
Debt modification | (8,054,891 | ) | ||
Gain (loss) on debt modification | 67,489 | |||
Extinguishment | (106,865,135 | ) | ||
Gain (loss) on extinguishment | (4,363,917 | ) | ||
Establishment of derivative | 3,119,904 | |||
Effects of foreign exchange | 8,831,668 | |||
Balance, December 31, 2022 | 89,331,707 | |||
Short-term | 1,974,584 | |||
Long-term | 87,357,123 | |||
$ | ||||
Balance, December 31, 2022 | 89,331,707 | |||
Additions | 30,928,119 | |||
Coupon interest | 3,749,903 | |||
Interest paid-in-kind | 3,313,256 | |||
Principal payments | (1,330,612 | ) | ||
Interest payments | (1,862,691 | ) | ||
Effects of foreign exchange | (2,200,163 | ) | ||
Balance, June 30, 2023 | 121,929,519 | |||
Short-term | 28,332,509 | |||
Long-term | 93,597,010 |
Off Balance Sheet arrangements
The Company did not enter any off-balance sheet arrangements during period ending June 30, 2023 (2022; nil).
Page 26 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
B. | CONVERTIBLE DEBENTURES |
Below are the terms of each of the convertible notes held by the Company, and assumptions used to value each of the respective embedded convertible features in the Company’s outstanding convertible debentures as at June 30, 2023, and December 31, 2022.
|
USD$1,093,750 Convertible VMOS Note |
| USD$1,562,500
Convertible FCC Note |
USD$1,562,500
Convertible IBGL Note |
USD$781,250
Convertible AB Note |
USD$20,112,015
Convertible M&V Note |
USD$5,400,000
Convertible DICL Note(i) |
USD$5,400,000
Convertible SDIL Note(i) |
CAD$17,000,000
Convertible CPIL Note(i) |
|||||||||||||||||||||||
Purpose of issuance | Florida Acquisition |
Florida Acquisition |
Florida Acquisition |
Florida Acquisition |
Florida Acquisition |
Debt restructure |
Debt restructure |
Debt restructure |
||||||||||||||||||||||||
Details and terms | ||||||||||||||||||||||||||||||||
Face Value | USD$1,093,750 | USD$1,562,500 | USD$1,562,500 | USD$781,250 | USD$20,112,015 | USD$5,400,000 | USD$5,400,000 | CAD$17,000,000 | ||||||||||||||||||||||||
Original date of issue | 2021-04-22 | 2021-04-22 | 2021-04-22 | 2021-04-22 | 2021-06-04 | 2021-10-04 | 2021-10-04 | 2022-09-15 | ||||||||||||||||||||||||
Amendment date | — | — | — | — | — | 2021-11-25 2022-09-15 | 2021-11-25 2022-09-15 | — | ||||||||||||||||||||||||
Maturity date | 2024-04-22 | 2024-04-22 | 2024-04-22 | 2024-04-22 | 2024-06-04 | 2024-09-12 | 2024-09-12 | 2024-09-12 | ||||||||||||||||||||||||
Interest rate/annum | 8 | % | 8 | % | 8 | % | 8 | % | 8 | % | 8 | % | 8 | % | 8 | % | ||||||||||||||||
Additional interest/annum | — | — | — | — | 4% in shares | — | — | — | ||||||||||||||||||||||||
Default rate/annum | 5 | % | 5 | % | 5 | % | 5 | % | 8 | % | 10 | % | 10 | % | 8 | % | ||||||||||||||||
Conversion price/share | USD$2.75 | USD$2.75 | USD$2.75 | USD$2.75 | USD$2.75 | USD$0.15 | USD$0.15 | CAD$0.20 | ||||||||||||||||||||||||
Interest due | On maturity | On maturity | On maturity | On maturity | On maturity | On maturity | On maturity | On maturity | ||||||||||||||||||||||||
Security | Unsecured | Unsecured | Unsecured | Unsecured | Secured | Secured | Secured | Secured | ||||||||||||||||||||||||
Collateral |
None |
None |
None |
None | RWB Florida LLC Class A Membership | Shares of RWB Platinum Vape, LLC | Shares of RWB Platinum Vape, LLC | 1st priority security interest RWB Michigan, LLC | ||||||||||||||||||||||||
*Valuation
method used for embedded derivatives | Binomial
Lattice | Binomial
Lattice | Binomial
Lattice | Binomial Lattice based on CRR | Binomial
Lattice | Binomial Lattice based on CRR | Binomial Lattice based on CRR | Residual Method | ||||||||||||||||||||||||
Derivative liability valuation inputs, June 30, 2023 | ||||||||||||||||||||||||||||||||
Stock price | $ | 0.066 | $ | 0.066 | $ | 0.066 | $ | 0.066 | $ | 0.066 | $ | 0.066 | $ | 0.066 | n/a | |||||||||||||||||
Term (years) | 0.81 | 0.81 | 0.81 | 0.81 | 0.93 | 1.21 | 1.21 | 2 | ||||||||||||||||||||||||
Volatility | 127.6 | % | 127.6 | % | 127.6 | % | 127.6 | % | 122.8 | % | 115.1 | % | 115.1 | % | n/a | |||||||||||||||||
Implied spread | 921 | 921 | 921 | 921 | 921 | 921 | 921 | n/a | ||||||||||||||||||||||||
Risk-free rate | 5.4 | % | 5.4 | % | 5.4 | % | 5.4 | % | 5.4 | % | 5.3 | % | 5.3 | % | n/a | |||||||||||||||||
Discount/market yield | 14.6 | % | 14.6 | % | 14.6 | % | 14.6 | % | 14.6 | % | 14.5 | % | 14.5 | % | 15.07 | |||||||||||||||||
Derivative liability valuation inputs, June 30, 2022 | ||||||||||||||||||||||||||||||||
Stock price | $ | 0.42 | $ | 0.42 | $ | 0.42 | $ | 0.42 | $ | 0.42 | n/a | n/a | n/a | |||||||||||||||||||
Credit rating | CCC+ | CCC+ | CCC+ | CCC+ | CCC+ | n/a | n/a | n/a | ||||||||||||||||||||||||
Credit spread | 7.64 | % | 7.36 | % | 7.64 | % | 7.64 | % | 7.66 | % | n/a | n/a | n/a | |||||||||||||||||||
Volatility | 100 | % | 100 | % | 100 | % | 100 | % | 90 | % | n/a | n/a | n/a | |||||||||||||||||||
Instrument specific spread | 2.50 | % | 1.96 | % | 2.50 | % | 2.5 | % | 10.01 | % | n/a | n/a | n/a | |||||||||||||||||||
Risk-free rate | 0.80 | % | 0.81 | % | 0.80 | % | 0.80 | % | 0.83 | % | n/a | n/a | n/a | |||||||||||||||||||
Discount/market yield | 10.65 | % | 10.65 | % | 10.65 | % | 9.89 | % | 17.69 | % | n/a | n/a | n/a |
(i) Held by a related party (note 28) / *Binomial lattice methodology based on a Cox-Ross-Rubenstein (“CRR”) approach.
Financial liabilities are measured at amortized cost, unless they are required to be measured at FVPL (such as instruments held for trading or derivatives).
Page 27 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
A continuity of convertible debentures held by the Company for the six months ended June 30, 2023, and the year ended December 31, 2022, is as follows:
Total | ||||
$ | ||||
Carrying Value, December 31, 2021 | 26,017,720 | |||
Issuance of convertible debentures | 17,019,681 | |||
Less: debt issuance costs | (19,681 | ) | ||
Net proceeds from issuance of convertible debentures | 17,000,000 | |||
Reclassification of convertible debenture | 17,810,090 | |||
Reclassification of debt issuance costs | (15,832 | ) | ||
Amounts classified as an embedded derivative liability | (3,119,904 | ) | ||
Amounts classified as equity, net of transaction costs | (2,106,983 | ) | ||
Convertible debentures at amortized cost | 55,585,091 | |||
Reclassification of interest accretion | 1,918,294 | |||
Interest accrued | 4,281,074 | |||
Interest accretion | 2,830,910 | |||
Effects of foreign exchange | 281,974 | |||
Carrying Value, December 31, 2022 | 64,897,343 | |||
Short-term, December 31, 2022 | — | |||
Long-term, December 31, 2022 | 64,897,343 | |||
Total | ||||
Carrying Value, December 31, 2022 | 64,897,343 | |||
Additional interest | 1,246,874 | |||
Interest accrued | 2,745,997 | |||
Interest accretion | 2,134,457 | |||
Effects of foreign exchange | (1,175,771 | ) | ||
Carrying value, June 30, 2023 | 69,848,900 | |||
Short-term, June 30, 2023 | 37,083,621 | |||
Long-term, June 30, 2023 | 32,765,279 |
Convertible debenture activity during the period ended June 30, 2023
Interest expense relating to convertible debentures for the three and six months ended June 30, 2023, was $3,728,561 and $6,127,327, respectively.
On the anniversary date, June 4, 2023, pursuant to the terms of the USD$20,112,015 Convertible M&V Note, 4% additional interest on the principal balance amounting to $1,246,874 became due (the “Additional Interest”). Additional Interest was to be paid by way of issuance of common shares of the Company to the Lender, with the option of the Lender to have the Additional Interest settled by way of cash equivalent. On August 17, 2023, the Company settled the Additional Interest owing to the Lender by way of cash payment.
During the period ended June 30, 2023, the Company substantially satisfied all material financial covenants. Covenants include preservation of corporate existence, compliance with laws, maintenance of taxes payable, maintenance of records, maintenance of properties, inspection, insurance coverage, perform obligations, and notice of certain events.
Page 28 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
Convertible debenture activity during the year ended December 31, 2022
As part of the Debt Restructure on September 15, 2022, the Company issued new convertible debt in the amount $17,000,000 to C-Points Investments Ltd, (the “CAD$17,000,000 CPIL Convertible Note”), a Company related to RWB (note 26). The proceeds of the CAD$17,000,000 CPIL Convertible Note were used to settle USD$13,000,000 in debt owing on the USD$19,370,020 RGR Note (note 20). The terms of the CAD$17,000,000 CPIL Convertible Note can be found in the tables above.
On September 15, 2022, two existing loans of $5,400,000 each, previously classed as notes payable (note 20), owing on the USD$5,400,000 DICL Note and the USD$5,400,000 SDIL Note were amended to extend the maturity dates to September 12, 2024. The modification resulted in a $1,683,573 loss on each extinguishment. On extinguishment, the new notes (the USD$5,400,000 DICL Convertible Note and the USD$5,400,000 SDIL Convertible Note) were established and reclassified to convertible debt with along with a related derivative liability component (note 20). Terms of the USD$5,400,000 DICL Convertible Note and the USD$5,400,000 SDIL Convertible Note can be found in the tables above.
On July 14, 2022, the Company issued 6,004,594 common shares (note 21), valued at $1,104,873 to the holder of USD$20,112,015 M&V Convertible Note (2021; $753,385) to satisfy additional interest due per the terms of the USD$20,112,015 M&V Convertible Note.
C. | DERIVATIVE LIABILITIES RELATING TO CONVERTIBLE DEBENTURES |
The Company revalues its derivative liabilities to fair market value each period in accordance with IFRS 9 Financial Instruments and IAS 32. Fair market value gains and losses are recorded to the consolidated statement of income (loss) and comprehensive income (loss).
The Company’s derivative liabilities associated with convertible debentures listed in section B of this note, as at June 30, 2023, and December 31, 2022, and the corresponding fair market value of the Company’s derivative liabilities were as follows:
6 months ended June 30, 2023 |
|
12 months ended December 31, 2022 |
| |||||
$ | $ | |||||||
Opening balance, derivative liability, net | (3,230,322 | ) | (1,107,719 | ) | ||||
Additions | — | (3,119,904 | ) | |||||
Gain (loss) on FMV adjustments of derivative liability | 1,041,634 | (361,691 | ) | |||||
Gain (loss) interest liability classified as a derivative liability | 1,242,678 | 1,165,559 | ||||||
Effects of Foreign exchange | 22,409 | 193,433 | ||||||
Ending balance, derivative liability, net | (923,601 | ) | (3,230,322 | ) | ||||
Short-term | 429 | — | ||||||
Long-term | (923,172 | ) | (3,230,322 | ) |
For the three and six months ended June 30, 2023, the Company recorded a gain of $1,276,618 and $2,284,312 (June 30, 2022; $nil) on the revaluation of derivative liabilities on the condensed interim consolidated statements of loss and comprehensive loss.
Page 29 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
D. | CREDIT FACILITY |
The lender of the Company’s credit facility is Bridging Finance, Inc. (the “Credit Facility”). The Credit Facility bears an annual interest rate of 12%, compounded monthly and payable in arrears on the last day of each month. The Credit Facility is secured by general security agreements on mortgages on certain owned real property of Pharmaco among other security obligations.
In January 2022, the Lender, through its receiver (PwC), agreed in principle to an amended maturity date subject to the completion of the sale of the MAG assets (note 31). The MAG assets were subsequently sold and closed on April 28, 2022, with $53,394,324 of the proceeds going towards repayment of the obligations to the Lender. On August 16, 2022, the Company and the Lender agreed to an extension moving the maturity date January 30, 2022, to October 31, 2022, while maintaining the same terms and conditions.
On January 30, 2023, the Company further extended the maturity date to July 31, 2023, with no other changes to existing terms. The January 30, 2023, extension was subject to an amendment fee of $136,000.
As at the date of these Financial Statements, the Company and PWC, on behalf of Bridging Finance, Inc., are collaboratively engaged in negotiations to settle the Credit Facility with the instrument having matured on July 31, 2023. No definitive agreements have been finalized in this regard.
A continuity of the Company’s secured Credit Facility is as follows:
|
$ |
| ||
Balances, December 31, 2021 | 65,472,909 | |||
Reallocation from accounts payable and accrued liabilities | 2,686,621 | |||
Accrued interest | 3,830,665 | |||
Interest payments | (6,049,367 | ) | ||
Principal payments | (48,389,160 | ) | ||
Balances, December 31, 2022 | 17,551,668 | |||
Amendment Fee | 136,000 | |||
Finance charge | 756 | |||
Accrued interest | 1,055,287 | |||
Interest payments | (354,156 | ) | ||
Amendment fee payment | (91,059 | ) | ||
Balances, June 30, 2023 | 18,298,496 |
The total interest recorded during the three and six months ended June 30, 2023, in relation to the credit facility was $535,618 and $1,055,287, respectively (2022; $742,275 and 2,779,622, respectively).
E. | DEBT SETTLEMENTS |
Debt settled during the year ended December 31, 2022
In April 2022, the Company’s settled debt owing on its credit facility in the amount of $53,394,324. Proceeds from the sale of its assets relating to the discontinued operations of MAG (note 31) were sent directly to the credit facility on closing of the sale for the payment of $5,004,036 in outstanding interest and $48,390,288 in principle.
Page 30 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
RWB entered into agreements with certain creditors of Pharmaco for the settlement of an aggregate of USD$7,702,745 of indebtedness through the issuance of 22,440,467 common shares in the capital of the Company (the “Pharmaco Settlement”). On December 21, 2022, the Company settled the Pharmaco Debt, issuing 22,440,467 common shares. RWB common shares on December 21, 2022, were valued at $0.10 per share. As such, the Company cancelled the Pharmaco Debt, recorded $2,244,047 to share capital for the issuance of 22,440,467 common shares and recorded a $7,903,108 gain on debt settlement.
21. SHARE CAPITAL AND RESERVES
A. | AUTHORIZED |
As at June 30, 2023, the authorized shares were as follows:
· | Unlimited number of common shares without par value. |
· | Unlimited number of convertible series I preferred shares without par value, each share convertible into one common share by the holder, and non-voting. |
· | Unlimited number of convertible series II preferred shares without par value, each share convertible into one common share by the holder. Upon conversion of series II preferred shares into common shares, preferred shareholders will receive equivalent number of common shares plus an additional 5% common shares for each twelve-month period up to twenty-four months. |
B. | ISSUED AND OUTSTANDING |
There were no changes to the Company’s common share capital during the six months ended June 30, 2023. Changes for the year ended December 31, 2022, and the balance outstanding is as follows:
Common Shares
Common Shares | Common Shares |
Share Capital |
||||||
# | $ | |||||||
Balance, December 31, 2021 | 260,860,351 | 229,792,308 | ||||||
Shares issued for the Pharmaco Acquisition (note 7) | 37,000,000 | 19,200,750 | ||||||
Shares issued to settle interest due (note 20) | 6,004,594 | 1,104,873 | ||||||
Exercise of restricted share units (note 21) | 910,000 | 406,850 | ||||||
Exercise of stock options (note 21) | 100 | 105 | ||||||
Shares issued for settlement of debt (note 20) | 22,440,467 | 2,244,047 | ||||||
Conversion of series I preferred shares conversion (note 21) | 3,181,250 | 5,637,175 | ||||||
Conversion of series II preferred shares conversion (note 21) | 139,125,139 | 83,682,864 | ||||||
Balance, December 31, 2022 | 469,521,901 | $ | 342,068,972 | |||||
Balance, June 30, 2023 | 469,521,901 | $ | 342,068,972 |
Page 31 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
Series I Preferred Shares
As at June 30, 2023, and December 31, 2022, the Company did not have any outstanding Series I Preferred Shares. There were no changes during the period ended June 30, 2023:
Series I Preferred Shares | Series I Preferred Shares |
Share Capital | ||||||
# | $ | |||||||
Balance, December 31, 2021 | 3,181,250 | $ | 5,637,175 | |||||
Series I preferred shares conversion (note 21) | (3,181,250 | ) | (5,637,175 | ) | ||||
Balance, December 31, 2022 | — | — | ||||||
Balance, June 30, 2023 | — | — |
Series II Preferred Shares
As at June 30, 2023, and December 31, 2022, the Company did not have any outstanding Series II Preferred Shares. There were no changes during the period ended June 30, 2023:
Series II Preferred Shares | Series II Preferred Shares |
Share Capital | ||||||
# | $ | |||||||
Balance, December 31, 2021 | 92,985,275 | $ | 46,736,677 | |||||
Shares issued for the Pharmaco Acquisition (note 7) | 37,000,000 | 36,946,187 | ||||||
Series II preferred shares conversion (note 21) | (129,985,275 | ) | (83,682,864 | ) | ||||
Balance, December 31, 2022 | — | — | ||||||
Balance, Juen 30, 2023 | — | — |
Share Capital transactions for the six months ended June 30, 2023:
The Company did not have transactions relating to share capital during the six months ended June 30, 2023.
Share Capital transactions for the year ended December 31, 2022:
During the year ended December 31, 2022, 3,181,250 series I preferred shares valued at $5,637,175 were converted into 3,181,250 common shares at the same value. 129,985,275 series II preferred shares valued at $83,682,864 were also converted into 139,125,139 common shares of the Company at the same value. Per the terms of the series II preferred shares, upon conversion, preferred shareholders received an equivalent number of common shares plus an additional 5% common shares for each twelve-month period up to twenty-four months the series II preferred shares were held.
On February 7, 2022, finalized the Pharmaco Acquisition (note 7). Consideration for the Pharmaco Acquisition included the issuance of 37,000,000 units of RWB (“Units”). Each Unit consists of one common share and one series II convertible preferred share in the capital of RWB. Each Series II Preferred Share was convertible, in accordance with the formula as set out in the terms in RWB’s articles, at any time or times before April 24, 2022. All Series II Preferred Shares issued in relation to the Pharmaco Acquisition were converted into common shares of the Company by April 24, 2022.
Page 32 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
On July 14, 2022, the Company settled additional interest due on the USD$20,112,015 Convertible M&V Note (note 20), issuing 6,004,594 common shares valued at $1,104,873.
During the year ended December 31, 2022, 910,000 restricted share units (RSU’s) of the Company were exercised. These RSU’s were valued at $472,750.
On December 21, 2022, the Company settled USD$7,702,745 in debt relating to Pharmaco, Inc. (note 20) by issuing 22,440,467 common shares valued on date of issuance at $2,244,047.
During the year ended December 31, 2022, 3,181,250 series I preferred shares valued at $5,637,175 were converted into 3,181,250 common shares at the same value. 129,985,275 series II preferred shares valued at $83,682,864 were also converted into 139,125,139 common shares of the Company at the same value. Per the terms of the series II preferred shares, upon conversion, preferred shareholders received an equivalent number of common shares plus an additional 5% common shares for each twelve-month period up to twenty-four months the series II preferred shares were held.
C. | STOCK OPTIONS |
The Company established a 20% rolling stock option plan (the “Option Plan”) to provide the Company with a share-related mechanism to attract, retain and motivate directors, employees and consultants, to reward such persons with the grant of options under the Option Plan from time to time for their contributions toward the long-term goals of the Company and to enable and encourage such persons to acquire shares as long-term investments.
Under the Option Plan, the Board of Directors may from time to time, in its discretion, grant stock options to directors, officers, employees and consultants of the Company. Pursuant to the Option Plan, the Company may issue options for such period and exercise price as may be determined by the Board of Directors, and in any case not exceeding ten (10) years from the date of grant. The minimum exercise price of an option granted under the Option Plan must not be less than the closing price of the common shares on the date preceding the option grant date.
In any 12-month period, and in relation to the number of issued and outstanding common shares of the Company, the total number of options awarded cannot exceed:
· | 5% to any one individual as at the grant date |
· | 2% to any one Consultant as of the grant date |
· | 2% to employees performing investor relations activities for the Company |
The Company uses the Black-Scholes model to establish the fair value of the options on the date of grant by applying the assumptions below. The fair value of the option is expensed over the option’s vesting period.
Page 33 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
For stock options outstanding as at June 30, 2023, and December 31, 2022, the Company used the following assumptions.
Grant
Date | Vesting Start Date | Expiry Date | Share price
on Date of Grant | Exercise Price | Volatility | Risk Free Rate | Dividends | |||||||||||||||
$ | % | % | % | $ | ||||||||||||||||||
2018-06-22 | 2018-09-22 | 2023-06-22 | 1.15 | 5.28 | 101.57 | % | 1.98 | % | $nil | |||||||||||||
2018-10-01 | 2019-10-01 | 2023-10-01 | 1.15 | 0.50 | 101.57 | % | 1.98 | % | $nil | |||||||||||||
2018-12-12 | 2019-03-12 | 2023-12-12 | 1.15 | 2.46 | 101.57 | % | 1.98 | % | $nil | |||||||||||||
2019-01-15 | 2019-01-15 | 2024-01-15 | 1.15 | 1.00 | 100.00 | % | 2.27 | % | $nil | |||||||||||||
2019-02-04 | 2019-10-01 | 2024-02-04 | 1.15 | 1.00 | 100.00 | % | 2.27 | % | $nil | |||||||||||||
2019-04-01 | 2020-04-01 | 2024-04-01 | 1.15 | 1.00 | 100.00 | % | 2.27 | % | $nil | |||||||||||||
2019-04-26 | 2019-04-26 | 2024-04-26 | 1.15 | 5.44 | 100.00 | % | 2.27 | % | $nil | |||||||||||||
2019-04-29 | 2019-04-29 | 2024-04-29 | 1.15 | 1.00 | 100.00 | % | 2.27 | % | $nil | |||||||||||||
2019-05-13 | 2019-08-13 | 2024-05-13 | 1.15 | 1.00 | 100.00 | % | 2.27 | % | $nil | |||||||||||||
2020-01-11 | 2020-04-11 | 2025-01-11 | 1.15 | 1.00 | 105.27 | % | 0.45 | % | $nil | |||||||||||||
2020-04-01 | 2021-04-01 | 2025-04-01 | 1.15 | 1.00 | 105.27 | % | 0.45 | % | $nil | |||||||||||||
2020-09-10 | 2020-12-10 | 2025-09-10 | 0.66 | 0.66 | 105.27 | % | 0.45 | % | $nil | |||||||||||||
2020-10-01 | 2021-01-01 | 2025-10-01 | 0.54 | 0.65 | 105.27 | % | 0.45 | % | $nil | |||||||||||||
2020-10-12 | 2020-10-12 | 2025-10-12 | 0.60 | 0.65 | 105.27 | % | 0.45 | % | $nil | |||||||||||||
2020-11-18 | 2021-02-18 | 2025-11-18 | 0.67 | 0.67 | 105.27 | % | 0.45 | % | $nil | |||||||||||||
2020-12-03 | 2020-12-03 | 2025-12-03 | 0.69 | 0.75 | 105.27 | % | 0.45 | % | $nil | |||||||||||||
2021-07-06 | 2021-07-06 | 2025-07-06 | 1.10 | 1.10 | 88.00 | % | 1.23 | % | $nil | |||||||||||||
2021-11-12 | 2022-11-08 | 2026-11-12 | 0.63 | 0.63 | 88.00 | % | 1.23 | % | $nil | |||||||||||||
2022-10-07 | 2023-01-07 | 2027-10-07 | 0.15 | 0.50 | 94.35 | % | 3.98 | % | $nil | |||||||||||||
2023-03-15 | 2024-03-15 | 2033-03-15 | 0.10 | 0.10 | 110.13 | % | 3.28 | % | $nil |
Volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on Canada government bonds with a remaining term equal to the expected life of the options.
