The company believes there will by $10 million in synergy savings.
After experiencing recurring losses, and Aleafia faces substantial challenges in meeting its financial obligations and maintaining liquidity to fund ongoing operations and further revenue growth. That, along with existing contractual restrictions, constraints on accessing capital markets, and Aleafia’s financial condition made it challenging to secure alternative sources of funding.
“The intended acquisition of Aleafia expands our footprint to the largest federally legal cannabis market globally,” said Brad Rogers, CEO and director of RWB. “Combining our award-winning brands and IP with Aleafia’s proven cultivation, manufacturing, and distribution capabilities, creates one of the most dynamic cross-border companies in the industry.”
Aleafia’s everyday brand Divvy is consistently one of the top-searched brands in Ontario and one of the fastest growing brands in the company’s core markets. The success of Aleafia’s pre-roll and milled (cropped) product formats, supplied by sungrown flower from the largest outdoor cultivation facility in Canada, has propelled them into a peak number four and number two, respectively, market share ranking for fiscal year 2023 in Ontario, the largest provincial market in Canada.
RWB noted that Aleafia generated C$40 million in revenue during 2022. On a pro forma basis, the combined company’s revenue profile will increase by 41%. The combination is expected to create an opportunity to collaboratively launch RWB and Aleafia’s premium brands across multiple product categories into well-established distribution and retail networks throughout North America providing approximately 3,000 retail locations in active markets, including:
- British Columbia
Each outstanding common share of Aleafia will be exchanged for 0.35 of a common share RWB. The loan agreement made as of Dec. 24, 2021, between Aleafia and certain of its subsidiaries, and NE SPC II LP, as lender, was assigned to RWB. RWB and Aleafia will also negotiate in good faith a credit facility to be provided by RWB to Aleafia for $17.5 million.
RWB also said it plans to secure a $30 million credit facility, the proceeds of which will serve multiple purposes, including the funding of the assignment of the Aleafia Senior Secure Loan Agreement to RWB, 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.
Royal Group Resources Ltd., an existing creditor of both RWB and Aleafia, provided RWB with $14 million as an advance under the company’s existing secured note in favor of RGR dated March 27, 2023. The RGR advance will be retired upon closing of the new credit facility. RWB will also enter into an agreement to advance to Aleafia an amount equal to $1.5 million under the Aleafia Senior Secured Loan Agreement.
“The Canadian cannabis market has the potential to be a dynamic industry and is rapidly experiencing consolidation. In 2022 and 2023, Aleafia has achieved significant milestones including growing the Divvy brand through expansion into five provincial markets and bolstering its international business through sales into Europe and Australia,” said Tricia Symmes, chief executive officer of Aleafia. “The proposed transaction is a next step in the Aleafia story as it enhances our size and scale which is a critical requirement to compete in this market and provides Aleafia improved access to capital to execute on our strategic growth opportunities.”