Cannex Capital Holdings Inc. (CSE: CNNX)(OTCQX: CNXXF) moved beyond the interim agreement from November and as of March 1, 2019 officially agreed with 4Front Holdings, LLC to merge the two companies. The new company will initially trade under Cannex’s symbol “CNNX”, although the company said it expected to receive a new ticker in connection with the transaction.
The deal is subject to CSE approval, approval of the 4Front members and approval of at least 66 2/3% of the votes cast by Cannex shareholders at a special meeting expected to take place on April 18, 2019. The company said it has commitments from 68% to vote in favor.
The number of Cannex Consideration Shares was determined by way of a previously agreed ratio such that the shareholder ratio will proportionally equal 1:1.75 Cannex shareholders to 4Front shareholders on the closing of the Transaction. The Exchange Ratio was determined when the parties entered into the interim agreement (announced on November 26, 2018). The pre-agreed ratio provides for a pre-Transaction value to 4Front shareholders of approximately C$321.5 million calculated using a Cannex share price of C$1.125 per share.
“Since starting 4Front with Kris Krane in early 2011, we’ve focused on building a company the right way, navigating the evolving landscape and trying to work with people we respect and trust. We’ve known Leo since late 2016 and have great respect for what he and his team built in Washington,” said Josh Rosen, CEO of 4Front. “I believe Cannex is the perfect match for 4Front and that our merger is representative of our belief that the industry is evolving from a game of Monopoly, where it’s about the perceived value of assets, to the game of Risk, where it’s about the combination of assets, strategy, and execution. Cannex is all about execution and I’m already seeing the impact of the Cannex culture on our 4Front team and I look forward to closing this transaction and the full integration.”
The new company will feature Joshua Rosen as the CEO & Director, David Daily, Director, Eric Rey, Director, Leo Gontmakher, COO & Director and Anthony Dutton, Director. The board of directors of the new company will be comprised of five directors, with one executive director from each of Cannex and 4Front and three mutually agreed upon directors. Cannex and 4Front have agreed to a $10 million termination fee.
“Success in the cannabis market is directly related to a company’s ability to profitably scale operations, access and efficiently allocate growth capital all being driven by an experienced management team,” said Leo Gontmakher, COO of Cannex. “With 4Front, we have a partnership across all elements of the combined company with a shared management philosophy of driving best practices throughout all our operations. I am very excited,” continued Gontmakher, “to immediately take the operational leadership we have developed in Washington State to five new states.”
The merger will create a strong operator with expertise across the cannabis value chain, including cultivation, manufacturing, workflow, packaging, distribution, and retail at scale, led by a team with longstanding industry credibility and strategic M&A capabilities. The initial collaboration in Massachusetts and Illinois is already in motion, while collectively laying the groundwork in new states including Arizona, California, and Michigan.
“This is a transformational event for Cannex as we will immediately become operational in six US states with a platform that can be replicated and leveraged into additional jurisdictions,” said Anthony Dutton, CEO of Cannex. “Since our original formation, Cannex has been strategically focused on building vertically integrated operations in multiple states and, upon closing the business combination with 4Front, we expect to become one of the largest multi-state operators in North America with room for continued growth.”