The number of stock options and weighted average exercise prices as at June 30, 2023 and December 31, 2022 are as follows:
Options | Weighted average exercise price |
|||||||
# | $ | |||||||
Balance, December 31, 2021 | 15,269,289 | 1.26 | ||||||
Issued | 7,100,000 | 0.15 | ||||||
Exercised | (100 | ) | 0.65 | |||||
Expired | (1,355,625 | ) | 0.89 | |||||
Cancelled | (500,000 | ) | 0.93 | |||||
Forfeited | (2,730,108 | ) | 0.58 | |||||
Balance Outstanding, December 31, 2022 | 17,783,456 | 0.95 | ||||||
Issued | (i)1,250,000 | 0.10 | ||||||
Expired | (539,192 | ) | 4.67 | |||||
Forfeited | (63,333 | ) | 0.68 | |||||
Balance Outstanding, June 30, 2023 | 18,430,931 | 0.78 | ||||||
Exercisable | ||||||||
Exercisable as at June 30, 2023 | 11,597,182 | 1.15 | ||||||
Exercisable as at June 30, 2022 | 9,423,150 | 1.59 |
(i) Issued to an officer of the Company (see note 24)
Page 34 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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Stock Options are measured at fair value at the date of grant and are expensed to share based compensation over the option’s vesting period. For the three and six months ended June 30, 2023, the Company had share-based compensation expenses relating to stock options amounting to $142,405, and $458,614, respectively (2022; $nil).
The following reflects the remaining contractual life for outstanding and exercisable options as at June 30, 2023:
Outstanding | Exercisable | |||||||||||||||||||
Expiry date | Exercise price | Options | Remaining contractual life |
Options | Remaining contractual life |
|||||||||||||||
$ | # | (years) | # | (years) | ||||||||||||||||
2023-10-01 | 0.50 | 1,425,000 | 0.25 | 1,425,000 | 0.25 | |||||||||||||||
2023-12-12 | 2.46 | 45,000 | 0.45 | 45,000 | 0.45 | |||||||||||||||
2024-01-15 | 1.00 | 500,000 | 0.55 | 500,000 | 0.55 | |||||||||||||||
2024-02-04 | 1.00 | 400,000 | 0.60 | 400,000 | 0.60 | |||||||||||||||
2024-04-01 | 1.00 | 400,000 | 0.76 | 350,000 | 0.76 | |||||||||||||||
2024-04-26 | 5.44 | 1,234,502 | 0.82 | 1,234,502 | 0.82 | |||||||||||||||
2024-04-29 | 1.00 | 500,000 | 0.83 | 500,000 | 0.83 | |||||||||||||||
2024-05-13 | 1.00 | 30,000 | 0.87 | 30,000 | 0.87 | |||||||||||||||
2025-01-11 | 1.00 | 371,429 | 1.54 | 371,429 | 1.54 | |||||||||||||||
2025-04-01 | 1.00 | 125,000 | 1.76 | 125,000 | 1.76 | |||||||||||||||
2025-07-06 | 1.10 | 115,000 | 2.02 | 115,000 | 2.02 | |||||||||||||||
2025-09-10 | 0.66 | 15,000 | 2.20 | 15,000 | 2.20 | |||||||||||||||
2025-10-01 | 0.65 | 3,400,000 | 2.26 | 3,400,000 | 2.26 | |||||||||||||||
2025-10-12 | 0.65 | 50,000 | 2.29 | 50,000 | 2.29 | |||||||||||||||
2025-11-18 | 0.67 | 150,000 | 2.39 | 165,000 | 2.39 | |||||||||||||||
2025-12-03 | 0.75 | 800,000 | 2.43 | 800,000 | 2.43 | |||||||||||||||
2026-11-26 | 0.63 | 520,000 | 3.41 | 296,251 | 3.41 | |||||||||||||||
2027-10-07 | 0.50 | 7,100,000 | 4.27 | 1,775,000 | — | |||||||||||||||
2033-03-15 | 0.10 | 1,250,000 | 9.72 | — | — | |||||||||||||||
18,430,931 | 3.15 | 11,597,182 | 1.91 |
D. | RESTRICTED SHARE UNITS (“RSU’S”) |
The Company has a restricted share plan (the ''RSU Plan") that allows the issuance of restricted share units (''RSU") and deferred share units ("DSU") Under the terms of the RSU Plan the Company may grant RSUs and DSUs to directors, officers, employees and consultants of the Company. Each RSU gives the participant the right to receive one common share of the Company. The Company may reserve up to a maximum of 20% of the issued and outstanding common shares at the time of grant pursuant to awards granted under the RSU Plan.
RSU’s are valued at the RWB closing share price on the day prior to grant, and expiry dates are set five years from date of grant.
The Company did not issue RSU’s during the six months ended June 30, 2023. During the year ended December 31, 2022, the Company issued RSU’s to a certain employee of the Company with the following terms:
Grant Date | Expiry Date | Share price on date of grant |
Vesting | RSUs | Value | |||||||||||||
$ | # | $ | ||||||||||||||||
2022 Grants | ||||||||||||||||||
8-Feb-22 | 5-Feb-27 | 0.56 | 100 | % | 525,000 | 294,000 |
Page 35 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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RSU transactions and the number of RSU’s outstanding for the six months ended June 30, 2023, and the year ended December 31, 2022 are as follows:
Restricted Share Units | ||||||||
# | $ | |||||||
Balance, December 31, 2021 | 385,000 | 112,850 | ||||||
Granted | 525,000 | 294,000 | ||||||
Exercised | (910,000 | ) | (406,850 | ) | ||||
Balance, December 31, 2022 | — | — | ||||||
Balance, June 30, 2023 | — | — |
Total stock-based compensation as a result of the RSU grants during the six months ended June 30, 2023, amounted to $nil, (2022; $273,000).
E. | WARRANTS |
As of June 30, 2023, and December 31, 2022, the number of outstanding warrants and weighted average exercise prices are as follows:
Warrants | Weighted average exercise price | |||||||
# | $ | |||||||
Balance outstanding December 31, 2021 | 25,987,692 | 1.03 | ||||||
Expired | (20,757,490 | ) | 1.00 | |||||
Exercised | (7,489 | ) | 1.00 | |||||
Balance outstanding, December 31, 2022 | 5,222,713 | 1.16 | ||||||
Expired | (5,222,713 | ) | 1.16 | |||||
Balance outstanding, June 30, 2023 | — | — |
22. EARNINGS (LOSS) PER SHARE
Earnings/loss per share for the three and six months ended June 30, 2023, and 2022 is as follows:
3 months ended June 30, 2023 | 3 months ended June 30, 2022 | 6 months ended June 30, 2023 | 6 months ended June 30, 2022 | |||||||||||||
$ | $ | |||||||||||||||
Outstanding common shares | 469,521,901 | 437,895,490 | 469,521,901 | 437,895,490 | ||||||||||||
Earnings (loss) attributable to common shares | (8,348,526 | ) | (16,140,544 | ) | (16,542,789 | ) | (27,566,328 | ) | ||||||||
Weighted average number of shares outstanding, basic and dilutive | 474,738,811 | 401,199,635 | 469,521,901 | 337,503,251 | ||||||||||||
Loss per share, basic and diluted | (0.02 | ) | (0.04 | ) | (0.04 | ) | (0.08 | ) |
No stock options or warrants have been included in the computation of diluted loss per share for the period ended June 30, 2023, or 2022, as their effect would be anti-dilutive.
Page 36 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
23. REVENUES
The Company generates revenue through three distinct sales channels: Retail, Distribution and Licensing. Revenues by sales channel for the three and six months ended June 30, 2023, and 2022 is as follows:
3 months
ended June 30, 2023 | 3 months
ended June 30, 2022 | 6 months
ended June 30, 2023 | 6 months
ended June 30, 2022 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Distribution | 14,388,238 | 18,328,502 | 35,314,528 | 35,207,988 | ||||||||||||
Licensing | 2,309,450 | - | 2,309,450 | - | ||||||||||||
Retail | 5,217,941 | 9,073,951 | 11,337,739 | 20,241,266 | ||||||||||||
Total revenue | 21,915,629 | 27,402,453 | 48,961,717 | 55,449,254 |
Revenue as a percentage of total sales for the three and six months ended June 30, 2023, and 2022 is as follows:
3 months
ended June 30, 2023 | 3 months
ended June 30, 2022 | 6 months
ended June 30, 2023 | 6 months
ended June 30, 2022 | |||||||||||||
% | % | % | % | |||||||||||||
Distribution | 66 | % | 67 | % | 72 | % | 63 | % | ||||||||
Retail | 11 | % | 0 | % | 5 | % | 0 | % | ||||||||
Licensing | 24 | % | 33 | % | 23 | % | 37 | % | ||||||||
Total revenue | 100 | % | 100 | % | 100 | % | 100 | % |
As of June 30, 2023, and 2022 the Company did not have any contracts where the period between the transfer of the promised goods to the customer and payment by the customer exceeds one year. As a result, the Company has not adjusted any of the transaction prices for the time value of money. The Company did not have significant customers representing more than 10% of total revenues earned by the Company.
24. GENERAL AND ADMINISTRATIVE EXPENSES
The Company’s general and administrative expenses for the three and six months ended June 30, 2023, and 2022 are as follows:
3 months
ended June 30, 2023 | 3 months
ended June 30, 2022 | 6 months
ended June 30, 2023 | 6 months
ended June 30, 2022 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Salaries and wages | 3,679,711 | 5,011,358 | 7,553,521 | 9,566,662 | ||||||||||||
Facilities expense | 684,198 | 274,992 | 2,024,433 | 585,346 | ||||||||||||
Professional fees | 1,227,990 | 3,057,268 | 2,861,889 | 4,592,664 | ||||||||||||
Office and administrative fees | 331,017 | 557,353 | 1,035,511 | 786,264 | ||||||||||||
Travel expense | 185,775 | 177,067 | 240,686 | 366,576 | ||||||||||||
Licenses and permits | 135,679 | 171,979 | 312,696 | 364,645 | ||||||||||||
Insurance | 276,883 | 338,061 | 756,939 | 752,017 | ||||||||||||
Penalty and late fees | 810,556 | 554,275 | 1,320,700 | 1,599,789 | ||||||||||||
Tax expense | - | 68,672 | - | 145,404 | ||||||||||||
Total general and administrative expenses | 7,331,809 | 10,211,025 | 16,106,375 | 18,759,367 |
For the comparative period, certain expenses have been reallocated. The reader is referred to note 30.
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
25. NON-CONTROLLING INTERESTS
RWB FLORIDA, LLC AND RED WHITE & BLOOM, FLORIDA, INC.
RWB Florida, LLC is owned by two classes of members: Class A Members and Class B Members, to which the Company is the sole Class A Member. RWB Florida, LLC has several Class B Members, none of whom own in excess of 4.99% of the issued and outstanding equity in RWB Florida, LLC. RWB Florida, LLC is a member- managed limited liability company and all management, operational and day to day activities are undertaken exclusively by the Company. Class B Members hold an aggregate of 23% non-controlling interests of RWB Florida, LLC, and therefore, in RWB Florida.
RWB Florida is the holder of an MMTC license from the Florida Department of Health, Office of Medical Marijuana Use (“OMMU”) and operates pursuant to the MMTC license throughout the State of Florida.
The following table presents summarized financial information before intragroup eliminations for non-wholly owned subsidiaries at June 30, 2023, and December 31, 2022:
As
at June 30, 2023 | As
at December 31, 2022 | |||||||
($) | ($) | |||||||
Assets | ||||||||
Current | 5,376,452 | 14,372,784 | ||||||
Non-current | 104,380,561 | 107,753,717 | ||||||
Total assets | 109,757,013 | 122,126,501 | ||||||
Liabilities | ||||||||
Current | 37,153,676 | 4,969,840 | ||||||
Non-current | 38,929,406 | 65,307,061 | ||||||
Total liabilities | 76,083,082 | 70,276,901 | ||||||
Net Assets | 33,673,931 | 51,849,600 |
3
months ended June 30, 2023 | 3
months ended June 30, 2022 | 6
months ended June 30, 2023 | 6
months ended June 30, 2022 | |||||||||||||
Net Income (loss) | (4,903,404 | ) | (10,166,260 | ) | (8,097,899 | ) | (9,880,284 | ) | ||||||||
Interests | ||||||||||||||||
Controlling interests – 77% | (3,783,467 | ) | (7,844,286 | ) | (6,592,233 | ) | (8,043,214 | ) | ||||||||
Non-controlling interests – 23% | (1,119,938 | ) | (2,321,974 | ) | (1,505,666 | ) | (1,837,070 | ) |
Page 38 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
26. RELATED PARTY TRANSACTIONS
A. | KEY MANAGEMENT |
Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of certain executive members of the Company’s Board of Directors and corporate officers. Remuneration attributed to key management personnel for the three and six months ended June 30, 2023, and 2022, can be summarized as follows:
3 months ended June 30, 2023 | 3 months ended June 30, 2022 | 6 months ended June 30, 2023 | 6 months ended June 30, 2022 | |||||||||||||
$ | $ | |||||||||||||||
Management salaries, bonuses, and other benefits | 289,765 | 89,364 | 508,921 | 170,023 | ||||||||||||
Consulting fees by a company controlled by a director of the company | 50,526 | 227,299 | 136,936 | 481,020 | ||||||||||||
Share-based payments – officers | 20,849 | - | 20,849 | - | ||||||||||||
Share-based payments – directors | 54,721 | - | 108,841 | - | ||||||||||||
Total | 415,861 | 316,663 | 775,547 | 651,043 |
B. | AMOUNTS DUE TO/FROM RELATED PARTIES |
· | Included in accounts payable and accrued liabilities is $1,267,679 as at June 30, 2023 (December 31, 2022; $743,233) payable to officers and directors of the Company for accrued salaries and consulting fees. Amounts due to related parties have no stated terms of interest and/or repayment and are unsecured. |
· | The CAD$17,000,000 Convertible CPIL Note included in long-term convertible debentures on the Condensed Consolidated Statement of Financial Position is due to an entity related to the President of the Company. The term of the CAD$17,000,000 Convertible CPIL Note is 2 years at an interest rate of 8% per annum. The Company valued the CAD$17,000,000 CPIL Convertible Note using the residual method which resulted in a $14,893,017 allocation to long-term convertible debt liability and $2,106,983 to convertible debt reserve which is included in contributed surplus on the statement of financial position. The liability portion of the CAD$17,000,000 CPIL Convertible Note will amortize over the 2-year term at an effective interest rate of 16.43%. Additional terms can be found in note 20. |
C. | RELATED PARTY TRANSACTIONS |
Transactions for the six months ended June 30, 2023
· | The Company expensed $75,571 in stock-based compensation relating to options held by Officers and Directors of the Company (June 30, 2022; $nil). |
· | The Company appointed a new Chief Financial Officer and Corporate Secretary. On appointment, the Company granted the new Chief Financial Officer and Corporate Secretary 1,250,000 stock options (note 21). |
· | On June 16, 2023, the Company appointed a new member to the Board of Directors. |
· | Officers and Directors of the Company held an aggregate of 37,219,510 common shares and 7,484,375 stock options. |
Page 39 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
Transactions for the year ended December 31, 2022
· | On September 15, 2022, the Company issued the CAD$17,000,000 Convertible CPIL Note an entity related to the President and Director of the Company (note 18). |
· | On September 19, 2022, a member of the Board of Directors resigned, and the Company appointed a new President and Director. |
· | On October 7, 2022, the Company granted 3,200,000 stock options to Directors of the Company at an exercise price of $0.135 to purchase common shares in the capital of RWB. |
· | Officers and Directors of the Company held an aggregate of 23,649,654 common shares and 6,746,875 stock options. |
· | During the year ended December 31, 2022, 875,000 stock options were forfeited by past Officers and Directors of the Company. |
As of the December 31, 2022, the Company identified close members of the family of key management personnel that currently represent lenders to the Company (note 20) during its review of related party disclosures in accordance with IFRS IAS 24 and Public Company Accounting Oversight Board AS2410 and U.S. Securities and Exchange Commission Rules and Regulations. The disclosures are highlighted in note 20 of the Financial Statements.
27. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
A. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
The fair values of other financial instruments, which include accounts receivable, accounts payable and accrued liabilities, loans receivable, and loans payable, approximate their carrying values due to the relatively short-term maturity of these instruments.
The three levels of the fair value hierarchy are:
· | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; |
· | Level 2 – Inputs other than quoted prices that are observable for the asset or liability, directly or indirectly; and |
· | Level 3 – Inputs that are not based on observable market data. |
Level 3 inputs in determining the fair value of investments includes subjective estimates in assessing for indicators of impairment.
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
B. | CREDIT RISK |
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. Financial instruments that are subject to such risk include cash, accounts receivable and loans receivable. Accounts receivable balances are amounts due by customers purchasing through the Company’s distribution channel, who have exhibited a good credit standing and continue good payment history with the Company.
As at June 30, 2023, the Company held an accounts receivable balance $ 15,490,015 (December 31, 2022; $8,439,143). Included in this balance is a provision for expected credit losses (“ECL”) in the amount of $2,496,972 (December 31, 2022; $1,617,165). See note 9 for details relating to the Company’s accounts receivable and ECL provision for the six months ended June 30, 2023, and the year ended December 31, 2022, and 2022.
The Company limits its exposure to credit loss by placing its cash with reputable financial institutions. Deposits held with these institutions may exceed the amount of insurance provided on such deposits. The Company does not hold loans receivable as at June 30, 2023; thus, is not exposed to significant credit risk on loans receivable.
C. | LIQUIDITY RISK |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities.
As at June 30, 2023, the Company had a cash balance of $3,884,521 (December 31, 2022; 2,747,138) available to apply against short-term business requirements and current liabilities of $ 143,877,524 (2022; $70,754,710), including short-term lease obligations (note 18), short term notes and a credit facility (note 20), and income taxes payable.
D. | INTEREST RATE RISK |
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. Interest earned on cash is at nominal interest rates, and therefore the Company does not consider the interest rate risk for cash to be significant.
As at June 30, 2023 and December 31, 2022, the interest rate on loans receivable, credit facilities, and convertible debentures are fixed based on the contracts in place, with the exception of the USD$18,300,000 VRT Note (note 20) which interest is calculated as the greater of a minimum 12.90% base interest rate or 7.40% plus prime. As such, the Company is exposed to interest rate risk to the extent as stated on these financial assets and liabilities.
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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E. | FOREIGN CURRENCY RISK |
The Company is exposed to foreign currency risk from fluctuations in foreign exchange rates and the degree of volatility in these rates due to the timing of their accounts payable balances. The risk is mitigated by timely payment of creditors and monitoring of foreign exchange fluctuations by management.
The Company is also exposed to currency risk by having balances and transactions in currencies that are different from its functional currency. The Company operates in foreign jurisdictions, which use the United States Dollar (USD). The Company does not currently use derivative instruments to reduce upward, and downward risk associated with foreign currency fluctuations.
At as June 30, 2023, and December 31, 2022, the Company was exposed to the following currency risk:
As at June 30, 2023 | As at December 31, 2022 | |||||||
$ | $ | |||||||
Financial assets denominated in foreign currencies (USD) | 210,441,146 | 291,649,767 | ||||||
Financial liabilities denominated in foreign currencies (USD) | (134,757,013 | ) | (221,604,545 | ) | ||||
Net exposure | 75,684,132 | 70,045,222 |
A three (3) percent increase in the US dollar exchange rate relative to the Canadian dollar would change the Company’s net loss for the three and six months ended June 30, 2023, by $119,428 and $215,668 (2022; $333,314 and $540,436) respectively.
F. | CAPITAL RISK MANAGEMENT |
The Company monitors its capital structure and adjusts according to market conditions in an effort to meet its objectives given the current outlook of the business and industry in general. The Company may manage its capital structure by issuing new shares, repurchasing outstanding shares, adjusting capital spending, or disposing of assets. The capital structure is reviewed by management and the board of directors on an ongoing basis.
The Company's equity comprises of share capital, contributed surplus, option and convertible debenture reserve, and accumulated deficit. As at June 30, 2023, the Company has shareholders' equity of $5,014,170 (December 31, 2022; $28,200,045). Included in the consolidated statements of financial position for the six months ended June 30, 2023, is an accumulated deficit of $369,191,809 (December 31, 2022; $352,649,020). The Company manages capital through its financial and operational forecasting processes.
The Company reviews its working capital and forecasts its future cash flows based on operating expenditures, and other investment, and financing activities. The Company's capital management objectives, policies and processes have remained unchanged during the period ended June 30, 2023. The Company is not subject to any external capital requirements.
Page 42 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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28. CONTINGENCIES AND COMMITMENTS
A. | CLAIMS AND LITIGATION |
On August 19, 2022, Greenlane Holdings, LLC filed a lawsuit against Red White & Bloom Brands, Inc.; RWB Platinum Vape, Inc.; Platinum Vape, LLC; and Vista Prime Management, LLC (collectively, the “RWB Entities”) in the Superior Court of California, County of Orange (the “Lawsuit”). The RWB entities answered the complaint, generally denying Greenlane’s allegations and claims, on October 7, 2022. On November 16, 2022, the RWB Entities filed a motion to dismiss the Lawsuit on the grounds of inconvenient forum. Shortly thereafter, the parties agreed to voluntarily submit their dispute to binding arbitration before the American Arbitration Association in Florida (the “Arbitration”). The Lawsuit is stayed pending the outcome of the Arbitration. An Arbitration hearing has been set for July 19-20, 2023; however, the hearing has been continued to a later date (not yet set) pending resolution of a motion by Greenlane to join additional parties in the Arbitration. Greenlane and the RWB Entities participated in two mediation sessions with Judge Amy Hogue (ret.) in California on June 13 and 22, 2023. Although the parties have discussed the possibility of settlement, no agreement has been reached at this time.
In the normal course of business, the Company is involved in various legal proceedings, the outcomes of which cannot be determined at this time, and, accordingly, no provision has been recorded in these condensed interim consolidated financial statements. Management believes that the resolutions of these proceedings will not have a material unfavorable effect on the Company's condensed interim consolidated financial statements.
B. | CONTINGENCIES |
The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, sanctions, restrictions on its operations, or losses of licenses and permits that could result in the Company ceasing operations in that specific state or local jurisdiction. While management believes that the Company is in compliance with applicable local and state regulations as of the date of these Financial Statements, cannabis and other regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.
On June 4, 2020, the Company acquired certain rights granted from HT Retail Licensing, LLC (“Licensor”) to 1251881 BC Ltd, (“Licensee”), a wholly owned subsidiary of the Company. Under this agreement, the Licensor granted an exclusive, non- transferable, non-assignable right and license to practice High Times Intellectual Property Rights (the “Rights”) related to the Commercialization of Cannabis Products and CBD Products in the Territory - Michigan, Florida and Illinois for Cannabis and in the general US for CBD. The Rights for the State of Florida were denied for use by the OMMU, and the Company did not receive a THC license in the State of Illinois. The first licensing period for Michigan was for a period of 18 months which was completed on December 20, 2021. The Company recorded an accrual of licensing fees commencing on June 4, 2020, up until, and including, December 31, 2021.
Page 43 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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On February 23, 2022, the Company received a cease-and-desist notice from a Licensor in respect to the Rights and ceased to be engaged in the manufacturing, sale or licensing of the Rights. Accordingly, the Company reversed the license liability, in the amount of $8,135,473, remaining after February 23, 2022, and during the year ending December 31, 2022. The Company has entered into negotiations with respect to any outstanding liabilities to the Licensor and agreed to voluntary non-binding mediation between the Company and the Licensor. To date, the Company has not reached a resolution with the Licensor, as there continues to be a dispute over the amount of licensing fees owned to the licensor and there can be no assurance that a resolution would be favorable to the Company. Notwithstanding the above, the Company’s position remains that there was a failure of the Licensor to perform under the licensing agreements between the parties.
29. SEGMENTED RESULTS
As a result of key operating milestones and acquisitions during fiscal year 2022, including but not limited to the licensure of the Company’s manufacturing and processing facility in Warren, Michigan and the closing of the Pharmaco Acquisition (note 7), the Chief Decision Makers (“CDOM”) reassessed its classification of operating segments to better reflect how the Company services its customers and respective legal markets in the United States.
Comparative revenues, cost of goods before fair value adjustments, fair value adjustments, operating expenses and other expenses have been reclassified to confirm to the current period’s financial statement presentation. The exhibits set out below summarize the consolidated financial information of the Company’s reportable segments for the six months ended June 30, 2023, and 2022.
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Page 44 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
|
3 months ended June 30, 2023 | Corporate | Distribution | Licensing | Retail | Other | Consolidated | ||||||||||||||||||
Sales revenue | - | 14,388,238 | 2,309,450 | 5,217,941 | - | 21,915,629 | ||||||||||||||||||
Cost of goods sold | - | 10,167,813 | 735,218 | 4,146,168 | - | 15,049,199 | ||||||||||||||||||
Gross profit before unrealized gains and losses | - | 4,220,425 | 1,574,232 | 1,071,773 | - | 6,866,430 | ||||||||||||||||||
Unrealized changes in fair value of biological assets | - | - | - | (1,287,157 | ) | - | (1,287,157 | ) | ||||||||||||||||
Realized fair value amounts included in inventory sold | - | - | 616,685 | - | 616,685 | |||||||||||||||||||
Total Gross Profit (loss) | - | 4,220,425 | 1,574,232 | 401,301 | - | 6,195,958 | ||||||||||||||||||
Total gross Profit (%) | 0 | % | 29 | % | 68 | % | 8 | % | 0 | % | 28 | % | ||||||||||||
Total operating expenses | 1,436,784 | 3,183,521 | 72,277 | 5,142,288 | 0 | 9,834,870 | ||||||||||||||||||
Total other expenses (income) | 4,206,087 | 210,498 | 133 | 1,260,846 | 0 | 5,677,564 | ||||||||||||||||||
Profit (loss) before Income Taxes | (5,642,871 | ) | 826,406 | 1,501,822 | (6,001,833 | ) | - | (9,316,476 | ) | |||||||||||||||
Income tax | - | (7,876 | ) | - | (139,158 | ) | - | (147,034 | ) | |||||||||||||||
Net profit (loss) from continuing operations | (5,642,871 | ) | 818,530 | 1,501,822 | (6,140,991 | ) | 0 | (9,463,510 | ) | |||||||||||||||
Loss from discontinued operations | - | - | - | - | (4,953 | ) | (4,953 | ) | ||||||||||||||||
Net loss for the year | (5,642,871 | ) | 818,530 | 1,501,822 | (6,140,991 | ) | (4,953 | ) | (9,468,463 | ) | ||||||||||||||
Attributed to: | ||||||||||||||||||||||||
Red White and Bloom | (5,642,871 | ) | 818,530 | 1,501,822 | (5,021,054 | ) | (4,953 | ) | (8,348,526 | ) | ||||||||||||||
Non-controlling interests | - | - | - | (1,119,938 | ) | - | (1,119,938 | ) |
3 months ended June 30, 2022 | Corporate | Distribution | Licensing | Retail | Other | Consolidated | ||||||||||||||||||
Sales revenue | - | 18,309,430 | - | 9,093,023 | - | 27,402,453 | ||||||||||||||||||
Cost of goods sold | - | 14,645,609 | - | 7,969,247 | - | 22,614,856 | ||||||||||||||||||
Gross profit before unrealized gains and losses | - | 3,663,821 | - | 1,123,776 | - | 4,787,597 | ||||||||||||||||||
Unrealized changes in fair value of biological assets | - | - | - | (17,973 | ) | - | (17,973 | ) | ||||||||||||||||
Realized fair value amounts included in inventory sold | - | - | - | (1,351,571 | ) | - | (1,351,571 | ) | ||||||||||||||||
Total Gross Profit | - | 3,663,821 | - | (245,767 | ) | - | 3,418,053 | |||||||||||||||||
Total Gross Profit (%) | 0 | % | 20 | % | 0 | % | (3 | %) | 0 | % | 12 | % | ||||||||||||
Total Operating Expenses | 986,888 | 7,143,678 | - | 5,188,929 | - | 13,319,495 | ||||||||||||||||||
Total other expenses | 3,624,281 | 536,617 | - | 1,774,651 | - | 5,935,549 | ||||||||||||||||||
Loss before Income Taxes | (4,611,169 | ) | (4,016,474 | ) | - | (7,209,347 | ) | - | (15,836,991 | ) | ||||||||||||||
Income tax | - | (690,583 | ) | - | (442,813 | ) | - | (1,133,396 | ) | |||||||||||||||
Net loss from continuing operations | (4,611,169 | ) | (4,707,057 | ) | - | (7,652,161 | ) | - | (16,970,387 | ) | ||||||||||||||
Loss from discontinued operations | - | - | - | - | (675,823 | ) | (675,823 | ) | ||||||||||||||||
Net loss for the year | (4,611,169 | ) | (4,707,057 | ) | - | (7,652,161 | ) | (675,823 | ) | (17,646,210 | ) | |||||||||||||
Attributed to: | ||||||||||||||||||||||||
Red White and Bloom | (4,611,169 | ) | (4,707,057 | ) | - | (6,146,493 | ) | (675,823 | ) | (16,140,544 | ) | |||||||||||||
Non-controlling interests | - | - | - | (1,505,666 | ) | - | (1,505,666 | ) |
Page 45 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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6 months ended June 30, 2023 | Corporate | Distribution | Licensing | Retail | Other | Consolidated | ||||||||||||||||||
Sales revenue | - | 35,314,528 | 2,309,450 | 11,337,739 | - | 48,961,717 | ||||||||||||||||||
Cost of goods sold | - | 23,610,439 | 735,219 | 8,339,955 | - | 32,685,613 | ||||||||||||||||||
Gross profit before unrealized gains and losses | - | 11,704,089 | 1,574,231 | 2,997,784 | - | 16,276,104 | ||||||||||||||||||
Unrealized changes in fair value of biological assets | - | - | - | (1,737,952 | ) | - | (1,737,952 | ) | ||||||||||||||||
Realized fair value amounts included in inventory sold | - | - | - | 10,201 | - | 10,201 | ||||||||||||||||||
Total Gross Profit (loss) | - | 11,704,089 | 1,574,231 | 1,270,033 | - | 14,548,353 | ||||||||||||||||||
Total gross Profit (%) | 0 | % | 33 | % | 68 | % | 11 | % | 0 | % | 30 | % | ||||||||||||
Total operating expenses | 3,834,860 | 6,419,600 | 86,385 | 10,360,053 | - | 20,700,898 | ||||||||||||||||||
Total other expenses (income) | 8,334,907 | 264,239 | 133 | 3,647,670 | - | 12,246,949 | ||||||||||||||||||
Profit (loss) before Income Taxes | (12,169,767 | ) | 5,020,250 | 1,487,713 | (12,737,690 | ) | - | (18,399,494 | ) | |||||||||||||||
Income tax | - | (1,886,466 | ) | - | 1,460,317 | - | (426,150 | ) | ||||||||||||||||
Net profit (loss) from continuing operations | (12,169,767 | ) | 3,133,784 | 1,487,713 | (11,277,374 | ) | - | (18,825,644 | ) | |||||||||||||||
Loss from discontinued operations | - | - | - | - | (39,118 | ) | (39,118 | ) | ||||||||||||||||
Net loss for the year | (12,169,767 | ) | 3,133,784 | 1,487,713 | (11,277,374 | ) | (39,118 | ) | (18,864,762 | ) | ||||||||||||||
Attributed to: | ||||||||||||||||||||||||
Red White and Bloom | (12,169,767 | ) | 3,133,784 | 1,487,713 | (8,955,400 | ) | (39,118 | ) | (16,542,789 | ) | ||||||||||||||
Non-controlling interests | - | - | - | (2,321,974 | ) | - | (2,321,974 | ) | ||||||||||||||||
As at June 30, 2023 | ||||||||||||||||||||||||
Intercompany Balances | 294,606,468 | (176,535,054 | ) | (1,309,349 | ) | (78,498,121 | ) | (38,263,944 | ) | - | ||||||||||||||
Total Assets | 475,396,420 | 49,221,678 | 1,489,966 | 144,629,308 | (360,035,046 | ) | 310,702,326 | |||||||||||||||||
Total non-current assets | - | 2,923,493 | - | 207,392,078 | 39,365,397 | 249,680,968 | ||||||||||||||||||
Total liabilities | 187,250,367 | 28,173,682 | 6,845 | 90,308,847 | (51,585 | ) | 305,688,156 | |||||||||||||||||
Total non-current liabilities | 127,349,716 | 1,316,102 | - | 40,494,241 | (7,166,783 | ) | 161,993,276 | |||||||||||||||||
% of revenue | 0 | % | 72 | % | 5 | % | 23 | % | 0 | % | 100 | % | ||||||||||||
% of loss | 52 | % | 0 | % | 0 | % | 48 | % | 0 | % | 100 | % | ||||||||||||
% of Income | 0 | % | 68 | % | 32 | % | 0 | % | 0 | % | 100 | % |
Page 46 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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6 months ended June 30, 2022 | Corporate | Distribution | Licensing | Retail | Other | Consolidated | ||||||||||||||||||
Sales revenue | - | 35,188,916 | - | 20,260,338 | - | 55,449,254 | ||||||||||||||||||
Cost of goods sold | - | 24,069,688 | - | 15,250,503 | - | 39,320,191 | ||||||||||||||||||
Gross profit before fair value adjustments | - | 11,119,228 | - | 5,009,835 | - | 16,129,064 | ||||||||||||||||||
Unrealized changes in fair value of biological assets | - | - | - | (2,467,978 | ) | - | (2,467,978 | ) | ||||||||||||||||
Realized fair value amounts included in inventory sold | - | - | - | (1,074,644 | ) | - | (1,074,644 | ) | ||||||||||||||||
Total Gross Profit | - | 11,119,228 | - | 1,467,213 | - | 12,586,441 | ||||||||||||||||||
Total Gross Profit (%) | 0 | % | 32 | % | 0 | % | 7 | % | 0 | % | 23 | % | ||||||||||||
Total Operating Expenses | 3,310,724 | 11,761,149 | - | 9,603,206 | - | 24,675,078 | ||||||||||||||||||
Total other expenses | 7,604,562 | 563,524 | - | 4,368,631 | - | 12,536,718 | ||||||||||||||||||
Profit (loss) before Income Taxes | (10,915,286 | ) | (1,205,445 | ) | - | (12,504,625 | ) | - | (24,625,356 | ) | ||||||||||||||
Income tax | - | 1,958,428 | - | 1,246,138 | - | 3,204,566 | ||||||||||||||||||
Net profit (loss) from continuing operations | (10,915,286 | ) | (3,163,873 | ) | - | (13,750,763 | ) | - | (27,829,922 | ) | ||||||||||||||
Loss from discontinued operations | - | - | - | - | (1,573,476 | ) | (1,573,476 | ) | ||||||||||||||||
Net loss for the year | (10,915,286 | ) | (3,163,873 | ) | - | (13,750,763 | ) | (1,573,476 | ) | (29,403,398 | ) | |||||||||||||
Attributed to: | ||||||||||||||||||||||||
Red White and Bloom | (10,915,286 | ) | (3,163,873 | ) | - | (11,913,693 | ) | (1,573,476 | ) | (27,566,328 | ) | |||||||||||||
Non-controlling interests | - | - | - | (1,837,070 | ) | - | (1,837,070 | ) | ||||||||||||||||
As at December 31, 2022 | ||||||||||||||||||||||||
Intercompany Balances | 44,365,495 | 11,899,094 | - | (4,651,926 | ) | (51,612,663 | ) | - | ||||||||||||||||
Total Assets | 1,043,197 | 18,915,772 | - | 232,404,962 | 40,302,237 | 292,666,168 | ||||||||||||||||||
Total non-current assets | - | 3,133,175 | - | 214,017,790 | 40,269,252 | 257,420,217 | ||||||||||||||||||
Total liabilities | 152,577,198 | 25,581,582 | - | 86,267,305 | 40,038 | 264,466,123 | ||||||||||||||||||
Total non-current liabilities | 127,805,847 | 1,261,616 | - | 71,975,289 | (7,331,339 | ) | 193,711,413 | |||||||||||||||||
% of revenue | 0 | % | 60 | % | 0 | % | 40 | % | 0 | % | 100 | % | ||||||||||||
% of loss | 37 | % | 11 | % | 0 | % | 47 | % | 5 | % | 100 | % | ||||||||||||
% of Income | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
Page 47 |
Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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30. RECLASSIFICATIONS
Certain prior year amounts have been reclassified for consistency with current year presentation. Reclassifications have been made as follows:
· | For enhanced disclosure, $1,272,039 in vendor deposits, and $2,959,736 in security deposits reported in prepaid expenses for the year ended December 31, 2022, has been reclassified to deposits on the comparative figures in the condensed interim consolidated statement of financial position. |
· | For the comparative period December 31, 2022, $672,064 in amounts due to third parties was reclassified from Accounts payable and accrued liabilities to other current liabilities on the condensed interim consolidated statement of financial position. |
· | Salaries and wages have been reclassified to general and administrative expenses in the statement of loss and comprehensive loss. |
· | In the financial reporting period for three and six months ended June 30, 2022, $891,736 and |
$1,299,276, respectively, originally recorded in general and administrative expenses has been reclassified in these Financial Statements to Bad debt expense on the condensed interim consolidated statement of loss and comprehensive loss.
· | In the financial reporting period for three and six months ended June 30, 2022, $335,756 and $434,082, respectively, originally recorded in general and administrative expenses has been reclassified in these Financial Statements to Marketing expenses on the condensed interim consolidated statement of loss and comprehensive loss. |
· | $1,352,703 in foreign exchange losses were misclassed in the items not affecting cash section of operating activities in the Condensed Interim Consolidated Statement of Cash Flows for the reporting period ended months ended June 30, 2022. This was reallocated in the comparative figures in the Condensed Interim Consolidated Statement of Cash Flows for the six months ended June 30, 2022, to Net effects of foreign exchange. This reallocation had a corresponding impact on net cash used in operating activities for the period ended June 30, 2022. |
· | The Company’s CDOM’s reassessed the classification of operating segments to better reflect how the Company services its customers and respective legal markets in the United States. For the year ending December 31, 2022, and onward, the Company has segregated it operations into three main operating segments (i) Retail, and (ii) Distribution, and (iii) Corporate, with all other non-reporting operations to a fourth segment; Other. During the period ended June 30, 2023, the Company expanded its revenue channels to include revenue earned through licensing of its brand to third party distributors. As this revenue stream will earn revenues and incur expenses, and its discrete financials will be reviewed regularly by the Company’s CDOM’s, management has deemed “Licensing” as its own operating segment, expanding the number of operating segments to five. |
These reclassifications had no material effect on the previously reported consolidated statements of loss and comprehensive loss, and cash flows from operating activities in the condensed interim consolidated statements of cash flow.
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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31. DISCONTINUED OPERATIONS
During the year ended December 31, 2021, the Company discontinued operations of its wholly owned subsidiary, Mid American Growers, Inc. Components of residual loss from discontinued operations for the three and six months ended June 30, 2023, and 2022 are as follows:
3 months
ended June 30, 2023 | 3 months
ended June 30, 2022 | 6 months
ended June 30, 2023 | 6 months
ended June 30, 2022 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | - | 25,270 | - | 164,537 | ||||||||||||
Cost of sales, before fair value adjustments | - | 113,196 | - | 254,442 | ||||||||||||
Gross profit (loss) | - | (87,926 | ) | - | (89,905 | ) | ||||||||||
General and administration | 3,252 | 1,069,797 | 37,417 | 3,777,013 | ||||||||||||
Sales and marketing | 0 | 208 | 0 | 49,824 | ||||||||||||
Loss from operations before other expenses (income) | (3,252 | ) | (1,157,931 | ) | (37,417 | ) | (3,916,742 | ) | ||||||||
Other expense (income) | 284 | 230,768 | 284 | (1,600,723 | ) | |||||||||||
Finance expense | - | (129,272 | ) | - | (154,197 | ) | ||||||||||
(Gain) loss on disposal of property, plant and equipment | - | (583,604 | ) | - | (588,346 | ) | ||||||||||
Loss before income taxes | (3,536 | ) | (675,823 | ) | (37,701 | ) | (1,573,476 | ) | ||||||||
Net loss per share, basic and diluted on discontinued | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
Weighted average number of outstanding common shares, basic and diluted | 474,738,811 | 401,199,635 | 469,521,901 | 337,503,251 |
Additional information on the discontinuation of Mid-American Growers, Inc. can be found in the Company’s 2022 Audited Consolidated Financial Statements which can be found at www.sedarplus.ca.
32. SUBSEQUENT EVENTS
Subsequent to the six months ended June 30, 2023, the Company had the following material event(s):
Aleafia Health, Inc. – Proposed Business Combination Agreement and Termination of Agreement
On June 6, 2023, the Company executed a binding letter agreement (the “Aleafia Letter Agreement”) for a business combination with Aleafia Health, Inc. (“Aleafia”) (the “Proposed Transaction”). Under the terms of the Aleafia Letter Agreement, each outstanding common share in the capital of Aleafia (each, an “Aleafia Share”) would be exchanged for 0.35 of a common share in the capital of the Company (each, an “RWB Share”), subject to customary adjustment (the “Exchange Ratio”). Upon the completion of the Proposed Transaction, existing RWB shareholders were expected to own approximately 76% of the combined company resulting from the Proposed Transaction and Aleafia shareholders were expected to own approximately 24%. Outstanding options and warrants to purchase Aleafia Shares would have become exercisable to acquire RWB Shares on the same terms and conditions, on the basis of the Exchange Ratio. Outstanding restricted and deferred share units of Aleafia were to be settled upon closing in RWB Shares on the basis of the Exchange Ratio.
The Proposed Transaction required the approval of: (a) (i) two-thirds of the votes cast by shareholders of Aleafia, and, if required, (ii) a simple majority of the votes cast by minority Aleafia shareholders in accordance with Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), at
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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a special meeting of Aleafia shareholders that was expected to take place in the third quarter of 2023 (the “Aleafia Meeting”); (b) debentureholders of the requisite percentage of the principal amount of each series of Aleafia Convertible Debentures (“Debentureholder Approval”); and (c) if required, RWB shareholders at a special meeting of RWB shareholders which was expected to take place in the third quarter of 2023 (the “RWB Meeting”).
The Aleafia Letter Agreement provided for the parties to enter into a definitive arrangement agreement setting out the final terms and conditions of the Proposed Transaction on or before July 31, 2023. The Aleafia Letter Agreement contained a standard non-solicitation and superior proposal provisions and a break fee of $2 million. The Aleafia Letter Agreement included other provisions such as conditions to closing the Proposed Transaction, and representations and warranties and covenants customary for arrangement agreements.
RWB intended to secure a $30 million credit facility (the “New Credit Facility”). The proceeds from the New Credit Facility was to serve multiple purposes, including the funding of the assignment of the AH Note Receivable (note 10), full and final settlement of all outstanding principal and accrued interest and any other amounts owing in respect of certain Aleafia convertible debentures issued under the amended and restated debenture indenture providing for the issue of certain convertible debentures dated as of June 27, 2022 between Aleafia and Computershare Trust Company of Canada, as the trustee, as supplemented by: (a) the first supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5% Series A Secured Convertible Debentures Due June 30, 2024; (b) the second supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5% Series B Secured Convertible Debentures Due June 30, 2026), and (c) the first supplemental indenture dated as of June 27, 2022 (providing for the issue of 8.50% Series C Secured Debentures Due June 30, 2028) (collectively, the “Aleafia Convertible Debentures”) for an aggregate of $6 million at the Effective Time (subjected to receipt of Debentureholder Approval), funding working capital requirements and targeted growth initiatives of the Combined Company, and covering general corporate expenses and transaction costs associated with the Proposed Transaction. Specific terms for the New Credit Facility were to be confirmed upon execution of final funding agreements and will be subject to the completion of the Proposed Transaction.
On July 14, 2023, the Company and Aleafia mutually agreed to terminate the Aleafia Letter Agreement without liability or cost to either party. Pursuant to the Aleafia Letter Agreement, and as a pre-requisite to closing the Proposed Transaction, the approval of holders of Aleafia convertible debentures issued under the amended and restated debenture indenture providing for the issue of certain convertible debentures dated as of June 27, 2022 between Aleafia and Computershare Trust Company of Canada, as the trustee, as supplemented by: (a) the first supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5% Series A Secured Convertible Debentures Due June 30, 2024); (b) the second supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5% Series B Secured Convertible Debentures Due June 30, 2026), and (c) the third supplemental indenture dated as of June 27, 2022 (providing for the issue of 8.50% Series C Secured Debentures Due June 30, 2028) (collectively, the “Aleafia Convertible Debentures”) was required to settle all outstanding amounts due to them for an aggregate amount of $6 million in exchange for the cancellation of all Aleafia Convertible Debentures. While Aleafia had received support in writing from certain holders of the outstanding Aleafia Convertible Debentures, certain other holders representing more than 33 1/3% of the outstanding Aleafia Convertible Debentures, as represented by their designated representatives, communicated to Aleafia and RWB that they would not accept the terms of the settlement set out in the Aleafia Letter Agreement. As a result, a key condition
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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of the Proposed Transaction was not satisfied, and the parties mutually agreed to terminate the Aleafia Letter Agreement.
On July 24, 2023, in light of Aleafia's financial condition, the termination of the Aleafia Letter Agreement, and the ongoing breach of covenants under the AH Note Receivable by Aleafia, RWB issued demand letters and notices to enforce its security under Section 244 of the Bankruptcy and Insolvency Act. RWB had previously reserved all of its rights and remedies under the AH Note Receivable given that Aleafia had breached the aforementioned covenants prior to the assignment from the Aleafia Lender.
On July 25, 2023, Aleafia announced that it had received an order (the “Initial Order”) from the Ontario Superior Court of Justice (Commercial List) under the Companies’ Creditors Arrangement Act (“CCAA”), in order to restructure its business and financial affairs (the “Aleafia CCAA Proceedings”). The Initial Order approved, among other things, debtor-in-possession financing (“DIP Financing”) to be provided by RWB to fund the Aleafia CCAA Proceedings and other short-term working capital requirements pursuant to a term sheet between RWB and Aleafia dated July 24, 2023 (the “Aleafia DIP Term Sheet”). As specified under the Aleafia DIP Term Sheet, RWB agreed to advance DIP Financing up to $6,600,000 (the “DIP Loan”). The continued availability of the DIP Loan is conditional upon, among other things, certain conditions being satisfied, including the Initial Order remaining in effect. A copy of the DIP Term Sheet was filed on SEDAR+ on August 17, 2023.
On July 26, 2023, RGR provided RWB with $1.56 million as an advance under the Company’s existing CAD RGR Grid Note (note 20), which the Company subsequently advanced to Aleafia, in its entirety under the terms and conditions of the DIP Loan. The Company has secured a commitment from RGR for the required financing to meet its financing commitment to Aleafia under the DIP Loan.
On August 22, 2023, the Ontario Superior Court of Justice (Commercial List) (the “Court”) approved a stalking horse asset purchase and share subscription agreement (the “Stalking Horse Agreement”) pursuant to which RWB would acquire certain assets from Aleafia and subscribe for shares of certain subsidiaries of Aleafia if RWB becomes the successful bidder pursuant to the sale and investment solicitation process (“SISP”), also approved by the Court, in connection with the Aleafia CCAA Proceedings of Aleafia and certain of its subsidiaries (collectively, the “Aleafia Group”) under the CCAA.
As part of the Aleafia CCAA Proceedings, Aleafia obtained an order from the Court on August 22, 2023, among other things, (i) an extension of the stay period mandated by the CCAA Proceedings until October 31, 2023 (the “Stay Period”); (ii) the SISP submitted by the Aleafia Group and KSV Restructuring Inc. in its capacity as monitor in the Aleafia CCAA Proceedings (the “Monitor”); (iii) the Stalking Horse Agreement (solely for the purposes of being the stalking horse bid under the SISP (the “Stalking Horse Bid”)); and (iv) the preservation and maintenance of the Aleafia Group’s Health Canada and cannabis excise licences (the “Aleafia Licences”) until the expiration of the Stay Period, including the ability of the Aleafia Group to sell cannabis in the ordinary course under the Licences and, to the extent any Licence may expire during the Stay Period, an extension of such Licence by a period equal to the Stay Period.
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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The Stalking Horse Agreement provides for a reverse vesting transaction whereby a wholly owned subsidiary of RWB would subscribe for shares of Emblem Cannabis Corporation, Canabo Medical Corporation, Aleafia Farms Inc., and Aleafia Retail Inc. (collectively, the “Aleafia Purchased Entities”, with such shares being referred to as the “Purchased Shares”) and acquire specific intellectual property owned, licensed, or leased by Aleafia (the “Purchased IP”). Certain excluded assets and liabilities of the Aleafia Purchased Entities would be transferred to one or more corporations that would not be included among the Aleafia Purchased Entities at closing. RWB’s subsidiary would be the sole shareholder of the Aleafia Purchased Entities following closing.
The consideration for the Purchased Shares and Purchased IP will be comprised of:
(a) | a credit bid consisting of: |
(i) | a release of all amounts outstanding and obligations payable by the AH Note Receivable and all related loan and security documentation, which amount as of July 31, 2023, was $15,414,622, including the principal amount of such claim, plus all accrued and unpaid interest thereon through to and including the closing date of the Stalking Horse Bid (the “Closing Date”), plus any fees and expenses associated therewith; and |
(ii) | a release of all amounts outstanding and obligations payable by the Aleafia Group as of the Closing Date pursuant to the DIP Loan and all related loan and security documentation, including the principal amount of such claims and interest accrued as of the Closing Date, plus all accrued and unpaid interest thereon through to and including the Closing Date, plus any fees and expenses associated therewith; and |
(b) | cash consideration consisting of: |
(i) | up to $400,000 payable to the Monitor on the Closing Date to be used to pay the costs and expenses of the Monitor and its legal counsel after the Closing Date in connection with the completion of the Aleafia CCAA Proceedings (to the extent such amount has not be pre-funded under the DIP Loan prior to the Closing Date); |
(ii) | cash in an amount that is sufficient to satisfy any amounts remaining payable as of the Closing Date secured by (A) the charge to secure the fees and disbursements of the Aleafia Group’s counsel, the Monitor and its counsel of up to $1,250,000, and (B) the charge in favour of the directors and officers of the Aleafia Group of up to $2,850,000, each as previously approved by the Court, and each without duplication to amounts satisfied under (i) or (iv); |
(iii) | cash in an amount sufficient to satisfy the outstanding obligations of the Aleafia Group to 1260356 Ontario Limited (“1260356”) as secured lender under the credit agreement between Aleafia and 1260356 dated August 20, 2021, and as amended on December 24, 2021, and August 26, 2022, which amount as at July 31, 2023 was approximately $5,952,056; and |
(iv) | an amount sufficient to satisfy any remaining priority payments as of the Closing Date as required under the CCAA. |
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Red White & Bloom Brands Inc. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2023, AND 2022
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The consummation of the transactions contemplated under the Stalking Horse Agreement are subject to satisfaction or waiver of certain conditions set forth in the Stalking Horse Agreement, including, among other things, the Court granting the requisite approval and vesting order as a final order, the Stalking Horse Agreement being determined to be the successful bid under the SISP, receipt of all required regulatory approvals and the Licences being in good standing and continuing in good standing and not suspended or terminated following the Closing Date.
There is no assurance that RWB’s Stalking Horse Bid will be the successful bid under the SISP. If RWB’s Stalking Horse Bid is unsuccessful, the Stalking Horse Agreement will terminate. Any alternative successful bid would result in the repayment in full of all amounts outstanding under the AH Note Receivable and the DIP Loan in addition to the payment of an expense reimbursement of $500,000 associated with transaction costs incurred by RWB in connection with the preparation of RWB’s Stalking Horse Bid.
Entering into the Stalking Horse Agreement was evaluated and ultimately approved by the disinterested members of the board of directors of each of Aleafia and RWB.
Page 53
Exhibit 99.6
Red White & Bloom Brands Inc.
Management Discussion and Analysis
For the three and six months ended June 30, 2023
Dated August 29, 2023 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS | 3 |
NON-IFRS AND SUPPLEMENTARY FINANCIAL OR OPERATING MEASURES | 3 |
INTRODUCTION | 4 |
COMPANY OVERVIEW AND STRATEGY | 4 |
DESCRIPTION OF THE BUSINESS | 5 |
OUTLOOK | 7 |
RECENT DEVELOPMENTS | 7 |
ACQUISITIONS | 10 |
DISCONTINUED OPERATIONS | 11 |
FINANCIAL HIGHLIGHTS | 11 |
RESULTS OF OPERATIONS | 12 |
OPERATING EXPENSES | 17 |
OTHER EXPENSES (INCOME) | 21 |
ADJUSTED EBITDA | 22 |
STATEMENT OF FINANCIAL POSITION | 23 |
SUMMARY OF QUARTERLY RESULTS | 27 |
SUMMARY OF OUTSTANDING SHARE DATA | 27 |
RELATED PARTY TRANSACTIONS | 28 |
COMMITMENTS AND CONTINGENCIES | 29 |
LIQUIDITY AND CAPITAL RESOURCES | 30 |
OFF-BALANCE SHEET ARRANGEMENTS | 35 |
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT | 36 |
OTHER RISKS AND UNCERTAINTIES | 36 |
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS | 36 |
NEW ACCOUNTING PRONOUNCEMENTS | 36 |
MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING | 37 |
2 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
The following Management Discussion and Analysis ("MD&A") may contain "forward-looking information" within the meaning of Canadian securities legislation ("forward-looking statements"). These forward-looking statements are made as of the date of this MD&A and the Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required under applicable securities legislation. Forward-looking statements relate to future events or future performance and reflect Company management's expectations or beliefs regarding future events. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", “projected”, "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might", or "will be taken", or "occur”, or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. The Company provides no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
Certain forward-looking statements in this MD&A include, but are not limited to, the following:
· | the performance of the Company’s business and operations. |
· | the expected timing and projected cost of the Company’s business objectives and initiatives including its expansion plans; both organic and acquisitive. |
· | the business strategies of the Company. |
· | the impact of the introduction of new branded cannabis product offerings. |
· | the impact of ongoing and prospective cost savings initiatives. |
· | the impact of laws and regulations maintained by various levels of government (existing, proposed, and/or amended) including but not limited to those impacting operating licenses to conduct business activities in relevant jurisdictions within the cannabis industry. |
· | expectations regarding production capacity including the Company’s performance at its cultivation and processing facilities. |
· | expectations regarding relevant cannabis market conditions in the United States, including regulatory, specific to federal and specific state jurisdictions in which the Company legally operates. |
· | the competitive conditions of the cannabis industry in the United States. |
· | the state of banking regulations in the United States as it relates to the cannabis industry. |
· | the intention of the Company to complete any offering of securities (in any form) or debt (in any form) issued by the Company. |
There can be no assurance the aforementioned conditions as well as other factors will not affect the accuracy of forward-looking statements made by the Company regarding the anticipated performance of its business. Such factors include, but are not limited to, the Company's ability to obtain financing from external resources in whatever form, the general impact of financial market conditions that may impact the Company and its ultimate consumers, the yield from marijuana growing operations, product demand in channels to market that the Company services, changes in prices of key raw material inputs, the impact of competition in legal states which the Company operates, and federal, state and local government regulations.
Readers are encouraged to reference the Company's public filings, overseen by Canadian securities regulators, which can be accessed and viewed via the System for Electronic Data Analysis and Retrieval (“SEDAR+”) at www.sedarplus.ca.
NON-IFRS AND SUPPLEMENTARY FINANCIAL OR OPERATING MEASURES
The Company references non-IFRS and supplementary financial or operating measures, including, but not limited to, Adjusted EBITDA. This measure does not have a standardized meaning prescribed by IFRS and is most likely not comparable to similar measures presented by other public company issuers including those operating in the cannabis industry. Non-IFRS measures provide investors with additional insights into the Company’s financial and operating performance which may not be garnered from traditional IFRS measures. The management of the Company, including its key decision makers, use non-IFRS measures in assessing the Company’s financial and operating performance.
The Company calculates Adjusted EBITDA as net income or loss excluding current and deferred income tax expense, finance expense (net), depreciation and amortization, fair value changes in biological assets, realized fair value changes in inventory sold, share based compensation, termination costs, gains or losses on revaluation of debt or accounts payable and accrued liabilities, gains or losses on extinguishment of debts or accounts payable and accrued liabilities, impairments of tangible or intangible assets, impairment of goodwill, accreted interest on leases and applicable short term and long term liabilities, gains or losses on asset disposals, foreign exchange, gain or loss on earnouts, bad debt expense, and non-recurring expenses such as penalties and late fees.
3 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
INTRODUCTION
The following Management Discussion and Analysis (“MD&A”) of Red White & Bloom Brands Inc. (the “Company” or “RWB”) is intended to assist the reader in better understanding the operations and key financial results as of the date of this MD&A and should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements and notes thereto for the three and six months ended June 30, 2023 (“2023-Q2 and 2023-YTD,” respectively), and the comparative period June 30, 2022 (“2022- Q2 and 2022-YTD, respectively), and the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2022 (“2022-YE”), collectively referred to as the “Financial Statements.” The Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and with the interim financial statements being prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting, and select interpretations of the IFRS Interpretations Committee for all periods presented. The information in this MD&A is current as of August 29, 2023.
This MD&A has been reviewed by the Company’s Audit Committee and approved by its Board of Directors on August 29, 2023.
All dollar amounts referred to in this MD&A are expressed in Canadian dollars (CAD) except as indicated otherwise. All references to the Company contained in the MD&A include references to all its subsidiaries, as applicable. The Financial Statements and MD&A, along with addition information about the Company are filed on SEDAR+.
COMPANY OVERVIEW AND STRATEGY
Company Overview
Red White & Bloom Brands Inc. was incorporated on March 12, 1980 pursuant to the Business Corporations Act, British Columbia. The shares of the Company are traded on the Canadian Stock Exchange under the trading symbol “RWB” and on the OTCQX under the trading symbol “RWBYF”. The Company’s head office and registered office is located at Suite 810 – 789 West Pender Street, Vancouver, British Columbia, V6C 1H2.
The Company’s principal operations are (1) the distribution of branded and non-branded cannabis products, both adult-use and medical use, direct to legally licensed retailers, (2) retail operations selling branded and non-branded cannabis products, both adult- use and medical use, (3) captive cultivation, processing, packaging, and procurement operations that support the distribution, retail, and licensing operations, and (4) licensing of the Platinum Vape brand to third party distributors. As of the date of the MD&A, the Company’s operations are primarily conducted in the legal states of Michigan, Florida, and California with active licensing arrangements in the states of Missouri, Massachusetts, and Arizona.
Company Strategy
The Company is committed to driving the growth of its distribution and retail operations, through organic and acquisitive means, leveraging its premium Platinum and Platinum Vape brands (“PV” or “Platinum”) through its branded cannabis product offerings as well as its House of Platinum brand name and retail banners. The Company has also leveraged, through the licensing agreements, the exposure of its branded products to other markets throughout the United States. The Platinum name brand is associated with the highest quality cannabis offerings in the legal states currently represented by the Company in the United States. The Company strives to maintain Platinum’s strength as a product on which cannabis consumers can rely for best-in- class product attributes, garnered through regimented procurement, production, and ongoing quality standards.
PV product lines include a wide range of disposable and reusable vape pens, cartridges, and pods available in a variety of strain-specific flavors and effects. In addition, PV products also include carefully crafted, cannabis infused, palate driven, edible creations including, but not limited to, Gummy Coins based on traditional candy flavors, and packaged bulk flower and pre-rolls; standard and infused.
4 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
DESCRIPTION OF THE BUSINESS
Distribution
On January 18, 2022, upon receiving regulatory approval, the Company activated a manufacturing, processing, and distribution center in Warren, Michigan dedicated to the production, sale and distribution of both adult use and medical use cannabis product offerings to licensed retailers in the state of Michigan. The Company conducts its operations in a processing and warehousing facility located in Warren, Michigan. Currently, the Company’s primary business is the distribution of Platinum and Platinum Vape branded premium cannabis products for both adult use and/or medical use to licensed retailers in the state of Michigan. As of the date of this MD&A, the Company services over 300 adult use and medical retailers in the state of Michigan with several other retailers represented in various other states.
The Company also has distribution operations in the state of California leveraging local contract manufacturing, warehousing, and distribution capacity. The Company’s primary business is the distribution of branded adult-use cannabis product offerings to legally licensed California adult-use cannabis retailers. The Company offers a full product line of Platinum and Platinum Vape branded, premium cannabis products sold at retailers throughout California.
Licensing
In concert with the Company’s continuing asset light growth initiative, RWB (PV) Licensing, LLC, a newly incorporated subsidiary of RWB, collaborates and contracts with arm’s length licensed distributors in select legal states through procurement and sale of Platinum or PV branded non-THC inputs (packaging, hardware) and licensing arrangements which grant these distributors a right to manufacture, market, and distribute Platinum or PV branded products to licensed retailers within their home markets. Platinum products currently represented by licensed distributors focus on PV branded vape cartridges and PV branded disposable vapes utilizing the Skybar™ hardware platform. These procurement and licensing arrangements support expansion of the PV footprint in states which the Company does not maintain physical licensed operations and also help the Company diversify its revenue and income streams, while investing and capitalizing on the PV brand’s well-established reputation.
Retail
As of June 30, 2023, the Company is licensed to operate a total of four medical cannabis retail stores (dispensaries) in the state of Florida, a processing facility located in Sanderson, Florida, and a cultivation facility in Apopka, Florida. The Sanderson facility is owned by the Company and includes fifteen acres of land, a 110,000 square foot facility utilized for cultivation and processing, and a 4,000 square foot freestanding administrative office building. The Apopka facility is owned by the Company and includes a fully licensed and operational 45,000 square foot greenhouse situated on 4.7 acres of land. All outputs produced by the Apopka facility are committed to the Sanderson facility for processing. The Sanderson facility processes bulk cannabis inputs supplied to it exclusively by the Apopka facility. The Sanderson facility produces cannabis product offerings sold exclusively through the Company’s captive retail stores (dispensaries) situated throughout the state of Florida. The Company leases a total of nine retail locations throughout the state, four of which are operating as of the date of this report. The 4th medical retail location, located in Clearwater, Florida, was approved and licensed for operation in February 2023. The Company is currently planning the activation of the remaining five locations over the course of fiscal 2023 contingent on the ability of the regulatory authorities to comply with the Company’s fixturing and activation timeline.
As of June 30, 2023, the Company is licensed, within the state of Michigan, to operate a total of eight adult-use and/or medical use cannabis retail stores (dispensaries), and two indoor cultivation facilities located in Glendale, Michigan, and Marquette, Michigan., The Company also owns a municipally licensed ten acre outdoor cultivation facility in Au Gres, Michigan which is currently dormant, and several other real estate properties located throughout the state of Michigan which are available for potential cultivation and cannabis dispensary operations.
5 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
The following sets out the Company’s total licensed cannabis retail locations within the United States as of June 30, 2023.
Jurisdiction | Licensed, Active Cannabis Retail Stores |
Cannabis Retail Stores available to be Activated |
|
Total Available Retail Locations |
| |||||
Florida | 4 | 5 | 9 | |||||||
Michigan | 8 | 4 | 12 |
As of the date of the MD&A, the Company has substantially completed construction on a profile retail location located South Miami Beach, Florida and anticipates activating operations at this location during the fourth quarter of fiscal 2023. The Company is continuing to execute the fixturing and activation of the remaining four Florida retail locations working within its capital constraints and accounting for the requisite regulatory provisions. The Company also continues to assess options to monetize the balance of its Michigan retail locations including those held by the Company that are currently not licensed or in use.
The following table lists the Company’s subsidiaries and percentage of holdings as at the date of this MD&A:
Subsidiary | Source |
Jurisdiction |
|
% Ownership |
|
|
% Ownership |
| ||||
(1) RWB (PV) Canada, Inc. | CAD | Alberta, Canada | 100 | % | - | |||||||
Red White & Bloom Brands Inc. (Parent) | CAD | British Columbia, Canada | 100 | % | 100 | % | ||||||
1251881 B.C. Ltd. | CAD | British Columbia, Canada | 100 | % | 100 | % | ||||||
RWB Licensing Inc. | CAD | British Columbia, Canada | 100 | % | 100 | % | ||||||
MichiCann Medical Inc. | CAD | Ontario, Canada | 100 | % | 100 | % | ||||||
PV CBD, LLC | USD | California, United States | 100 | % | 100 | % | ||||||
(1) RWB California, Inc. | USD | California, United States | 100 | % | - | |||||||
RWB Platinum Vape Inc. | USD | California, United States | 100 | % | 100 | % | ||||||
Vista Prime Management, LLC | USD | California, United States | 100 | % | 100 | % | ||||||
Vista Prime 3, Inc. | USD | California, United States | 100 | % | 100 | % | ||||||
Vista Prime 2, Inc. | USD | California, United States | 100 | % | 100 | % | ||||||
Mid-American Growers, Inc. | USD | Delaware, United States | 100 | % | 100 | % | ||||||
(2) Royalty USA Corp. | USD | Delaware, United States | 100 | % | 100 | % | ||||||
(2) RWB Illinois, Inc. | USD | Delaware, United States | 100 | % | 100 | % | ||||||
RWB Florida LLC | USD | Florida, United States | 77 | % | 77 | % | ||||||
Red White & Bloom, Florida Inc. | USD | Florida, United States | 77 | % | 77 | % | ||||||
Real World Integration, LLC | USD | Illinois, United States | 100 | % | 100 | % | ||||||
GC Ventures 2, LLC | USD | Michigan, United States | 100 | % | 100 | % | ||||||
Pharmaco, Inc. | USD | Michigan, United States | 100 | % | - | |||||||
RWB Michigan LLC | USD | Michigan, United States | 100 | % | 100 | % | ||||||
RWB (PV) Licensing, LLC. | USD | Nevada, United States | 100 | % | - | |||||||
(3) RLTY Beverage 1 LLC | USD | Delaware, United States | Dissolved | 100 | % | |||||||
(3) RLTY Development MA 1 LLC | USD | Delaware, United States | Dissolved | 100 | % | |||||||
(3) Mid-American Cultivation, LLC. | USD | Illinois, United States | Dissolved | 100 | % | |||||||
(3) RWB Freedom Flower, LLC | USD | Illinois, United States | Dissolved | 100 | % | |||||||
(3) RWB Shelby, Inc. | USD | Illinois, United States | Dissolved | 100 | % | |||||||
(3) RLTY Development Orange LLC | USD | Massachusetts, United States | Dissolved | 100 | % | |||||||
(3) RLTY Development Springfield LLC | USD | Massachusetts, United States | Dissolved | 100 | % |
(1) Newlyincorporated: RWB (PV) Canada, Inc. (March 7, 2023), RWB California, Inc. (February 7, 2023)
(2) Pending reactivation: Royalty USA Corp., RWB Illinois, Inc.
(3) Dissolved: RLTY Beverage 1 LLC (December 20, 2022), RLTY Development MA 1 LLC (December 9, 2022), Mid-American Cultivation, LLC. (July 5, 2022, RWB Freedom Flower, LLC (August 22, 2022,) RWB Shelby, Inc.(October 25, 2022), RLTY Development Orange LLC (December 20, 2022), RLTY Development Springfield LLC (December 20, 2022).
6 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
OUTLOOK
The Company continues to focus on the expansion of its various lines of business through various means including leveraging its asset light growth strategy in states in which it does not maintain a physical footprint through its Licensing segment. These actions included but were not limited to the following:
· | Appointment of a new Chief Financial Officer, Edoardo (“Eddie”) Mattei, who brings strong financial and operational experience that will be invaluable to the Company through its continued expansion. |
· | Expansion into Arizona, a key part of RWB’s latest series of moves to scale entry into new strategic legal markets, with over twelve flavor profiles of its premium, Platinum branded vape cartridges and disposable vape products currently being stocked by dispensaries across the state. |
· | The addition of a new dispensary in Clearwater, Florida, expanding Florida’s operations to four active locations across the state, with five additional locations pending activation as noted above. |
· | Leveraging key supply chain competencies in the state of California to streamline costs and increase speed to market for its revamped distribution operations in the same state. |
· | Expanding the Company’s revenue streams through its Licensing segment to further capitalize on the strength of the popular and well-regarded PV and Platinum brands. |
The Company is now focused on prioritizing growth of its “Platinum”, “Platinum Vape”, and “House of Platinum” branded product portfolio and retail banners through its respective channels to market (Distribution or direct to retailer, Licensing through third party distributors, Retail or direct to customer) in legal U.S. states where it maintains a physical footprint or where it has extended, or plans to extend, its asset-light presence through procurement and licensing arrangements with distributors in strategically targeted legal U.S. states such as Arizona, Ohio, Missouri, Colorado, and Massachusetts. In addition, the Company continues to pursue asset-light execution and exploitation of its Platinum brands and product offerings in international legal markets, such as Canada, through strategic partnerships with licensed producers.
The Company has extended the availability of the Platinum, Platinum Vape, and House of Platinum branded product lines in each state in which it operates. The Company has expanded its focus on Live Resin and Live Rosin vape offerings, premium edible offerings, including but not limited to, branded gummy coins, as well as disposable vape products under the Skybar™ hardware platforms (currently available in Michigan, Arizona, and Missouri). As of the date of the MD&A, the Company, in collaboration with a Canadian licensed producer and distributor, has launched Platinum branded vape cartridges and disposable vape products utilizing the Skybar™ hardware platform, in the federally legal Canadian cannabis market. These products are made available to licensed retailers across Canada through provincially regulated distributors.
RECENT DEVELOPMENTS
Aleafia Health, Inc. (“Aleafia”) – Stalking Horse Agreement
On June 6, 2023, in conjunction with the execution of a binding letter agreement for a potential business combination between the Company and Aleafia Health, Inc. (the “Aleafia Letter Agreement”), the Company was assigned and acquired senior secured debt held by Aleafia Heath, Inc. (“Aleafia”) at a discounted purchase price of $12.5 million from a lender of Aleafia, and subsequently loaned Aleafia an additional $1.5 million under the credit facility (the “AH Note Receivable”).
On July 14, 2023, the Company and Aleafia mutually agreed to terminate the Aleafia Letter Agreement without liability or cost to either party.
7 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
On July 24, 2023, in light of Aleafia’s financial condition, the termination of the Aleafia Letter Agreement, and the ongoing breach of covenants under the AH Note Receivable by Aleafia, RWB issued demand letters and notices to enforce its security under Section 244 of the Bankruptcy and Insolvency Act.
On July 25, 2023, Aleafia announced that it had received an order (the “Initial Order”) from the Ontario Superior Court of Justice (Commercial List) under the Companies’ Creditors Arrangement Act (“CCAA”), in order to restructure its business and financial affairs (the “Aleafia CCAA Proceedings”). The Initial Order approved, among other things, debtor-in-possession financing (“DIP Financing”) to be provided by RWB to fund the Aleafia CCAA Proceedings and other short-term working capital requirements pursuant to a term sheet between RWB and Aleafia dated July 24, 2023 (the “Aleafia DIP Term Sheet”). As specified under the Aleafia DIP Term Sheet, RWB agreed to advance DIP Financing up to $6.6 million (the “DIP Loan”). The continued availability of the DIP Loan is conditional upon, among other things, certain conditions being satisfied, including the Initial Order remaining in effect.
On August 22, 2023, the Ontario Superior Court of Justice (Commercial List) (the “Court”) approved a stalking horse asset purchase and share subscription agreement (the “Stalking Horse Agreement”) pursuant to which RWB would acquire certain assets from Aleafia and subscribe for shares of certain subsidiaries of Aleafia if RWB becomes the successful bidder pursuant to the sale and investment solicitation process (“SISP”), also approved by the Court, in connection with the Aleafia’s CCAA proceedings of Aleafia and certain of its subsidiaries (collectively, the “Aleafia Group”).
The Stalking Horse Agreement provides for a reverse vesting transaction whereby a wholly owned subsidiary of RWB would subscribe for shares of Emblem Cannabis Corporation, Canabo Medical Corporation, Aleafia Farms Inc., and Aleafia Retail Inc. (collectively, the “Aleafia Purchased Entities”, with such shares being referred to as the “Purchased Shares”) and acquire specific intellectual property owned, licensed or leased by Aleafia (the “Purchased IP”). Certain excluded assets and liabilities of the Aleafia Purchased Entities would be transferred to one or more corporations that would not be included among the Aleafia Purchased Entities at closing. RWB’s subsidiary would be the sole shareholder of the Aleafia Purchased Entities should RWB be the successful bidder under the terms of the aforementioned Stalking Horse Agreement.
There is no assurance that RWB’s Stalking Horse Bid will be the successful bid under the SISP. If RWB’s Stalking Horse Bid is unsuccessful, the Stalking Horse Agreement will terminate. Any alternative successful bid would result in the repayment in full of all amounts outstanding under the AH Note Receivable and the “DIP Loan in addition to the payment of an expense reimbursement of up to $0.5 million associated with transaction costs incurred by RWB in connection with the preparation of RWB’s Stalking Horse Bid.
Entering into the Stalking Horse Agreement was evaluated and ultimately approved by the disinterested members of the board of directors of each of Aleafia and RWB.
For more detailed information on the AH Note Receivable, the Aleafia Letter Agreement, the DIP Loan, and the Aleafia Stalking Horse Agreement, and the other events surrounding the Aleafia transaction, the reader is referred to the subsequent events note in the Company’s most recently filed financial statements available at SEDAR+.
Other recent developments
· | On June 23, 2023, the Company executed a procurement commitment for biomass to be harvested in the fourth quarter of fiscal 2023. The supply from this harvest is expected to satisfy a material portion of the Company’s biomass requirements through the 2nd quarter of fiscal 2024 as well as ensuring that the Company’s cost to procure biomass in the volatile Michigan marketplace is further solidified. The biomass will be utilized to produce inputs for PV and Platinum branded vape cartridges, and disposable vape products to be distributed in the state of Michigan through the Company’s Distribution and Retail channels. |
8 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
· | On March 27, 2023, the Company entered into a secured note payable agreement with Royal Group Resources, Ltd. (“RGR”) to document Canadian dollar advances made by RGR to the Company (the “CAD RGR Grid Note”), maturing on September 12, 2024; secured by a first priority security interest in, and pledge of the equity ownership interest of the Company’s subsidiary; RWB Michigan, LLC. The CAD RGR Grid Note will bear interest at an aggregate rate of 12% per annum with interest payments on the last day of each month. As at the date of this MD&A, the principal balance of the CAD RGR Grid Note was $18.9 million. Proceeds from advances from the CAD RGR Grid note were used to facilitate the assignment and acquisition of the AH Note Receivable from a third-party lender, provide additional advances of $1.5 million to Aleafia under the AH Note Receivable, and for general corporate purposes including funding costs associated with the Company’s head office operations in Canada. See Liquidity and Capital Resources section for further details. |
· | On March 15, 2023, by way of corporate resolution, the Company formally appointed its Chief Financial Officer having secured regulatory approval. On appointment, the Company issued 1,250,000 stock options, exercisable to acquire up to 1,250,000 common shares of the Company at an exercise price of $0.10. The stock options vest quarterly over a period of two years commencing on the first anniversary date of the grant. The terms for the grant are in line with the parameters set out in the Company’s existing Employee Stock Option Plan. |
· | On March 10, 2023, the Company entered into a secured note payable agreement, amending the agreement with RGR to document US dollar advances made by RGR to the Company (the “USD RGR Grid Note”). The USD Grid Agreement initially provides for an amendment to an existing USD$5,850,000 RGR Note for a change in principle with all other terms and conditions remaining the same. As at the date of this MD&A, the principal balance of the USD RGR Grid Note was USD$20.3 million. Proceeds from advances from the USD RGR Grid note were used for working capital purposes. See Liquidity and Capital Resources section for further details. |
· | In March 2023, trading on the OTCQX for the Company was suspended, pending the Company completing the filing of form 20Fs for 2021-YE, and 2022-YE. As of the date of this report, the Company is working diligently with its advisors to complete the required filings. Once complete, the Company will work in collaboration with the SEC and the OTCQX to confirm a timeline for release of the suspension. Once the release of the suspension is granted by the requisite authorities, the Company will concurrently seek to deregister its SEC membership in accordance with guidelines and timelines set by the applicable governing bodies. The Company is not seeking to file on an SEC sponsored exchange in the near term and, accordingly, will not be required to maintain both the cost and administration of the registration and its requisite filings. |
· | On February 10, 2023, the Company announced the launch of Platinum Vape product offerings in the adult use Arizona market. Product offerings include a variety of flavor profiles of its premium vape and disposable vape products, stocked in dispensaries across the state. Additional high quality PV branded offerings are expected to be introduced within the state over the course of the 2023 fiscal year. The Arizona launch was facilitated through a procurement and licensing arrangement between the local distributor and the Company’s licensing subsidiary, RWB (PV) Licensing, LLC. |
· | On February 7, 2023, the Company successfully activated a medical use retail store (dispensary) in the city of Clearwater, Florida; its fourth medical use retail store in the State of Florida. As of the date of this report, the Company is finalizing timelines to activate its five remaining medical use retail stores in the state of Florida strategically located in the cities of Brandon, South Miami Beach, North Miami Beach, Hollywood, and Orange Park. |
· | On February 1, 2023, the Company amended the secured CAD$2,210,000 BJMD Note to update the principal from $2.2 million to $2.7 million, renaming the loan from the “CAD$2,210,000 BJMD Note” to the “CAD$2,710,000 BJMDSD Note,” with all other terms and conditions remaining the same. $0.5 million in additional funding was received by the Company on amendment. |
· | On January 30, 2023, pursuant to the terms and conditions set out in its January 10, 2020, Credit Agreement with Bridging Finance, Inc. (“Bridging”), the Company extended the maturity of its Credit Facility to July 31, 2023. As a consequence of this extension, the Company was subjected to a non-refundable amendment fee in the amount of $0.1 million. The Company is continuing to work collaboratively with Bridging regarding a path forward given the pending maturity of the Credit Facility in fiscal 2023. As at the date of this MD&A, the Company and PWC, on behalf of Bridging, are collaboratively engaged in negotiations to settle the Credit Facility with the instrument having matured on July 31, 2023. No definitive agreements have been finalized in this regard. |
9 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
ACQUISITIONS
Acquisition of Pharmaco, Inc.
On February 7, 2022, the Company closed its acquisition of Pharmaco, Inc. via RWB Michigan, LLC, the Company’s wholly owned subsidiary (“RWB Michigan”), in an all-stock transaction (the “Pharmaco Acquisition”). The closing of the Pharmaco Acquisition met the requirements of a business combination under IFRS 3.
Consideration for the Pharmaco Acquisition included the issuance of 37 million units of RWB (“Units”), a previously held call/put option valued at $94 million on date of acquisition, and $38.1 million in debt assumed. Each Unit consists of one common share and one series II convertible preferred share (each, a “Series II Preferred Share” and collectively, the “Series II Preferred Shares”) in the capital of RWB. Each Series II Preferred Share was convertible, in accordance with the formula as set out in the terms in RWB’s articles, at any time or times before April 24, 2022. The Series II Preferred shares were subject to voluntary lock-up until January 1, 2023. The Units were issued at a deemed price of $1.00 per unit. All Series II Preferred Shares issued in relation to the Pharmaco Acquisition were converted into common shares of the Company by April 24, 2022 (refer to the “Summary of Outstanding Share Data” section).
The following table summarizes the fair value of consideration paid and the allocation of the purchase price to the assets acquired and liabilities:
$ | ||||
Consideration paid: | ||||
Fair value of 37,000,000 common shares @ $0.52/share) | 19,200,750 | |||
Fair value of 37,000,000 preferred shares @ $1.00/share) | 36,946,187 | |||
Put Call Option | 94,129,689 | |||
Debt assumed | 38,064,000 | |||
Total consideration paid | 188,340,626 | |||
Net identifiable assets acquired: | ||||
Cash and cash equivalents | 748,464 | |||
Receivables | 4,010,496 | |||
Prepaid expenses | 986,836 | |||
Inventory | 5,118,746 | |||
Biological assets | 579,964 | |||
Property, plant and equipment | 47,262,675 | |||
Right-of-use assets | 1,932,142 | |||
Intangible assets | 29,242,034 | |||
Lease obligations | (1,932,142 | ) | ||
Deferred tax liability | (8,358,854 | ) | ||
Accounts payable and accrued liabilities | (83,420,471 | ) | ||
Total net identifiable assets acquired | (3,830,110 | ) | ||
Goodwill (excess consideration over net identifiable assets) | 192,170,736 | |||
Total Consideration | 188,340,626 |
During the year ended December 31, 2022, the Company assessed the goodwill acquired as a result of the Pharmaco Acquisition. Refer to the 2022 Annual Financial Statements for details on goodwill impairment relating to Pharmaco, Inc.
As at June 30, 2023, the were no material conditions present that necessitated a review of the goodwill. Accordingly, the Company did not perform testing, and did not recognize any impairment.
10 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
DISCONTINUED OPERATIONS
During the year ended December 31, 2021, the Company discontinued operations of its wholly owned subsidiary, Mid-American Growers, Inc (“MAG”). Accordingly, the below results of operations for 2023-Q2, and 2022-Q2 exclude the operations from MAG.
2023-Q2 | 2022-Q2 | Variance | 2023-YTD | 2022-YTD | Variance | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Revenue | - | 25,270 | (25,270 | ) | - | 164,537 | (164,537 | ) | ||||||||||||||||
Cost of Sales | - | 113,196 | (113,196 | ) | - | 254,442 | (254,442 | ) | ||||||||||||||||
Gross loss | - | (87,926 | ) | 87,926 | - | (89,905 | ) | 89,905 | ||||||||||||||||
Total operating expenses | 3,252 | 1,070,005 | (1,066,753 | ) | 37,417 | 3,826,837 | (3,789,420 | ) | ||||||||||||||||
Loss from operations | (3,252 | ) | (1,157,931 | ) | 1,154,679 | (37,417 | ) | (3,916,742 | ) | 3,879,325 | ||||||||||||||
Total other expense (income) | 284 | (482,108 | ) | 482,392 | 284 | (2,343,266 | ) | 2,343,550 | ||||||||||||||||
Net loss from discontinued operations | (3,536 | ) | (675,823 | ) | 672,287 | (37,701 | ) | (1,573,476 | ) | 1,535,775 |
FINANCIAL HIGHLIGHTS
2023-Q2 and 2023-YTD Consolidated Highlights
The following summarizes results from operations for 2023-Q2, and 2023-YTD with 2022-Q2 and 2022-YTD comparatives.
2023-Q2 | 2022-Q2 | Variance | 2023-YTD | 2022-YTD | Variance | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Revenue | 21,915,629 | 27,402,453 | (5,486,824 | ) | 48,961,717 | 55,449,254 | (6,487,537 | ) | ||||||||||||||||
Cost of goods sold, before fair value adjustments | 15,049,199 | 22,614,856 | (7,565,657 | ) | 32,685,613 | 39,320,191 | (6,634,578 | ) | ||||||||||||||||
Gross profit before fair value adjustments | 6,866,430 | 4,787,597 | 2,078,833 | 16,276,105 | 16,129,063 | 147,041 | ||||||||||||||||||
Unrealized changes in fair value of biological assets | (1,287,157 | ) | (17,973 | ) | (1,269,184 | ) | (1,737,952 | ) | (2,467,978 | ) | 730,026 | |||||||||||||
Realized fair value amounts included in inventory sold | 616,685 | (1,351,571 | ) | 1,968,256 | 10,201 | (1,074,644 | ) | 1,084,845 | ||||||||||||||||
Gross Profit | 6,195,958 | 3,418,053 | 2,777,905 | 14,548,353 | 12,586,441 | 1,961,912 | ||||||||||||||||||
Gross profit Percentage (%) | 28 | % | 12 | % | 16 | % | 30 | % | 23 | % | 7 | % | ||||||||||||
Total operating expenses | 9,834,870 | 13,319,495 | (3,484,625 | ) | 20,700,898 | 24,675,078 | (3,974,180 | ) | ||||||||||||||||
Loss from operations before other expenses or income | (3,638,912 | ) | (9,901,442 | ) | 6,262,530 | (6,152,544 | ) | (12,088,637 | ) | 5,936,092 | ||||||||||||||
Total other expenses | 5,677,564 | 5,935,549 | (257,985 | ) | 12,246,949 | 12,536,719 | (289,770 | ) | ||||||||||||||||
Loss before income taxes | (9,316,476 | ) | (15,836,991 | ) | 6,520,515 | (18,399,494 | ) | (24,625,356 | ) | 6,225,862 | ||||||||||||||
Current income tax expense | (147,034 | ) | (1,133,396 | ) | 986,362 | (2,122,431 | ) | (3,204,566 | ) | 1,082,135 | ||||||||||||||
Deferred income tax recovery | - | - | - | 1,696,281 | - | 1,696,281 | ||||||||||||||||||
Net loss from continuing operations | (9,463,510 | ) | (16,970,387 | ) | 7,506,877 | (18,825,644 | ) | (27,829,922 | ) | 9,004,278 | ||||||||||||||
Loss from discontinued operations | (4,953 | ) | (675,823 | ) | 670,870 | (39,118 | ) | (1,573,476 | ) | 1,534,358 | ||||||||||||||
Loss for the period | (9,468,463 | ) | (17,646,210 | ) | 8,177,747 | (9,396,299 | ) | (18,864,762 | ) | 10,538,636 | ||||||||||||||
Adjusted EBITDA | 252,778 | (6,305,180 | ) | 6,557,958 | 1,045,455 | (4,002,750 | ) | 5,048,205 |
· | Revenues were $21.9 million for 2023-Q2, a $5.5 million decrease from 2022-Q2 revenues of $28.0 million. Revenues for 2023-YTD were $49.0 million, a $6.5 million decrease from 2022-YTD revenues of $55.4 million. |
· | Gross profit, before fair value adjustments, was $6.9 million for 2023-Q2, a $2.1 million increase from 2022-Q2 gross profit before fair value adjustments of $4.8 million. Gross profit, before fair value adjustments for 2023-YTD, was $16.3 million, a $0.1 million increase from 2022-YTD gross profit before fair value adjustments of $16.1 million. |
· | Operating expenses were $9.8 million for 2023-Q2, a decrease of $3.5 million compared to 2022-Q2 operating expenses of $13.3 million. Operating expenses were $20.7 million for 2023-YTD, a decrease of $4.0 million compared to 2022-YTD operating expenses of $24.7 million. |
· | Losses from operations before other expenses were $3.6 million for 2023-Q2, a $6.3 million decrease from 2022-Q2 losses from operations before other expenses of $9.9 million. Losses from operations before other expenses were $6.2 million for 2023-YTD, a $5.9 million decrease from 2022-YTD losses from operations before other expenses of $12.1 million. |
· | Other expenses were $5.7 million for 2023-Q2, a decrease of $0.3 million compared to 2022-Q2 other expenses of $6.6 million. Other expenses were $12.2 million for 2023-Q2, a decrease of $0.3 million compared to 2022-YTD other expenses of $12.5 million. |
11 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
RESULTS OF OPERATIONS
The Company’s reportable segments, organized based on channels to end-user markets serviced by the Company, are as follows:
(1) | Corporate segment includes the publicly traded parent company which operates as a cost center for related public reporting and administrative costs amongst others. |
(2) | Distribution segment includes subsidiaries that are (a) licensed to manufacture, process and/or distribute Company branded cannabis products and accessories directly to licensed retailers in states of Michigan and California where the sale of cannabis products is legal. |
(3) | Licensing segment includes subsidiaries that own intellectual property associated with the Company’s PV and Platinum trademarks and brands, that are engaged in the sale of non-THC branded products which are incorporated in licensed Company cannabis product offerings. The Company also contracts with distributors in legal states to license the use of its brands in the above noted branded, non-THC inputs as well as market branded product offerings within their territory. |
(4) | Retail segment sells both Company branded and third-party cannabis products and accessories to the adult-use and medical use markets in the states of Florida and Michigan where the sale of cannabis product offerings by licensed retailers is legal. |
(5) | All other non-reporting operations to a fifth segment; ‘Other’. |
Segmented revenues to gross profit, for 2023-Q2 and 2022-Q2 are as follows:
2023-Q2 | Distribution | Licensing | Retail | Consolidated | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | ||||||||||||||||
Sales revenue | 14,388,238 | 2,309,450 | 5,217,940 | 21,915,629 | ||||||||||||
Cost of goods sold before fair value adjustments | 10,167,813 | 735,218 | 4,146,168 | 15,049,199 | ||||||||||||
Gross profit before fair value adjustments | 4,220,425 | 1,574,232 | 1,071,772 | 6,866,430 | ||||||||||||
Unrealized gains (losses) in fair value of biological assets | - | - | (1,287,157 | ) | (1,287,157 | ) | ||||||||||
Realized fair value gains (losses) included in inventory sold | - | - | 616,685 | 616,685 | ||||||||||||
Gross profit after fair market value adjustments | 4,220,425 | 1,574,232 | 401,300 | 6,195,958 | ||||||||||||
% of consolidated revenue | 66 | % | 11 | % | 24 | % | 100 | % | ||||||||
% of consolidated cost of goods sold before fair value adjustments | 68 | % | 5 | % | 28 | % | 100 | % | ||||||||
Gross profit before fair value adjustments (%) | 29 | % | 68 | % | 21 | % | 31 | % | ||||||||
Gross profit (%) | 29 | % | 68 | % | 8 | % | 28 | % | ||||||||
2022-Q2 | Distribution | Licensing | Retail | Consolidated | ||||||||||||
Revenue | ||||||||||||||||
Sales revenue | 18,309,430 | - | 9,093,023 | 27,402,453 | ||||||||||||
Cost of goods sold before fair value adjustments | 14,645,609 | - | 7,969,247 | 22,614,856 | ||||||||||||
Gross profit before fair value adjustments | 3,663,821 | - | 1,123,776 | 4,787,597 | ||||||||||||
Unrealized gains (losses) in fair value of biological assets | - | - | (17,973 | ) | (17,973 | ) | ||||||||||
Realized fair value gains (losses) included in inventory sold | - | - | (1,351,571 | ) | (1,351,571 | ) | ||||||||||
Gross profit after fair market value adjustments | 3,663,821 | - | (245,768 | ) | 3,418,053 | |||||||||||
% of consolidated revenue | 67 | % | 0 | % | 33 | % | 100 | % | ||||||||
% of consolidated cost of goods sold before fair value adjustments | 65 | % | 0 | % | 35 | % | 100 | % | ||||||||
Gross profit before fair value adjustments (%) | 20 | % | 0 | % | 12 | % | 17 | % | ||||||||
Gross profit (%) | 20 | % | 0 | % | -3 | % | 12 | % | ||||||||
Change 2023-Q2 vs 2022-Q2 | Distribution | Licensing | Retail | Consolidated | ||||||||||||
Change in revenue | (3,921,192 | ) | 2,309,450 | (3,875,083 | ) | (5,486,824 | ) | |||||||||
Change in cost of goods sold before fair value adjustment | (4,477,796 | ) | 735,218 | (3,823,079 | ) | (7,565,657 | ) | |||||||||
Change in gross profit before fair adjustment | 556,604 | 1,574,232 | (52,004 | ) | 2,078,833 | |||||||||||
Change in gross profit after fair market value adjustments | 556,604 | 1,574,232 | 647,068 | 2,777,905 |
12 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
Segmented revenues to gross profit, for 2023-YTD and 2022-YTD are as follows:
2023-YTD | Distribution | Licensing | Retail | Consolidated | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | ||||||||||||||||
Sales revenue | 35,314,528 | 2,309,450 | 11,337,739 | 48,961,717 | ||||||||||||
Cost of goods sold before fair value adjustments | 23,610,439 | 735,218 | 8,339,955 | 32,685,613 | ||||||||||||
Gross profit before fair value adjustments | 11,704,089 | 1,574,232 | 2,997,784 | 16,276,104 | ||||||||||||
Unrealized gains (losses) in fair value of biological assets | - | - | (1,737,952 | ) | (1,737,952 | ) | ||||||||||
Realized fair value gains (losses) included in inventory sold | - | - | 10,201 | 10,201 | ||||||||||||
Gross profit after fair market value adjustments | 11,704,089 | 1,574,232 | 1,270,033 | 14,548,353 | ||||||||||||
% of consolidated revenue | 72 | % | 5 | % | 23 | % | 100 | % | ||||||||
% of consolidated cost of goods sold before fair value adjustments | 72 | % | 2 | % | 26 | % | 100 | % | ||||||||
Gross profit before fair value adjustments (%) | 33 | % | 68 | % | 26 | % | 33 | % | ||||||||
Gross profit (%) | 33 | % | 68 | % | 11 | % | 30 | % | ||||||||
2022-YTD | Distribution | Licensing | Retail | Consolidated | ||||||||||||
Revenue | ||||||||||||||||
Sales revenue | 35,188,916 | - | 20,260,339 | 55,449,254 | ||||||||||||
Cost of goods sold before fair value adjustments | 24,069,687 | - | 15,250,504 | 39,320,191 | ||||||||||||
Gross profit before fair value adjustments | 11,119,229 | - | 5,009,835 | 16,129,063 | ||||||||||||
Unrealized gains (losses) in fair value of biological assets | - | - | (2,467,978 | ) | (2,467,978 | ) | ||||||||||
Realized fair value gains (losses) included in inventory sold | - | - | (1,074,644 | ) | (1,074,644 | ) | ||||||||||
Gross profit after fair market value adjustments | 11,119,229 | - | 1,467,213 | 12,586,441 | ||||||||||||
% of consolidated revenue | 63 | % | 0 | % | 37 | % | 100 | % | ||||||||
% of consolidated cost of goods sold before fair value adjustments | 61 | % | 0 | % | 39 | % | 100 | % | ||||||||
Gross profit before fair value adjustments (%) | 32 | % | 0 | % | 25 | % | 29 | % | ||||||||
Gross profit (%) | 32 | % | 0 | % | 7 | % | 23 | % | ||||||||
Change 2023-YTD vs 2022-YTD | Distribution | Licensing | Retail | Consolidated | ||||||||||||
Change in revenue | 125,612 | 2,309,450 | (8,922,600 | ) | (6,487,537 | ) | ||||||||||
Change in cost of goods sold before fair value adjustment | (459,248 | ) | 735,218 | (6,910,549 | ) | (6,634,578 | ) | |||||||||
Change in gross profit before fair adjustment | 584,860 | 1,574,232 | (2,012,051 | ) | 147,041 | |||||||||||
Change in gross profit after fair market value adjustment | 584,860 | 1,574,232 | (197,180 | ) | 1,961,912 |
Revenue
The Company’s three main revenue streams are (1) Distribution, (2) Licensing and (3) Retail.
· | Distribution Revenue: Revenue from sales to customers through the Company’s distribution channel is recognized, net of promotional discounts, estimated returns, and sales/excise taxes, when control of the goods has transferred to the customer. Where the Company arranges the shipping of goods, revenue is recognized on the date the goods are shipped from the Company’s warehouse or third-party distribution partner (FOB shipping point). Where the customer arranges for the pickup of goods, revenue is recognized at the time the goods are transferred to the customer’s carrier. Costs of shipping orders to customers, as applicable, are included as an expense in the cost of goods sold. |
· | Licensing Revenue: Revenue from sales to distributors of non-THC, branded inputs and through licensing of its brand to third party distributors. |
· | Retail Revenue: Revenue from sales through the Company’s retail channel is revenue that is generally recognized, net of promotional discounts, estimated returns, and sales taxes, on the date the goods are sold within one of the Company’s retail locations (point-of-sale). |
Sales of products are in cash, in the case of retail revenues, or for otherwise agreed-upon credit terms, in the case of distribution and licensing revenues. The Company’s payment terms for distribution customers vary by location and customer. The time between when distribution revenue is recognized and when payment is due is typically not greater than 60 days. The Company offers promotional discounts on its products at point of sale (Retail). The Company does not offer a warranty on its products in any channel.
13 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
Revenue for 2023-Q2
· | Consolidated revenue for 2023-Q2 amounted to $21.9 million, compared to $27.4 million for 2022-Q2. The overall decrease of $5.5 million in revenue is primarily attributed to lower revenues generated through the Distribution and Retail channels in the current quarter. Further analysis of revenues reported for 2023-Q2 is provided in the discussion of the respective operating segments results below (Distribution, Licensing and Retail). |
· | Distribution revenue for 2023-Q2 decreased by $3.9 million in comparison to revenues for 2022-Q2. 2023-Q2 revenue was $14.4 million, compared to $18.3 million for 2022-Q2. The decrease in revenues can be primarily attributed to supply chain constraints within both the Michigan and California markets that restricted the Company’s ability to fulfill committed sales orders. As of the date of the MD&A, the Company does not foresee these conditions continuing into the third quarter of fiscal 2023 and has also proactively engaged in solidifying its supply of raw materials (biomass) into fiscal 2024 for its key Michigan operations through a biomass procurement arrangement executed in second quarter of fiscal 2023. |
· | Licensing revenue for 2023-Q2 amounted to $2.3 million and has no comparable revenue in 2022-Q2 due to the inclusion of the segment to the financials in the 2023-Q2 period. |
· | Retail revenue for 2023-Q2 was $5.2 million compared to $9.1 million for 2022-Q2. The decrease of $3.9 million is primarily attributed to the impact of continuing competitive retail market conditions in the state of Michigan and Florida, the impact of aggressive, point of sale, promotional campaigns within the Florida retail network tied to the sunset of HT Medical product offerings required to optimize shelf space for the newly launched “House of Platinum” branded cannabis product offerings introduced in 2023-Q2, as well as the mix of revenues in 2022-Q2. |
Revenue for 2023-YTD
· | Consolidated revenue for 2023-YTD amounted to $49.0 million, compared to $55.4 million for 2022-YTD. The overall decrease of $6.5 million in revenue is primarily attributed to lower revenues generated through the Retail channel in the period. Further analysis of revenues reported for 2023-YTD is provided in the discussion of the respective operating segments results below (Retail, Distribution and Licensing). |
· | Distribution revenue for 2023-YTD increased marginally by $0.1 million in comparison to revenues for 2022-YTD. 2023-YTD revenue was $35.3 million, compared to $35.2 million for 2022-YTD. |
· | Licensing revenue for 2023-YTD amounted to $2.3 million and has no comparable revenue in 2022-YTD due to the inclusion of the segment to the financials in 2023-Q2 period. |
· | Retail revenue for 2023-YTD was $11.3 million compared to $20.3 million for 2022-YTD. The decrease of $8.9 million is primarily attributed to the impact of continuing competitive market conditions in the state of Michigan and Florida, the impact of aggressive, point of sale, promotional campaigns within the Florida retail network tied to the sunset of HT Medical product offerings required to optimize shelf space for the newly launched “House of Platinum” branded cannabis product offerings introduced in 2023-Q2, as well as the mix of revenues in 2022-YTD. |
Despite pricing pressures across all of its active markets, the Company continues to proactively adapt the mix of its premium branded product offerings based on the maturing customer tastes defined by licensed retailers and key consumers within these markets. This product focus is the basis for building ultimate consumer awareness and loyalty to the Company’s Platinum branded product lines.
14 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
Cost of goods sold
Cost of goods sold for 2023-Q2
· | Consolidated cost of goods sold before fair value adjustments for 2023-Q2 was $15.0 million, a $7.6 million decrease, when compared to $22.6 million for 2022-Q2, mainly driven by decreases in Retail and Distribution channels. |
· | Distribution cost of goods sold before fair value adjustments for 2023-Q2 was $10.2 million, a decrease of $4.5 million, when compared to $14.6 million for 2022-Q2. The decrease is primarily due to the continuing impact of value-added cost reduction initiatives implemented by the Company’s Michigan operation during the quarter and input pricing concessions garnered by the Distribution operations on key manufacturing inputs as the Company continues to solidify its competitive position in the marketplace in comparison to 2022-YE. |
· | Licensing cost of goods sold before fair value adjustments for 2023-Q2 amounted to $0.7 million and has no comparable revenue in 2022-YTD due to the inclusion of the segment to the financials in 2023-Q2 period. |
· | Retail cost of goods sold before fair value adjustments for 2023-Q2 was $4.1 million, a decrease of $3.8 million when compared to $8.0 million in 2022-Q2. The decrease is in direct correlation with the decrease in gross revenues for the 2023- Q2 quarter. |
Cost of goods sold for 2023-YTD
· | Consolidated cost of goods sold before fair value adjustments for 2023-YTD was $32.7 million, a $6.6 million decrease, when compared to $39.3 million for 2022-YTD. |
· | Distribution cost of goods sold before fair value adjustments for 2023-YTD was $23.6 million, a decrease of $0.5 million, when compared to $24.0 million for 2022-YTD. |
· | Licensing cost of goods sold before fair value adjustments for 2023-YTD amounted to $0.7 million and has no comparable revenue in 2022-YTD due to the inclusion of the segment to the financials in 2023-Q2 period. |
· | Retail cost of goods sold before fair value adjustments for 2023-YTD was $8.3 million, a decrease of $6.9 million when compared to $15.3 million in 2022-ytd. The decrease is in direct correlation with the decrease in gross revenues for 2023- YTD. |
Gross profit before fair market value adjustments
Gross profit before fair market value adjustments for 2023-Q2
· | Consolidated gross profit before fair value adjustments for 2023-Q2 totaled $6.9 million, a $2.1 million increase when compared to a consolidated gross profit before fair value adjustments of $4.8 million for 2022-Q2. The consolidated decrease is due to changes in gross profit before fair market value adjustment in the Distribution, Licensing and Retail channels as described below. |
15 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
· | Distribution gross profit before fair value adjustments for 2023-Q2 totaled $4.2 million, a marginal increase of $0.6 million when compared to a gross profit before fair value adjustments of $3.7 million for 2022-Q2 reflecting a higher gross margin of 29% before fair value adjustments for the current quarter compared to 20% in 2022-Q2. The increase in gross profit margin before fair value adjustments is a direct reflection of the reduction in cost of goods sold mentioned above. |
· | Licensing gross profit before fair value adjustments for 2023-Q2 amounted to $1.6 million and has no comparable revenue in 2022-YTD due to the inclusion of the segment to the financials in 2023-Q2 period. |
· | Retail gross profit before fair value adjustments for 2023-Q2 totaled $1.1 million, constant with the gross profit before fair value adjustments of $1.1 million for 2022-Q2. |
Gross profit before fair market value adjustments for 2023-YTD
· | Consolidated gross profit before fair value adjustments for 2023-YTD totaled $16.3 million, a $0.2 million increase when compared to a consolidated gross profit before fair value adjustments of $16.1 million for 2022-YTD. The consolidated decrease is due to changes in the Distribution, Licensing and Retail, channels as described below. |
· | Distribution gross profit before fair value adjustments for 2023-YTD totaled $11.7 million, a marginal increase of $0.6 million when compared to a gross profit before fair value adjustments of $11.1 million for 2022-YTD. The increase in gross profit margin before fair value adjustments is a direct reflection of the reduction in cost of goods sold mentioned above. |
· | Licensing gross profit before fair value adjustments for 2023-YTD amounted to $1.6 million and has no comparable gross profit before fair value adjustments in 2022-YTD due to the inclusion of the segment to the financials in 2023-Q2 period. |
· | Retail gross profit before fair value adjustments for 2023-YTD totaled $3.0 million, a decrease of $2.0 million compared to gross profit before fair value adjustments of $5.0 million for 2022-YTD reflecting the continuing impact of competitive market conditions in the Company’s Michigan and Florida retail operations, the aforementioned impact of promotional discounts implemented in 2023-Q2 within the Florida retail network as part of the House of Platinum product launch, and the mix of revenues versus 2022-YTD. |
Gross profit after fair market value adjustments
Adjustments for unrealized gains and losses in fair market value of biological assets, and inventory affect the Retail segment only. Affects within the Retail segment have been described below.
Gross profit after fair market value adjustments for 2023-Q2
· | Consolidated gross profit, after fair value adjustments for 2023-Q2 was $6.2 million, an increase of $2.8 million compared to $3.4 million for 2022-Q2. |
· | Retail gross profit, after fair value adjustments for 2023-Q2 was $1.1 million, compared to a gross loss of $0.3 million for 2022-Q2. In 2023-Q2, the Company realized losses due to fair market value changes of $1.3 million for biological assets whereas 2022-Q2 losses were minimal. $0.6 million in gains on fair market value changes in inventory were realized by the Company in 2023-Q2, whereas $1.4 million in losses were realized in 2022-Q2. |
16 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
Gross profit after fair market value adjustments for 2023-YTD
· | Consolidated gross profit, after fair value adjustments for 2023-YTD was $14.5 million, an increase of $2.0 million compared to $12.5 million for 2022-YTD. |
· | Retail gross profit, after fair value adjustments for 2023-YTD was $1.2 million, a decrease of $0.2 million compared to $1.4 million for 2022-YTD. In 2023-YTD, the Company realized losses due to fair market value changes of $1.7 million for biological assets (2022-YTD; $2.5 million). Minimal gains on fair market value changes in inventory were realized by the Company in 2023-YTD (2022-YTD; $1.1 million in losses). |
OPERATING EXPENSES
The Company incurs ongoing expenses, cash and non-cash, to operate its Distribution, Licensing and Retail operations, along with various costs related to its public company standing.
Operating Expenses for 2023-Q2 and 2022-Q2 are as follows:
2023-Q2 | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
General and administration | 1,331,506 | 2,295,179 | 66,423 | 3,638,701 | 7,331,809 | |||||||||||||||
Marketing expenses | (37,132 | ) | 362,503 | 5,854 | 246,906 | 578,131 | ||||||||||||||
Share-based compensation | 142,405 | - | - | - | 142,405 | |||||||||||||||
Depreciation and amortization | - | 146,123 | - | 1,256,686 | 1,402,809 | |||||||||||||||
Bad debt expense | - | 379,716 | - | - | 379,716 | |||||||||||||||
Total operating Expenses | 1,436,779 | 3,183,521 | 72,278 | 5,142,292 | 9,834,870 | |||||||||||||||
2022-Q2 | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
General and administration | 3,009,704 | 3,519,417 | - | 3,681,904 | 10,211,025 | |||||||||||||||
Marketing expenses | 75,482 | 453,432 | - | 295,426 | 824,340 | |||||||||||||||
Share-based compensation | - | - | - | - | - | |||||||||||||||
Depreciation and amortization | 239 | 180,556 | - | 1,211,599 | 1,392,394 | |||||||||||||||
Bad debt expense | - | 891,736 | - | - | 891,736 | |||||||||||||||
Total operating expenses | 3,085,425 | 5,045,141 | - | 5,188,929 | 13,319,495 | |||||||||||||||
Variances | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Change in General and administration | (1,678,198 | ) | (1,224,238 | ) | 66,423 | (43,203 | ) | (2,879,216 | ) | |||||||||||
Change in marketing expenses | (112,614 | ) | (90,929 | ) | 5,854 | (48,521 | ) | (246,210 | ) | |||||||||||
Change in share-based compensation | 142,405 | - | - | - | 142,405 | |||||||||||||||
Change in depreciation and amortization | (239 | ) | (34,433 | ) | - | 45,087 | 10,415 | |||||||||||||
Change in in bad debt expense | - | (512,020 | ) | - | - | (512,020 | ) | |||||||||||||
Change in total operating expenses | (1,648,646 | ) | (1,861,620 | ) | 72,278 | (46,637 | ) | (3,484,626 | ) |
17 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
Operating Expenses for 2023-YTD and 2022-YTD are as follows:
2023-YTD | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
General and administration | 3,391,396 | 4,381,953 | 80,530 | 8,252,496 | 16,106,375 | |||||||||||||||
Marketing expenses | (15,150 | ) | 811,238 | 5,854 | 329,965 | 1,131,908 | ||||||||||||||
Share-based compensation | 458,614 | - | - | - | 458,614 | |||||||||||||||
Depreciation and amortization | - | 291,557 | - | 1,777,592 | 2,069,149 | |||||||||||||||
Bad debt expense | - | 934,852 | - | - | 934,852 | |||||||||||||||
Total operating expenses | 3,834,860 | 6,419,600 | 86,384 | 10,360,053 | 20,700,898 | |||||||||||||||
2022-YTD | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
General and administration | 4,850,339 | 7,326,535 | - | 6,582,493 | 18,759,367 | |||||||||||||||
Marketing expenses | 285,446 | 670,717 | - | 513,833 | 1,469,996 | |||||||||||||||
Share-based compensation | 273,000 | - | - | - | 273,000 | |||||||||||||||
Depreciation and amortization | 476 | 366,083 | - | 2,506,880 | 2,873,439 | |||||||||||||||
Bad debt expense | - | 1,299,276 | - | - | 1,299,276 | |||||||||||||||
Total operating expenses | 5,409,261 | 9,662,611 | - | 9,603,206 | 24,675,078 | |||||||||||||||
Variances | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Change in General and administration | (1,458,943 | ) | (2,944,582 | ) | 80,530 | 1,670,003 | (2,652,992 | ) | ||||||||||||
Change in marketing expenses | (300,596 | ) | 140,521 | 5,854 | (183,868 | ) | (338,088 | ) | ||||||||||||
Change in share-based compensation | 185,614 | - | - | - | 185,614 | |||||||||||||||
Change in depreciation and amortization | (476 | ) | (74,526 | ) | - | (729,288 | ) | (804,290 | ) | |||||||||||
Change in in bad debt expense | - | (364,424 | ) | - | - | (364,424 | ) | |||||||||||||
Change in total operating expenses | (1,574,401 | ) | (3,243,011 | ) | 86,384 | 756,847 | (3,974,181 | ) |
Consolidated operating expenses for 2023-Q2 and 2023-YTD totaled $9.8 million and $20.7 million, a decrease of $3.5 million and $4.0 million respectively when compared to consolidated operating expenses of $13.3 million and $24.7 million for 2022-Q2 and 2022- YTD. The overall decrease is due to changes in operating expenses as described below.
General and administrative expenses (“G&A”)
G&A expenses include burdened headcount costs not otherwise attributed to indirect costs of production, expenses associated with operating initiatives such as seasonable marketing campaigns, facility costs including dedicated security, regional cannabis licensing fees, professional and advisory fees, insurance premiums, and allocations of corporate costs associated with the oversight of the operations.
18 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
The following table summarizes general and administrative expenses incurred by the Company for 2023-Q2, and 2023-YTD, and 2022- Q2 and 2022-YTD:
2023-Q2 | 2022-Q2 | Variance | 2023-YTD | 2022-YTD | Variance | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Salaries and wages | 3,679,711 | 5,011,359 | (1,331,648 | ) | 7,553,521 | 9,566,662 | (2,013,141 | ) | ||||||||||||||||
Facilities expense | 684,198 | 833,158 | (148,960 | ) | 2,024,433 | 1,182,269 | 842,164 | |||||||||||||||||
Professional fees | 1,227,990 | 3,020,358 | (1,792,368 | ) | 2,861,889 | 4,611,694 | (1,749,805 | ) | ||||||||||||||||
Office and administrative fees | 331,017 | 198,114 | 132,903 | 1,035,511 | 281,958 | 753,553 | ||||||||||||||||||
Travel expense | 185,775 | 153,156 | 32,619 | 240,686 | 336,467 | (95,781 | ) | |||||||||||||||||
Licenses and permits | 135,679 | 3,274 | 132,405 | 312,696 | 73,418 | 239,278 | ||||||||||||||||||
Insurance | 276,883 | 324,823 | (47,940 | ) | 756,939 | 727,229 | 29,710 | |||||||||||||||||
Penalty and late fees | 810,556 | 547,174 | 263,382 | 1,320,700 | 1,599,789 | (279,089 | ) | |||||||||||||||||
Tax expense | - | 119,609 | (119,609 | ) | - | 379,881 | (379,881 | ) | ||||||||||||||||
Total general and administrative expenses | 7,331,809 | 10,211,025 | (2,879,216 | ) | 16,106,375 | 18,759,367 | (2,652,992 | ) |
General and Administrative for 2023-Q2
Total G&A expenses for 2023-Q2 were $7.3 million compared to $10.2 million for 2022-Q2. The decrease of $2.9 million is primarily attributable to reductions in Professional fees and Salaries and wages, offset by increases in Penalties and late fees.
· | Salaries and wages in 2023-Q2, totaled $3.7 million, a decrease of $1.3 million when compared to salaries and wages of $5.0 million for 2022-Q2. The decrease is due to management’s commitment to the execution of continued cost reduction initiatives. For 2023-Q2, there were no remaining employees relating to the discontinued operation. |
· | Facilities expenses in 2023-Q2 totaled $0.7 million, a decrease of $0.4 million when compared to facilities expenses of $1.1 million for 2022-Q2. The decrease is primarily attributed to expenses incurred in 2022-Q2 related to reduction security expenses. |
· | Professional fees for 2023-Q2 totaled $1.2 million, a decrease of $1.3 million compared to $2.5 million in 2022-Q2 mainly due to high audit fees in 2022-Q2. |
· | Office and administrative fees for 2023-Q2 totaled $0.3 million, an increase of $0.1 million when compared to $0.4 million for 2022-Q2. |
· | Travel expenses in 2023-Q2 totaled $0.2 million, comparable to $0.2 million for 2022-Q2. |
· | Licenses and permits in 2023-Q2 were $0.1 million, an increase of $0.1 million compared to minimal costs for 2022-Q2 due to an increase in license fees in the current quarter. |
· | Insurance in 2023-Q2 was $0.3 million, comparable to $0.2 million in 2022-Q2. |
· | Penalty and late fees for 2023-Q2 were $0.8 million, an increase of $0.3 million when compared to expenses of $0.5 million for 2022-Q2 primarily due to an increase in late fees and interest in Retail segment assessed for prior year. |
· | Tax expenses for 2023-Q2 were $nil, compared to $0.1 million recorded in 2022-Q2 as there were no tax expenses recorded in the current quarter. |
19 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
General and Administrative for 2023-YTD
Total G&A expenses for 2023-YTD were $16.1 million compared to $18.8 million for 2022-YTD. The decrease of $2.7 million is primarily attributable to reductions in salaries and wages, professional fees and tax expenses offset by increases in office and administrative fees and facilities expenses.
· | Salaries and wages in 2023-YTD, totaled $7.6 million, a decrease of $2.0 million when compared to salaries and wages of $9.6 million for 2022-YTD. The decrease is due to management’s commitment to the execution of continued cost reduction initiatives, including headcount rationalization, reducing headcount from 192 for 2023-YTD to 130 for 2023-YTD. |
· | Facilities expenses in 2023-YTD totaled $2.0 million, an increase of $0.8 million when compared to facilities expenses of $1.2 million for 2022-YTD. The increase is primarily attributed to the increase in security expenses related to new retail activations in the current fiscal year. |
· | Professional fees for 2023-YTD totaled $2.9 million, a decrease of $1.7 million compared to $4.6 million in 2022-YTD mainly due to reduction in accounting fees and legal fees in 2023-YTD compared to 2022-YTD. |
· | Office and administrative fees for 2023-YTD totaled $1.0 million, an increase of $0.7 million when compared to $0.3 million for 2022-YTD due to increases in service fees and office supplies. |
· | Travel expenses in 2023-YTD totaled $0.2 million, a decrease of $0.1 million compared to $0.3 million for 2022-YTD. |
· | Licenses and permits in 2023-YTD were $0.3 million, an increase of $0.2 million compared to $0.1 million for 2022-YTD. The increase is primarily attributed to renewals incurred for the period in the Retail segment. |
· | Insurance in 2023-YTD was $0.7 million, was comparable to $0.7 million for 2022-YTD. |
· | Penalty and late fees for 2023-YTD were $1.3 million, a decrease of $0.3 million when compared to expenses of $1.6 million for 2022-YTD due to a reduction in the penalties incurred and paid in 2023-YTD. |
· | Tax expenses for 2023-YTD were $nil, compared to $0.3 million recorded in 2022-YTD. |
Bad Debt Expense
Bad debt expense for 2023-Q2 was $0.4 million, compared to $0.9 million for 2022-Q2. The Company provided for $0.4 million in expected credit losses as at 2023-YTD, a $0.1 million decrease from the $0.5 million provided for as at 2022-YTD. The increase in provisions had the corresponding increase in bad debt expense when comparing 2023-Q2 with 2022-Q2. The Company also realized $0.4 million in uncollectable accounts in 2022-Q2.
Bad debt expense for 2023-YTD was $0.9 million, compared to $1.3 million for 2022-YTD. The Company provided for $2.5 million in expected credit losses as at 2023-YTD, a $0.9 million increase from those provided for as at 2022-YTD. The increase in provisions had the corresponding increase in bad debt expense when comparing 2023-YTD with 2022-YTD.
20 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
OTHER EXPENSES ( INCOME)
Other expenses (income) for 2023-Q2 and 2022-Q2 are as follows:
2023-Q2 | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Other expense (income) | (314,568 | ) | (28 | ) | 363,814 | (385,965 | ) | (336,747 | ) | |||||||||||
Accreted interest, leases | - | 47,187 | (639,677 | ) | 1,256,040 | 663,549 | ||||||||||||||
Finance expense, net | 5,572,659 | 18,980 | (1,786,146 | ) | 3,697,838 | 7,503,331 | ||||||||||||||
(Gain) loss on evaluation of financial instruments | (31,563 | ) | - | (1,342 | ) | (1,243,714 | ) | (1,276,619 | ) | |||||||||||
(Gain) loss on disposal of assets | - | 144,359 | - | - | 144,359 | |||||||||||||||
Foreign exchange | (1,020,442 | ) | - | 133 | - | (1,020,309 | ) | |||||||||||||
Total other expenses (income) | 4,206,086 | 210,498 | (2,063,218 | ) | 3,324,199 | 5,677,564 | ||||||||||||||
2022-Q2 | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Other expense (income) | - | - | - | - | - | |||||||||||||||
Accreted interest, leases | - | 16,897 | 1,354,251 | - | 1,371,148 | |||||||||||||||
Finance expense, net | 1,196,359 | 205,240 | 408,132 | - | 1,809,731 | |||||||||||||||
(Gain) loss on evaluation of financial instruments | - | - | - | - | - | |||||||||||||||
(Gain) loss on disposal of assets | - | - | - | - | - | |||||||||||||||
Foreign exchange | 2,742,404 | - | - | 12,266 | 2,754,670 | |||||||||||||||
Total other expenses (income) | 3,938,763 | 222,137 | 1,762,383 | 12,266 | 5,935,549 | |||||||||||||||
Variances | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Change in other expense (income) | (314,568 | ) | (28 | ) | 363,814 | (385,965 | ) | (336,747 | ) | |||||||||||
Change in accreted interest, leases | - | 30,290 | (1,993,928 | ) | 1,256,040 | (707,598 | ) | |||||||||||||
Change in finance expense, net | 4,376,300 | (186,260 | ) | (2,194,278 | ) | 3,697,837 | 5,693,599 | |||||||||||||
Change in (Gain) loss on evaluation of financial instruments | (31,563 | ) | - | (1,342 | ) | (1,243,714 | ) | (1,276,619 | ) | |||||||||||
(Gain) loss on disposal of assets | - | 144,359 | - | - | 144,359 | |||||||||||||||
Change in foreign exchange | (3,762,846 | ) | - | 133 | (12,266 | ) | (3,774,979 | ) | ||||||||||||
Change in total other expenses (income) | 267,323 | (11,639 | ) | (3,825,601 | ) | 3,311,932 | (257,985 | ) |
Other expenses (income) for 2023-YTD and 2022-YTD are as follows:
2023-YTD | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Other expense (income) | (322,451 | ) | (28 | ) | 323,472 | (385,965 | ) | (384,972 | ) | |||||||||||
Accreted interest, leases | - | 89,075 | - | 1,256,040 | 1,345,114 | |||||||||||||||
Finance expense, net | 10,694,081 | 30,834 | - | 3,697,837 | 14,422,752 | |||||||||||||||
(Gain) loss on evaluation of financial instruments | (1,040,598 | ) | - | - | (1,243,714 | ) | (2,284,312 | ) | ||||||||||||
(Gain) loss on disposal of assets | - | 144,359 | - | - | 144,359 | |||||||||||||||
Foreign exchange | (996,125 | ) | - | 133 | - | (995,992 | ) | |||||||||||||
Total other expenses (income) | 8,334,907 | 264,240 | 323,605 | 3,324,198 | 12,246,949 | |||||||||||||||
2022-YTD | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Other expense (income) | - | - | - | - | - | |||||||||||||||
Accreted interest, leases | - | 35,605 | 1,965,294 | - | 2,000,899 | |||||||||||||||
Finance expense, net | 6,578,606 | 213,440 | 2,391,071 | - | 9,183,117 | |||||||||||||||
(Gain) loss on evaluation of financial instruments | - | - | - | - | - | |||||||||||||||
(Gain) loss on disposal of assets | - | - | - | - | - | |||||||||||||||
Foreign exchange | 1,340,437 | - | 12,266 | - | 1,352,703 | |||||||||||||||
Total other expenses (income) | 7,919,043 | 249,045 | 4,368,631 | - | 12,536,719 | |||||||||||||||
Variances | Corporate | Distribution | Licensing | Retail | Consolidated | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Change in other expense (income) | (322,451 | ) | (28 | ) | 323,472 | (385,965 | ) | (384,972 | ) | |||||||||||
Change in accreted interest, leases | - | 53,470 | (1,965,294 | ) | 1,256,040 | (655,785 | ) | |||||||||||||
Change in finance expense, net | 4,115,475 | (182,607 | ) | (2,391,071 | ) | 3,697,837 | 5,239,635 | |||||||||||||
Change in (Gain) loss on evaluation of financial instruments | (1,040,598 | ) | - | - | (1,243,714 | ) | (2,284,312 | ) | ||||||||||||
(Gain) loss on disposal of assets | - | 144,359 | - | - | 144,359 | |||||||||||||||
Change in foreign exchange | (2,336,562 | ) | - | (12,133 | ) | - | (2,348,695 | ) | ||||||||||||
Change in total other expenses (income) | 415,864 | 15,194 | (4,045,026 | ) | 3,324,198 | (289,770 | ) |
21 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
Finance Expense
Finance expenses incurred by the Company include interest on notes payable and convertible debentures, interest incurred on the Company’s credit facility, and other costs relating to debt financing obtained by the Company largely borne within the Company’s Corporate segment.
Net finance expense for 2023-Q2 totaled $7.5 million, a $5.7 million increase when compared to the net finance expense of $1.8 million for 2022-Q2. This increase is largely attributed to an overall increase in the Company’s interest-bearing debt, proceeds of which have been utilized for working capital, investments, and general corporate purposes. In addition, on the anniversary date, June 4, 2023, pursuant to the terms of the USD$20,112,015 Convertible M&V Note, 4% additional interest on the principal balance amounting to $1.2 million became due (the “Additional Interest”) and was accrued in 2023-Q2.
Net finance expense for 2023-YTD totaled $14.4 million, a $5.2 million increase when compared to the net finance expense of $9.2 million for 2022-YTD for the reasons noted above.
Revaluation of financial instruments
Revaluation of financial instruments for 2023-Q2 and 2023-YTD resulted in gains of $1.3 million and $2.3 million, compared to $nil and $nil on revaluation of financial instruments for 2022-Q2 and 2022-YTD respectively. The valuation inputs of convertible debentures containing embedded derivatives can be found in the “Liquidity and Capital Resources” section.
ADJUSTED EBITDA
The Company has reconciled net loss and Adjusted EBITDA for 2023-Q2 and 2023-YTD, with 2022-Q2 and 2022-YTD as follows:
2023-Q2 | 2022-Q2 | Variance | 2023-YTD | 2022-YTD | Variance | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Net Income (Loss) for the Period | (9,468,463 | ) | (17,646,210 | ) | 8,177,747 | (18,864,762 | ) | (29,403,398 | ) | 10,538,636 | ||||||||||||||
Depreciation and amortization | 1,402,809 | 1,392,394 | 10,415 | 2,069,149 | 2,873,439 | (804,290 | ) | |||||||||||||||||
Bad debt expense | 379,716 | 891,736 | (512,020 | ) | 934,852 | 1,299,276 | (364,424 | ) | ||||||||||||||||
Accreted interest, leases | 663,549 | 1,371,148 | (707,599 | ) | 1,345,114 | 2,000,899 | (655,785 | ) | ||||||||||||||||
Finance expense, net | 7,503,331 | 1,809,731 | 5,693,600 | 14,422,752 | 9,183,117 | 5,239,635 | ||||||||||||||||||
(Gain) loss on revaluation of financial instruments | (1,276,619 | ) | - | (1,276,619 | ) | (2,284,312 | ) | - | (2,284,312 | ) | ||||||||||||||
Gain on disposal of assets | 144,359 | - | 144,359 | 144,359 | - | 144,359 | ||||||||||||||||||
Foreign exchange | (1,020,309 | ) | 2,754,670 | (3,774,979 | ) | (995,992 | ) | 1,352,703 | (2,348,695 | ) | ||||||||||||||
Termination costs | 153,938 | 71,237 | 82,701 | 341,081 | 71,237 | 269,844 | ||||||||||||||||||
(i) Non-recurring expenses | 810,556 | 547,174 | 263,382 | 1,320,700 | 1,599,789 | (279,089 | ) | |||||||||||||||||
Current income tax expense | 147,034 | 1,133,396 | (986,362 | ) | 2,122,431 | 3,204,566 | (1,082,135 | ) | ||||||||||||||||
Deferred income tax recovery | - | - | - | (1,696,281 | ) | - | (1,696,281 | ) | ||||||||||||||||
Fair value changes in biological assets | 1,287,157 | 17,973 | 1,269,184 | 1,737,952 | 2,467,978 | (730,026 | ) | |||||||||||||||||
Realized fair value changes in inventory sold | (616,685 | ) | 1,351,571 | (1,968,256 | ) | (10,201 | ) | 1,074,644 | (1,084,845 | ) | ||||||||||||||
Share based compensation | 142,405 | - | 142,405 | 458,614 | 273,000 | 185,614 | ||||||||||||||||||
(ii) Adjusted EBITDA | 252,778 | (6,305,180 | ) | 6,557,958 | 1,045,455 | (4,002,750 | ) | 5,048,205 |
(i) Non-recurring expenses include expenses are those that the Company does not expect to recur in the future, such as penalties and late fees.
(ii) Refer to Non-IFRS Measures
This item is a non-IFRS measure. The reader is referred to the “Adjusted EBITDA” note on page 3 of this MD&A for further details and reconciliation to the Company’s IFRS measures.
22 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
STATEMENT OF FINANCIAL POSITION
Assets
As at 2023-YTD, and 2022-YE, the Company held the following assets:
As at | 2023-YTD | 2022-YE | Variance | |||||||||
$ | $ | $ | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 3,884,521 | 2,747,138 | 1,137,383 | |||||||||
Accounts receivable | 15,490,015 | 8,439,143 | 7,050,872 | |||||||||
Notes receivable | 14,314,566 | - | 14,314,566 | |||||||||
Prepaid expenses | 842,605 | 1,079,424 | (236,819 | ) | ||||||||
Deposits | 6,557,165 | 4,231,775 | 2,325,390 | |||||||||
Inventory | 17,381,072 | 14,457,013 | 2,924,059 | |||||||||
Biological assets | 1,779,082 | 4,291,458 | (2,512,376 | ) | ||||||||
Other current assets | 772,332 | - | 772,332 | |||||||||
Total current assets | 61,021,358 | 35,245,951 | 25,775,407 | |||||||||
Non-current assets | ||||||||||||
Property, plant and equipment, net | 71,028,316 | 73,873,258 | (2,844,942 | ) | ||||||||
Intangible assets, net | 122,535,105 | 125,348,600 | (2,813,495 | ) | ||||||||
Right-of-use assets, net | 19,464,272 | 20,703,498 | (1,239,226 | ) | ||||||||
Goodwill | 36,653,275 | 37,494,861 | (841,586 | ) | ||||||||
Total non-current assets | 249,680,968 | 257,420,217 | (7,739,249 | ) | ||||||||
Total assets | 310,702,326 | 292,666,168 | 18,036,158 |
As at 2023-YTD, the Company had total assets of $310.7 million, an increase of $18.0 million compared to $292.6 million at 2022-YE.
· | Cash and equivalents as at 2023-YTD was $3.9 million, an increase of $1.2 million compared to $2.7 million as at 2022-YE. The increase can be attributed to additional financing obtained in 2023-YTD through the issuance of the USD RGR Grid Note and the CAD RGR Grid Note. The reader is referred to the Liquidity and Capital Resources section for more details on the aforementioned notes payable. |
· | Accounts receivable as at 2023-YTD were $15.5 million, an increase of $7.1 million compared to $8.4 million as at 2022-YE. The increase in receivables is a result of an increase in Distribution revenue in the Company’s Michigan operations and timing of the collections of the associated receivables. The Company extends credit to certain distributors at its sole discretion. The Company’s typical credit terms, for customers who have met the Company’s creditworthiness criteria, range between net 15 and 30 days, and in certain instances, up to 60 days. The increase in accounts receivable can also be attributed to the realization of Licensing revenues, on credit terms, in 2023-Q2. Revenue earned via Licensing netted $2.3 million in 2023-Q2, to which the amount was still to be collected at the end of the quarter. The Company has offset its accounts receivable balance with a provision for expected credit losses totaling $2.5 million (2022-YE; $1.6 million) to account for expected credit losses in accordance with the prescribed IFRS methodology utilized by the Company. |
· | Notes receivable as at 2023-YTD was $14.3 million, and $nil at 2022-YE. On June 6, 2023, the Company executed a binding letter agreement for a potential business combination between the Company and Aleafia Health, Inc. (the “Aleafia Letter Agreement”). In conjunction with the execution of the Aleafia Letter Agreement, the Company was assigned and agreed to acquire, from an arm’s length lender, $13.5 million of senior secured debt held by Aleafia Health, Inc. (“Aleafia”) at a discounted purchase price of $12.5 million. The Company subsequently advanced Aleafia an additional $1.5 million under the acquired debt facility. The acquired debt and the subsequent advance together established the “AH Note Receivable.” The AH Note Receivable attracts a coupon interest of prime plus 5% and matures on December 24, 2023. The discount on the purchase price, amounting to $1,029,858 will be recognized by the Company over its expected life using the effective interest method and included other income on the Consolidated Interim Statement of Loss and Comprehensive Loss. As at 2023-YTD, the Company accrued $0.2 million in interest income and amortized $0.2 million of the discount received on the purchase of the AH Note Receivable. Additional details on the AH Note Receivable can be found in the Company’s most recently filed Financial Statements published at SEDAR+. |
23 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
· | Prepaids expenses at 2023-YTD were $0.8 million, a marginal decrease of $0.2 million compared to $1.0 million at 2022-YE. |
· | Deposits at 2023-YTD were $6.5 million, an increase of $2.3 million compared to $4.2 million at 2022-YE. The increase is largely due to a $4.0 million advance provided by the Company to an arm’s length vendor as security for a crop commitment for qualified biomass to be harvested in late 2023. The increase is off-set by a USD$2.0 million refund received in 2023-Q1 relating to a cash bond posted by the Company’s Florida (Retail) operations which was included in deposits at 2022-YE. During 2023- YTD, the Company successfully negotiated a bonding agreement with a third-party insurer and, as a result, the cash commitment associated with the previously issued bond was no longer required. |
· | Inventory as at 2023-YTD was $17.4 million, an increase of $2.9 million when compared to $14.5 million as at 2022-YE. The increase is primarily related to an increase in raw material and work-in-process inventories of $4.1 million offset by a reduction in finished goods of $0.9 million and an increase in inventory valuation provisions of $0.3 million. Despite its 2023-YTD sales performance (versus 2022-YTD) and ongoing supply chain constraints, the Company projects that its investment in inventory through the end of 2023-Q2 will benefit subsequent quarters by mitigating risks associated with order fill rates within both its Distribution and its Retail segments (at point of sale). In addition, the Company has taken proactive measures to mitigate risk associated with further volatility in the cost of manufacturing inputs through the aforementioned procurement arrangement for biomass. |
· | Biological assets as at 2023-YTD was $1.8 million, a decrease of $2.5 million when compared to $4.3 million as at 2022-YE. Additional details on the assumptions utilized to account for biological assets for 2023-YTD can be found in note 14 of the Company’s most recently filed Financial Statements published at SEDAR+. |
· | Other current assets as at 2023-YTD was $0.8 million, compared to $nil as at 2022-YE. The increase is attributable to the addition of assets associated with the Company’s insurance policies. |
Liabilities
A summary of the Company’s liabilities as at 2023-YTD, and as at 2022-YE is as follows:
As at | 2023-YTD | 2022-YE | Variance | |||||||||
$ | $ | $ | ||||||||||
Current liabilities | ||||||||||||
Accounts payable and accrued liabilities | 38,843,047 | 37,320,277 | 1,522,770 | |||||||||
Short-term notes payable | 28,332,509 | 1,974,584 | 26,357,925 | |||||||||
Short-term credit facility | 18,298,496 | 17,551,668 | 746,828 | |||||||||
Short-term convertible notes | 37,083,621 | - | 37,083,621 | |||||||||
Short-term Derivative liabilities | 429 | - | 429 | |||||||||
Short-term lease obligations | 615,645 | 602,418 | 13,227 | |||||||||
Income taxes payable | 15,294,451 | 12,633,699 | 2,660,752 | |||||||||
Other current liabilities | 5,226,682 | 672,064 | 4,554,618 | |||||||||
Total current liabilities | 143,694,880 | 70,754,710 | 72,940,170 | |||||||||
Non-current liabilities | ||||||||||||
Long-term notes payable | 93,597,010 | 87,357,123 | 6,239,887 | |||||||||
Long-term convertible notes | 32,765,279 | 64,897,343 | (32,132,064 | ) | ||||||||
Long-term lease obligations | 21,663,975 | 22,285,277 | (621,302 | ) | ||||||||
Long-term Derivative liabilities | 923,172 | 3,230,322 | (2,307,150 | ) | ||||||||
Deferred tax liability (note 26) | 13,043,840 | 15,941,348 | (2,897,508 | ) | ||||||||
Total non-current liabilities | 161,993,276 | 193,711,413 | (31,718,137 | ) | ||||||||
Total liabilities | 305,688,156 | 264,466,123 | 41,222,033 |
24 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
As at 2023-YTD, the Company had total liabilities of $305.7 million, an increase of $41.2 million as compared to $264.5 million as at 2022-YE. The net increase in total liabilities was primarily due to (1) a net increase in accounts payable and accruals and income taxes payable, (2) an increase in notes payable due to the issuance of new notes, primarily the USD RGR Grid Note and the CAD RGR Grid Note, (3) an increase in convertible debenture liabilities due to accrued interest, off-set by a decrease in deferred income tax liability. Details of these changes are described below.
Current Liabilities
Total current liabilities as at 2023-YTD totaled $143.7 million, a $72.9 million increase as compared to $70.8 million as at 2022-YE. The decrease is the result of changes in the current liabilities categories described below.
· | Accounts payable and accrued liabilities as at 2023-YTD was $38.8 million, a $1.5 million increase when compared to $37.3 million as at 2022-YE. This increase is a direct result of purchasing and payments activity associated with the Company’s ongoing operations. |
· | Short-term notes payable as at 2023-YTD totaled $28.3 million, a $26.3 million increase as compared to $2.0 million as at 2022-YE. This increase is the result of a note payable classified at 2022-YE as long-term, becoming due within the next 12 months (the USD$18,300,000 VRT Note). As at 2023-YTD, the outstanding balance on the USD$18,300,000 VRT Note was $24.5 million. The increase can also be attributed to accrued interest relating to outstanding notes payable for 2023-YTD amounting to $3.7 million (2022-YE; $8.6 million) offset by $1.3 million and $1.9 million in principal and interest payments, respectively (2022-YE; $17.9 million and $6.0 million, respectively). The reader is referred to the Liquidity and Resources section of this MD&A for further details on short-term notes payable. |
· | Short-term credit facility as at 2023-YTD was $18.3 million, a $0.7 million increase when compared to $17.6 million as at 2022-YE. This increase is the result of accrued interest on the credit facility. The total interest recorded for 2023-YTD was $1.0 million (2022-YE; $3.8 million), offset by $0.4 million in interest payments (2022-YE; $6.0 million). The reader is referred to the Liquidity and Resources section of this MD&A for further details on the Company’s credit facility. |
· | Short-term convertible debentures as at 2023-YTD was $37.1 million, a 100% increase when compared to 2022-YE. This increase is the result of five of the eight outstanding convertible debentures, classified at 2022-YE as long-term, becoming due within the next 12 months. The balance of these five convertible debentures as at 2023-YTD amounted to $37.1 million and relate to convertible notes issued in fiscal year 2021 upon acquisition of the Company’s Florida operations. The reader is referred to the Liquidity and Resources section of this MD&A for further details on the Company’s convertible debentures. |
· | Other current liabilities as at 2023-YTD was $5.2 million, a $4.5 million increase when compared to $0.7 million 2022-YE. This increase is attributed to liabilities associated with inventory received, pending vendor invoicing, and insurance liabilities for financing the Company’s insurance assets mentioned above in other assets. The increase is also the result of a reallocation of $0.7 million in amounts due to third parties from accounts payable and accrued liabilities to other liabilities during 2023- YTD for enhanced presentation of the financial results. The reader is referred to note 30, Reclassifications, of the Company’s most recently filed Financial Statements for details of this reclassification and other reclassifications conducted by the Company to further enhance and align the presentation of the financial results. |
25 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
Long-term liabilities
Total long-term liabilities for 2023-YTD totaled $162.0 million, a $31.7 million decrease from $193.7 million for 2022-YE. The decrease is the result of changes in the long-term liability categories described below.
· | Long-term notes payable as at 2023-YTD totaled $93.6 million, a $6.2 million increase when compared to the $87.4 million for 2022-YE. This increase is primarily the result of the issuance of the CAD RGR Grid Note, and additional advances thereon, during 2023-YTD with a principal balance of $16.1 million, and additional borrowings during 2023-YTD of $14.4 million against the USD RGR Grid Note. The Company also amended its existing CAD$2,210,000 BJMD Note into the CAD$2,710,000 BJDMSD Note, adding an additional $0.5 million in debt relating to this note. The increase is also attributed to $3.3 million in accrued interest during 2023-YTD (2022-YE; $1.9 million), offset by $1.3 a million principal payment. The increase is additionally offset by the USD$18,300,000 VRT Note becoming due within the next 12 months, reclassifying $24.5 million from a long-term note in 2023-YTD to short-term as stated above in short-term notes payable. $2.3 million in foreign exchange loss caused by the USD held notes contributed to the variance. The reader is referred to the Liquidity and Resources section of this MD&A for further details on long-term notes payable. |
Advances under the CAD RGR Grid Note were utilized to fund the purchase and advance made under the AH Note Receivable in the amount of $14.0 million (see Notes receivable on page 23), and funding for general corporate purposes including public company and administrative costs incurred within the Corporate segment. |
Advances under the USD RGR Grid Note were utilized primarily for working capital purposes by both the Retail and Distribution segments, including securing a $4.0 million commitment for qualified biomass to be harvested in late 2023 as mentioned in the Deposits section above (page 24). |
· | Long-term convertible debentures as at 2023-YTD totaled $32.8 million, a $32.1 million decrease when compared to the $64.9 million long-term convertible debentures for 2022-YE. As mentioned above in short-term convertible debentures, the decrease is due to five outstanding convertible debentures relating to the acquisition of the Company’s Florida operations, totaling $37.1 million, classified at 2022-YE as long-term, becoming due within the next 12 months. The reader is referred to the Liquidity and Resources section of this MD&A for further details on the Company’s convertible debentures. |
· | Long-term derivative liabilities as at 2023-YTD totaled $0.9 million, a $2.3 million decrease when compared to the $3.2 million in long-term derivatives for 2022-YE. The decrease is due to a $1.2 million gain on the termination of a derivative liability associated with additional interest due on the Company’s outstanding USD$20,112,015 M&V Convertible Note, and due to a $1.1 million fluctuation in the fair market value of the embedded derivatives in outstanding convertible debentures. Details of inputs used in the valuation methodology of the Company’s embedded derivative liabilities can be found in the Company’s 2022 Annual Financial Statements on SEDAR+. |
Shareholders’ Equity
As at 2023-YTD, total shareholders’ equity was $5.0 million, a decrease of $23.2 million compared to $28.2 million as at 2022-YE. The decrease in shareholders’ equity was primarily to the increase in the accumulated deficit of $16.5 million related to the net loss attributed to RWB shareholders for 2023-YTD (2022-YE; $235.8 million). Losses of $2.3 million relating to non-controlling interests also contributed to the decrease (2022-YE; $6.4 million), and $4.8 million in cumulative translation adjustments for 2023-YTD (2022- YE; $11.4 million).
26 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
SUMMARY OF QUARTERLY RESULTS
The Company’s results for the last eight quarters reflect the changes in profitability realized by the Company as it continues the execution of its objective of becoming a leading multi-state operator and house of premium brands. The net income and/or losses realized by the Company include impacts from the changes in fair value of biological assets (realized and unrealized), changes in the fair value of convertible debentures and their associated derivative liabilities, changes in share based compensation derived from the change in the fair value of stock-based incentives issued by the Company derived from the underlying trading shares market price and their associated volatility, and impairments to the fair value of indefinite life intangibles and goodwill recorded the course of the relevant periods set out in the exhibit. Background on these specific changes is set out in section “Results from Operations.”
The Company’s operating results have varied over the past eight quarters due primarily to (1) the competitive nature of the legal cannabis markets in which it maintains operations, (2) the seasonal nature of cannabis markets in which the Company operates, (3) impairment charges related to the adjustment in fair value of investments made by the Company, (4) professional fees tied to public company compliance and executed transactions, (5) marketing expenses attributed to brand awareness initiatives that the Company has executed across existing and target legal markets, and (6) debt service and finance expenses (net) attributed to various debt issues and restructurings executed by the Company.
Quarter |
|
|
Revenue |
|
Cost of Goods Sold | Gross
profit before FMV adjustments |
Gross profit after FMV adjustments |
|
Net loss |
|
Earnings
per share |
||||||||||||||
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||
30-Jun-23 | 21,915,629 | 15,049,199 | 6,866,430 | 6,195,958 | (9,468,463 | ) | (0.02 | ) | |||||||||||||||||
31-Mar-23 | 27,046,088 | 17,636,414 | 9,409,674 | 8,352,395 | (9,396,299 | ) | (0.02 | ) | |||||||||||||||||
31-Dec-22 | 16,500,257 | 14,832,060 | 1,668,197 | 6,832,986 | (204,268,770 | ) | (0.49 | ) | |||||||||||||||||
30-Sep-22 | 25,543,993 | 15,871,907 | 9,672,086 | 8,208,447 | (8,455,562 | ) | (0.02 | ) | |||||||||||||||||
30-Jun-22 | 27,402,453 | 22,614,856 | 4,787,597 | 3,418,053 | (17,646,210 | ) | (0.04 | ) | |||||||||||||||||
31-Mar-22 | 28,046,801 | 16,705,335 | 11,341,466 | 9,168,388 | (11,757,188 | ) | (0.05 | ) | |||||||||||||||||
31-Dec-21 | 2,452,552 | 8,265,932 | (5,813,380 | ) | 2,205,922 | (9,541,497 | ) | (0.02 | ) | ||||||||||||||||
30-Sep-21 | 11,202,321 | 5,339,460 | 5,862,861 | 6,863,943 | (5,472,693 | ) | (0.03 | ) |
SUMMARY OF OUTSTANDING SHARE DATA
As at 2023-YTD, the authorized shares of the Company were as follows:
· | An unlimited number of common shares without par value. |
· | An unlimited number of convertible series I preferred shares without par value, each share convertible into one common share by the holder, and non-voting. |
· | An unlimited number of convertible series II preferred shares without par value, each share convertible into one common share by the holder. Upon conversion of series II preferred shares into common shares, preferred shareholders will receive an equivalent number of common shares plus an additional 5% common shares for each twelve-month period up to twenty-four months. |
As at 2023-YTD, the Company had the following securities outstanding.
Securities Outstanding as at 2023-YTD | Number of Securities | Weighted Average Exercise/ Conversion Price | ||||||
Common Shares | 469,521,901 | N/A | ||||||
Stock Options | 18,430,931 | 0.78 |
As at the date of this MD&A, the Company had 469,521,901 Common Shares issued and outstanding.
27 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
RELATED PARTY TRANSACTIONS
Key management compensation
Key management personnel include those people who have authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of certain executive members of the Company’s Board of Directors and corporate officers.
Remuneration attributed to key management personnel for the three and six months ended June 30, 2023, and 2022, can be summarized as follows:
2023-Q2 | 2022-Q2 | 2023-YTD | 2022-YTD | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Management salaries, bonuses, and other benefits | 289,764 | 89,364 | 508,921 | 170,023 | ||||||||||||
Consulting fees by a company controlled by a director of the company | 50,526 | 227,299 | 136,936 | 481,020 | ||||||||||||
Share-based payments – officers | 20,849 | — | 20,849 | — | ||||||||||||
Share-based payments – directors | 54,721 | — | 108,841 | — | ||||||||||||
Total | 415,861 | 316,663 | 775,547 | 651,043 |
Due to/from Related Parties
· | Included in accounts payable and accrued liabilities is $1.3 million as at 2023-YTD (2022-YE; $0.7 million) payable to officers and directors of the Company for accrued salaries and consulting fees. Amounts due to related parties have no stated terms of interest and/or repayment and are unsecured. |
· | The CAD$17,000,000 Convertible CPIL Note included in long-term convertible debentures is due to an entity related to the President of the Company. The term of the CAD$17,000,000 Convertible CPIL Note is 2 years at an interest rate of 8% per annum. The Company valued the CAD$17,000,000 CPIL Convertible Note using the residual method which resulted in a $14.9 million allocation to long-term convertible debt liability and $2.1 million to convertible debt reserve which is included in contributed surplus on the statement of financial position. The liability portion will amortize over the 2-year term at an effective interest rate of 16.43%. The reader is referred to the Liquidity and Capital Resources section for additional information on the CAD$17,000,000 Convertible CPIL Note. Additional terms can be found in the Company’s most recent filed Condensed Interim Consolidated Financial Statements for the period ended June 30, 2023, or the most recent Audited Consolidated Financial Statements for the year ended December 31, 2022, which can be found at SEDAR+. |
Related Party Transactions
2023-Q2 Transactions
· | The Company expensed $0.8 million in stock-based compensation relating to options held by Officers and Directors of the Company (2022-YTD; $nil). |
· | The Company appointed a new Chief Financial Officer and Corporate Secretary. On appointment, the Company granted the new Chief Financial Officer and Corporate Secretary 1,250,000 stock options. |
· | On June 16, 2023, the Company appointed a new member to the Board of Directors. |
· | Officers and Directors of the Company held an aggregate of 37,219,510 common shares and 7,484,375 stock options. |
28 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
2022-YE Transactions
· | On September 15, 2022, the Company issued the CAD$17,000,000 Convertible CPIL Note an entity related to the President and Director of the Company. |
· | On September 19, 2022, a member of the Board of Directors resigned, and the Company appointed a new President and Director. |
· | On October 7, 2022, the Company granted 3,200,000 stock options to existing Directors of the Company at an exercise price of $0.135 to purchase common shares in the capital of RWB. |
· | Officers and Directors of the Company held an aggregate of 23,649,654 common shares and 6,746,875 stock options. |
· | During 2022-YE, 875,000 stock options were forfeited by past Officers and Directors of the Company. |
The Company identified close members of the family of key management personnel that currently represent lenders to the Company during 2022-YE review of related party disclosures in accordance with IFRS IAS 24 and Public Company Accounting Oversight Board AS2410 and U.S. Securities and Exchange Commission Rules and Regulations. Related disclosures are set out in note 26 of the recently filed Financial Statements available on SEDAR+.
COMMITMENTS AND CONTINGENCIES
Claims and Litigation
On August 19, 2022, Greenlane Holdings, LLC filed a lawsuit against Red White & Bloom Brands, Inc.; RWB Platinum Vape, Inc.; Platinum Vape, LLC; and Vista Prime Management, LLC (collectively, the “RWB Entities”) in the Superior Court of California, County of Orange (the “Lawsuit”). The RWB entities answered the complaint, generally denying Greenlane’s allegations and claims, on October 7, 2022. On November 16, 2022, the RWB Entities filed a motion to dismiss the Lawsuit on the grounds of inconvenient forum. Shortly thereafter, the parties agreed to voluntarily submit their dispute to binding arbitration before the American Arbitration Association in Florida (the “Arbitration”). The Lawsuit is stayed pending the outcome of the Arbitration. An Arbitration hearing has been set for July 19-20, 2023; however, the hearing has been continued to a later date (not yet set) pending resolution of a motion by Greenlane to join additional parties in the Arbitration. Greenlane and the RWB Entities participated in two mediation sessions with Judge Amy Hogue (ret.) in California on June 13 and 22, 2023. Although the parties have discussed the possibility of settlement, no agreement has been reached at this time.
In the normal course of business, the Company is involved in various legal proceedings, the outcomes of which cannot be determined at this time, and, accordingly, no provision has been recorded in these condensed interim consolidated financial statements. Management believes that the resolutions of these proceedings will not have a material unfavorable effect on the Company's condensed interim consolidated financial statements.
Contingencies
The Company's operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, sanctions, restrictions on its operations, or losses of licenses and permits that could result in the Company ceasing operations in that specific state or local jurisdiction. While management believes that the Company is in compliance with applicable local and state regulations as of December 31, 2022, and December 31, 2021, applicable regulations continue to evolve and are subject to change and differing interpretations in each jurisdiction where licensure is maintained for operations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.
On June 4, 2020, the Company acquired certain rights granted from HT Retail Licensing, LLC (“Licensor”) to 1251881 BC Ltd, (“Licensee”), a wholly owned subsidiary of the Company. Under this agreement, the Licensor granted an exclusive, non- transferable, non-assignable right and license to practice High Times Intellectual Property Rights (the “Rights”) related to the Commercialization of Cannabis Products and CBD Products in the Territory - Michigan, Florida and Illinois for Cannabis and in the general US for CBD.
29 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
The Rights for the State of Florida were denied for use by the state regulatory body (OMMU), and the Company did not receive a THC license in the State of Illinois. In addition, on February 23, 2022, the Company received a cease-and-desist notice from the Licensor in respect to the Rights and ceased to be engaged in the manufacturing, sale or licensing of the Rights. The first licensing period under the agreement was for a period of 18 months which was completed on December 20, 2021. The Company recorded an accrual of licensing fees commencing on June 4, 2020, up until, and including, December 31, 2021. Given the aforementioned events and the Company’s position, supported by defenses presented to the Licensor, the Company reversed the accrued license liability, in the amount of $8,135,473, remaining after February 23, 2022 and up to current fiscal year ending December 31, 2022. The Company has entered into negotiations with respect to any outstanding liabilities to the Licensor and agreed to voluntary non-binding mediation between the Company and the Licensor. To date, the Company has not reached a resolution with the Licensor, as there continues to be a dispute over the amount of licensing fees owned to the Licensor and there can be no assurance that a resolution would be favorable to the Company. Notwithstanding the above, the Company’s position remains that there was a failure of the Licensor to perform under the licensing agreements between the parties.
In the normal course of business, the Company is involved in various legal proceedings, the outcomes of which cannot be determined at this time, and, accordingly, no provision has been recorded in Financial Statements. Management believes that the resolutions of these proceedings will not have a material unfavorable effect on the Company's consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Going Concern
The Financial Statements have been prepared on the assumption that the Company will continue as a going concern, meaning that it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of business as they come due. The ability of the Company to continue operations as a going concern is ultimately dependent on increasing revenues, decreasing costs, improving cash flows, having adequate sources of funding from debt facilities (both incumbent and prospective), and other potential capital market resources such as equity financing.
Management continually monitors and evaluates the Company’s liquidity by reviewing near term capital requirements, including those created by maturing debt, and ensuring planning and budgeting controls and processes are in place which confirm sufficient resources are available to finance the Company’s ongoing operations including burdened payroll, facility costs including lease payments (as applicable), net working capital investment, capital expenditures, and debt service requirements.
The Company’s primary sources of liquidity are cash from sales of goods and services to its Retail (direct to consumer) and Distribution (direct to retailer) customers, Licensing revenue (direct to licensee), debt financing and equity financing. As at 2023-YTD, the Company had no off-balance sheet arrangements (2022-YE; $nil).
The objective when managing the Company’s liquidity and capital structure is to maintain sufficient cash to fund working capital needs. As at 2023-YTD, cash and cash equivalents were $3.9 million (2022-YE; $2.7 million) and the Company had negative working capital (current assets less current liabilities) of $82.7 million (2022-YE; $35.5 million). The Company will remain primarily reliant on debt financing and equity markets, in the short term, for prospective funding required to meet its ongoing obligations.
The Company believes that the current capital resources are not sufficient to service its ongoing cash requirements for the next twelve months and, as a result, has secured additional capital resources via the CAD RGR Grid Note and the USD RGR Grid Note to ensure that it can continue to drive growth in its respective Distribution, Licensing, and Retail operations, fund corporate overheads, and capitalize on select growth opportunities; both organic and acquisitive. The reader is referred to the debt section below for details on the CAD RGR Grid Note and the USD RGR Grid Note. The Company has also activated incremental revenue generation in 2023-Q2 through its Licensing segment which is driving the advancement of the Company’s asset light growth initiative.
The Company continues to monitor the current economic and financial market conditions and evaluate their impact on the Company's liquidity and future prospects.
30 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
These adjustments do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the Company were unable to sustain itself as a going concern in the normal course of operations. Adjustments of this nature could be material.
Cash flow Highlights
The following is the cash flow from operating, investing, and financing activities by the Company for 2023-YTD, and 2022-YTD is as follows:
2023-YTD | 2022-YTD | Variance | ||||||||||
$ | $ | $ | ||||||||||
Cash used in operating activities before changes in non-cash working capital | (5,708,718 | ) | (21,709,761 | ) | 16,001,043 | |||||||
Net change in non-cash working capital items | (2,198,026 | ) | 21,504,713 | (23,702,739 | ) | |||||||
Net cash provided by (used in) operating activities | (7,906,743 | ) | (205,048 | ) | (7,701,695 | ) | ||||||
Net cash provided by (used in) investing activities | (1,307,114 | ) | 54,543,262 | (55,850,376 | ) | |||||||
Net cash provided by (used in) financing activities | 12,140,738 | (53,531,497 | ) | 65,672,235 |
Net cash used in operating activities for 2023-YTD, including the change in non-cash working capital, was $7.9 million, an increase of $7.7 million compared to $0.2 million of net cash used by operating activities for 2022-YTD. Cash used in operating activities before non-cash working capital was $5.7 million, a $16.0 million decrease from $21.7 million for 2022-YTD. Operating activities were affected by the net change in non-cash working capital of $23.7 million, decreasing from $21.5 million provided by non-cash working capital items for 2022-YTD to $2.2 million used by working capital items for 2023-YTD due to the following activities:
· | Cash used by accounts receivable during 2023-YTD was $7.2 million, a $6.9 million increase when compared to $0.3 million used during 2022-YTD. The increase is the result of 95% of the Company’s revenues being generated by the Distribution and Licensing sales channel which allows for credit terms, compared to 62% of revenues through sales channels allowing credit terms during 2022-YTD. |
· | Cash provided by prepaid expenses for 2023-YTD was $0.1 million, a $0.3 million increase compared to $0.2 million used for prepaid expenses for 2022-YTD. |
· | Cash used on deposits for 2023-YTD was $2.3 million, a 100% increase from that used for 2022-YTD. The increase is largely due to a $4.0 million deposit paid to arm’s length vendor for a purchase commitment for qualified biomass to be harvested in late 2023, and $1.6 million in other vendor deposits. The increase is offset by a refund during 2023-YTD for a $2.7 million deposit held at 2022-YE from the Florida Office of Medical Marijuana Use (“OMMU”) and the realization of other deposits during 2023-YTD. |
· | Cash used for inventory for 2023-YTD was $3.2 million, a $3.9 million decrease from $7.2 million used for 2022-YTD. This decrease can be attributed to improved inventory management, and a reduction in costs for raw materials and other inputs. |
· | Cash provided by biological assets was $4.2 million, a $4.4 million increase from cash used for biological assets of $0.2 million for 2022-YTD. This increase is due to primarily to the movement of biological assets into raw materials inventory through to the end of 2023-Q2. |
· | Cash provided by accounts payable and accrued liabilities for 2023-YTD was $1.5 million, a $20.8 million decrease from $22.3 million in cash provided for 2022-YTD. The decrease is primarily related to the prior year addition of the accounts payable and accrued liabilities acquired in the Pharmaco Acquisition concluded in February 2022. |
· | Cash of $0.7 million used for other assets increased 100% for 2023-YTD when compared to 2022-YTD. The increase is the result of the investment in the Company’s various insurance policies maturing through fiscal 2024. |
Net cash used in investing activities for 2023-YTD was $1.3 million, a $55.8 million increase when compared to $54.5 million in cash provided by investing activities for 2022-YTD. The increase is predominantly due to the $55.3 million in cash received for the sale of assets through the Company’s investment in its subsidiary, MAG, and cash $0.7 million in cash received for the Pharmaco Acquisition in 2022-YTD. The Company did not sell any investments during 2023-YTD. The reader is referred to the Acquisition section for details on the Pharmaco Acquisition and to Discontinued Operations section for details on the sale of Mid-American Growers, Inc.
31 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
Net cash received from financing activities for 2023-YTD was $12.1 million, a $65.6 million increase in net cash received from financing activities when compared to $53.5 million used for 2022-YTD. The increase is largely the result of the Company settling $51.3 million on its outstanding credit facility to Bridging Finance, Inc., in 2022-YTD with the proceeds from the sale of the MAG assets (noted above). The increase is also attributable to the addition of $17.0 million in notes payable, offset by $3.6 million in principal and interest payments during 2023-YTD. See Debt below for additional information on the Company’s financing activities, including notes payable and convertible debentures.
Debt
2022-YE Debt Restructure
On September 15, 2022, the Company completed a comprehensive debt restructuring plan to extend and amend existing debt and to issue new debt via private placement (the “Debt Restructure”). The Company assessed the modification of existing debt under IFRS 9 Financial instruments and recorded gains and losses mentioned below accordingly. Terms of the notes payable incorporated in the debt restructuring were as follows:
a) | Existing debt owing to RGR was consolidated into a new secured USD$25.9 million promissory note (the "USD$25,885,000 RGR Note"). The USD$25,885,000 RGR Note bears an interest rate of 15%, compounded monthly with principal and interest payable on September 12, 2024. The note is secured by the Company's interest in its subsidiary, RWB Michigan, LLC. The existing debt consolidated into the USD$25,885,000 RGR Note is as follows: |
• | USD$19,370,020 principal and USD$2,028,441 in related interest thereon |
• | USD$16,750,000 RGR Note: USD$16,750,000 principal and USD$733,917 in related interest thereon |
• | Less: USD$13,000,000 payment made to RGR |
• | Plus: Administrative fee USD$2,622 |
Modification of the USD$19,370,020 RGR Note and the USD$16,750,000 RGR Note resulted in a net gain on extinguishment of $108,293.
b) | New debt totaling CAD$2,210,000 (the "CAD$2,210,000 BJMD Note") bearing 12.5% interest, payable monthly, plus 2.5% PIK interest, compounded monthly. Principal and PIK interest due September 12, 2024. |
c) | Amendment to extend the USD$5,000,000 Oakengate Investments Note plus USD$850,000 in related interest into a new USD$5,850,000 note (the "USD$5,850,000 OIL Note") at 12% interest rate. Blended monthly payments of USD$250,000 with payments applied first to interest and residual applied to principal, with the remaining principal balance due September 12, 2024. The modification of the USD$5,000,000 Oakengate Investments Note triggered an extinguishment resulting in a $21,633 loss. |
d) | New debt totaling USD$6,540,000 (the "USD$5,000,000 SDIL Note" and the "USD$1,540,000 TAII Note) bearing 12.5% interest, payable monthly, plus 2.5% PIK interest, compounded monthly. Principal and PIK interest are due September 12, 2024. The USD$5,000,000 SDIL Note, the USD$1,540,000 TAII Note and a USD$2,959,495 outstanding balance owing to RGR on an existing total USD$11,550,000 RGR Note were immediately consolidated into the following new notes: |
• | USD$2,887,000 TAII Note |
• | USD$6,349,000 SDIL Note |
• | USD$269,000 SIL Note |
Each of the above 3 notes attracts a 12.5% interest rate, payable monthly, plus 2.5% PIK interest, compounded monthly. Principal and PIK interest are due September 12, 2024. The modification to the USD$11,550,000 RGR Note resulted in an extinguishment loss of $4,298.
32 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
e) | Existing debt owing on the USD$5,400,000 DICL Note was amended to extend the maturity dates to September 12, 2024. The modification resulted in a $1,683,573 loss on extinguishment. On extinguishment, the new note (the USD$5,400,000 DICL Convertible Note) was established and reclassified to convertible debt along with a related derivative liability component. |
f) | Existing debt owing on the USD$5,400,000 SIDL Note was amended to extend the maturity dates to September 12, 2024. The modification resulted in a $1,683,573 loss on extinguishment. On extinguishment, the new note (the USD$5,400,000 SIDL Convertible Note) was established and reclassified to convertible debt along with a related derivative liability component. |
g) | The Company issued new convertible debt in the amount CAD$17,000,000 to C-Points Investments Ltd, (the “CAD$17,000,000 CPIL Convertible Note”), a Company related to RWB. The term of the note is 2 years at an interest rate of 8% per annum. The proceeds of the CAD$17,000,000 CPIL Convertible Note were used to settle USD$13,000,000 in debt owing on the USD$19,370,020 RGR Note. The Company valued the CAD$17,000,000 CPIL Convertible Note using the residual method which resulted in a $14,893,017 allocation to long-term convertible debt liability and $2,106,983 to convertible debt reserve which is included in contributed surplus on the statement of financial position. The liability portion of the CAD$17,000,000 CPIL Convertible Note will amortize over the 2-year term at an effective interest rate of 16.43%. |
Notes payable
The Company has secured financing from various sources since inception in order to execute its strategy of driving the growth of its Distribution, Licensing, and Retail operations and other strategic operating initiatives, and fund corporate overheads. The various financings have aided the Company in expanding its operations and has been a source for funding required for acquisitions, and other development costs.
As at 2023-YTD, and 2022-YE the Company had the following outstanding notes payable:
Date of Issue | Maturity date | Interest(ii) | As at 2023-YTD | As at 2022-YE | ||||||||||||||
% | S | $ | ||||||||||||||||
USD$828,200 - City of San Diego | 2021-10-25 | On Demand | 7.00 | % | 660,225 | 686,267 | ||||||||||||
Due to Oakshire | various | On Demand | 0.00 | % | 1,124,076 | 1,149,885 | ||||||||||||
$16,218 - Ford loan | 2020-11-01 | 2023-01-12 | 5.90 | % | — | 325 | ||||||||||||
$26,872 - Ram loan | 2020-09-01 | 2023-08-15 | 7.39 | % | — | 4,739 | ||||||||||||
USD$25,885,000 RGR Note(i) | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 38,629,231 | 36,677,932 | |||||||||||||
USD$2,887,000 TAII Note | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 4,107,690 | 3,939,834 | |||||||||||||
USD$6,349,000 SDIL Note(i) | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 8,943,300 | 8,664,359 | |||||||||||||
USD$269,000 SIL Note | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 386,618 | 367,099 | |||||||||||||
USD$18,300,000 VRT Note | 2022-09-13 | 2024-02-12 | 12.90%+PIK | 24,513,732 | 24,849,083 | |||||||||||||
USD$ RGR Grid Note(i)(iii) | 2022-11-01 | 2024-09-12 | 12.00 | % | 24,416,491 | 10,765,408 | ||||||||||||
CAD$2,210,000 BJMD Note(i) | 2022-09-15 | 2024-09-12 | 12.50%+PIK | 24,429 | 2,226,776 | |||||||||||||
CAD$2,710,000 BJMDSD Note(i) | 2023-02-01 | 2024-09-12 | 12.50%+PIK | 2,876,791 | — | |||||||||||||
CAD$ RGR Grid Note(i) | 2023-03-27 | 2024-09-12 | 12.00 | % | 16,246,936 | — | ||||||||||||
Total notes payable | 121,929,519 | 89,331,707 | ||||||||||||||||
Short-term notes payable | 28,332,509 | 1,974,584 | ||||||||||||||||
Long-term notes payable | 93,597,010 | 87,357,123 |
(i)Held by a related party (page 28) / (ii)See below for details on PIK interest / (iii) Note as at 2022-YE was referred to as the USD$7,850,000 RGR Note.
For 2023-YTD, the Company had the following transactions relating to notes payable.
On March 27, 2023, the Company entered into a secured note payable agreement with RGR to document Canadian dollar advances made by RGR to the Company (the “CAD RGR Grid Note”), maturing on September 12, 2024; secured by a first priority security interest in, and pledge of the equity ownership interest of the Company’s subsidiary; RWB Michigan, LLC. The CAD RGR Grid Note will bear interest at an aggregate rate of 12% per annum with interest payments due on the last day of each month. During the period ended June 30, 2023, the Company was advanced an additional $16,067,225 under the CAD RGR Grid Note. Of the amount advanced, $14.0 million was utilized to fund the acquisition of the AH Note Receivable (page 23). Interest incurred for the three and six months ended June 30, 2023, was $0.2 million, and $0.2 million, respectively.
33 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
On March 10, 2023, the Company entered into a secured note payable amending the agreement with RGR to document US dollar advances made by RGR to the Company (the “USD RGR Grid Note”). The USD RGR Grid Note initially provides for an amendment to an existing USD$5.9 million note (the USD$5,850,000 RGR Note) and an additional USD$2.0 million in funding, for a change in principle with all other terms and conditions remaining the same as the USD$5,850,000 RGR Note, with future advances to be documented as part of the USD RGR Grid Note. As at year-end December 31, 2022, the Company referred to the USD$5,850,000 RGR Note and the additional $2.0 million in funding as the USD$7,850,000 RGR Note. During 2023-YTD, the Company was advanced an additional USD$10.8 million in relation to the USD RGR Grid Note and has made principal repayments of USD$1.0 million. Interest incurred for the three and six months ended June 30, 2023, was USD$0.4 million, and USD$0.7 million, respectively. Proceeds from the advances made under the USD RGR Grid Note during 2023-YTD were used for working capital purposes.
On February 1, 2023, the Company amended the secured CAD$2,210,000 BJMD Note to update the principal from $2.2 million to $2.7 million, renaming the loan from the “CAD$2,210,000 BJMD Note” to the “CAD$2,710,000 BJMDSD Note,” with all other terms and conditions remaining the same. $0.5 million in additional funding was received by the Company on amendment. Interest incurred for the three and six months ended June 30, 2023, was $0.09 million, and $0.1 million, respectively. Proceeds from the funding were used for general corporate purposes.
During 2023-YTD, the Company substantially satisfied all of its material financial covenants. Covenants include preservation of corporate existence, compliance with laws, maintenance of taxes payable, maintenance of records, maintenance of properties, inspection, insurance coverage, perform obligations, and notice of certain events.
Convertible debentures
The Company's continuity of its convertible debentures for 2023-YTD, and 2022-YE is as follows and is presented in Canadian dollars:
Total | ||||
$ | ||||
Carrying Value, December 31, 2021 | 26,017,720 | |||
Issuance of convertible debentures | 17,019,681 | |||
Less: debt issuance costs | (19,681 | ) | ||
Net proceeds from issuance of convertible debentures | 17,000,000 | |||
Reclassification of convertible debenture | 17,810,090 | |||
Reclassification of debt issuance costs | (15,832 | ) | ||
Amounts classified as an embedded derivative liability | (3,119,904 | ) | ||
Amounts classified as equity, net of transaction costs | (2,106,983 | ) | ||
Convertible debentures at amortized cost | 55,585,091 | |||
Reclassification of interest accretion | 1,918,294 | |||
Interest accrued | 4,281,074 | |||
Interest accretion | 2,830,910 | |||
Effects of foreign exchange | 281,974 | |||
Carrying Value, December 31, 2022 | 64,897,343 | |||
Short-term, December 31, 2022 | — | |||
Long-term, December 31, 2022 | 64,897,343 | |||
Carrying Value, December 31, 2022 | 64,897,343 | |||
Additional interest | 1,246,874 | |||
Interest accrued | 2,745,997 | |||
Interest accretion | 2,134,457 | |||
Effects of foreign exchange | (1,175,771 | ) | ||
Carrying value, June 30, 2023 | 69,848,900 | |||
Short-term, June 30, 2023 | 37,083,621 | |||
Long-term, June 30, 2023 | 32,765,279 |
34 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
The Company did not issue any new convertible debentures during 2023-YTD.
During 2023-YTD, the Company satisfied all material financial covenants associated with its convertible debentures. Covenants include preservation of corporate existence, compliance with laws, maintenance of taxes payable, maintenance of records, maintenance of properties, inspection, insurance coverage, perform obligations, and notice of certain events. For more in-depth details on the convertible debentures, refer to the Company’s 2022 Annual Financial Statements.
Credit Facility
A continuity of the Company’s 2023-YTD, and 2022-YE secured credit facility is as follows:
|
$ |
| ||
Balances, December 31, 2021 | 65,472,909 | |||
Reallocation from accounts payable and accrued liabilities | 2,686,621 | |||
Accrued interest | 3,830,665 | |||
Interest payments | (6,049,367 | ) | ||
Principal payments | (48,389,160 | ) | ||
Balances, December 31, 2022 | 17,551,668 | |||
Amendment Fee | 136,000 | |||
Finance charge | 756 | |||
Accrued interest | 1,055,287 | |||
Interest payments | (354,156 | ) | ||
Amendment fee payment | (91,059 | ) | ||
Balances, June 30, 2023 | 18,298,496 |
The total interest, in relation to the credit facility, recorded for 2023-Q2 and 2023-YTD was $0.5 million and $1.1 million, respectively (2022-Q2 and 2022-YTD; $0.6 million and $1.7 million, respectively).
2023-YTD amendments
On January 30, 2023, the Company further extended the maturity date to July 31, 2023, with no other changes to existing terms. The January 30, 2023, extension was subject to an amendment fee of $136,000.
As at the date of these Financial Statements, the Company and PwC, a receiver engaged on behalf of Bridging Finance, Inc., are collaboratively engaged in negotiations to settle the Credit Facility with the instrument having matured on July 31, 2023. As of the date of the MD&A, no definitive agreements have been finalized in this regard. The Company remains confident that it can complete the transaction on terms agreeable to both parties.
2022-YE amendments
On August 16, 2022, the Company extended the termination date on its credit facility, extending the maturity date to October 31, 2022, while maintaining the same terms and conditions; interest at the prime rate plus 12% per annum calculated and compounded monthly, payable monthly in arrears on the last day of each month. The credit facility was again extended on January 30, 2023.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this MD&A, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company, including, and without limitation, such considerations as liquidity and capital resources.
35 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
See 2022 Annual Financial Statements for a discussion of the Company’s financial instruments and risk management.
OTHER RISKS AND UNCERTAINTIES
See the 2022 Annual Management Discussion and Analysis for a discussion of other risks and uncertainties.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of consolidated financial statements requires the Company to select from possible alternative accounting principles, and to make estimates and assumptions that determine the reported amounts of assets and liabilities at the balance sheet date and reported costs and expenditures during the reporting period. Estimates and assumptions may be revised as new information is obtained and are subject to change. The Company's accounting policies and estimates used in the preparation of the consolidated financial statements are considered appropriate in these circumstances but are subject to judgments and uncertainties inherent in the financial reporting process. In preparing this MD&A, management has made significant assumptions regarding the circumstances and timing of the transactions contemplated therein, which could result in a material adjustment to the carrying amount of certain assets and liabilities if changes to the assumptions are made. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Financial Statements are consistent with those disclosed in the 2022 Annual Financial Statements.
The information provided in this report, including the Financial Statements, is the responsibility of management. In the preparation of the Financial Statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. management believes such estimates have been based on reasonable judgments and have been properly reflected in the accompanying Financial Statements.
NEW ACCOUNTING PRONOUNCEMENTS
New standards and amendments to existing standards have been issued and may be applicable to the Company for its annual periods beginning on or after January 1, 2023.
The Company adopted the following new standards and amendments to standards that were effective January 1, 2023. These changes did not have a material impact on the Interim Financial Statements.
- | Amendments to IAS 37 Onerous Contracts and the Cost of Fulfilling a Contract (“IAS 37”) |
- | Amendments to IAS 1 Presentation of Financial Statements (“IAS 1”) |
- | Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”) |
- | Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (“IAS 12”) |
See the Company’s 2022 Annual Financial Statements for a summary of future accounting standards not yet adopted.
36 |
MANAGEMENT DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2023, and 2022 |
MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer ("CEO"), President, and Chief Financial Officer ("CFO") are responsible for designing internal controls over financial reporting in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated Financial Statements for external purposes in accordance with IFRS. The design of the Company's internal control over financial reporting was assessed as of the date of this MD&A.
Based on this assessment, it was determined that certain weaknesses existed in internal controls over financial reporting. The lack of segregation of duties and effective risk assessment were identified as areas where weaknesses existed. The existence of these weaknesses is compensated for by senior management monitoring of relevant at-risk activities including the monitoring of key performance indicators for its various operating segments. The aforementioned officers, specifically the President and CFO, have and will continue to closely monitor essential operational and financial activities of the Company and also diligently invest in increasing the level of oversight in vital workflows. It is important to note that continuous monitoring of internal controls may also require the Company to hire additional staff or supplement skillsets within its existing ranks to be able to implement a more robust series of internal controls. Management has chosen to disclose the potential risk in its filings and will continue to diligently assess the cost and timelines to implement enhancements to staffing and processes that continue to strengthen its existing internal controls infrastructure.
37
Exhibit 99.7
Form 52-109FV2
Certification of interim filings - venture issuer basic certificate
I, Brad Rogers, Chief Executive Officer of Red White & Bloom Brands Inc., certify the following:
1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Red White & Bloom Brands Inc. (the “issuer”) for the interim period ended June 30, 2023. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: August 29, 2023.
(Signed): “Brad Rogers”
Brad Rogers
Chief Executive Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of | |
i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
|
Exhibit 99.8
Form 52-109FV2
Certification of interim filings - venture issuer basic certificate
I, Edoardo Mattei, Chief Financial Officer of Red White & Bloom Brands Inc., certify the following:
1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Red White & Bloom Brands Inc. (the “issuer”) for the interim period ended June 30, 2023. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: August 29, 2023.
(Signed): “Edoardo Mattei”
Edoardo Mattei
Chief Financial Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of | |
i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
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