RTO Archives - Green Market Report

William SumnerNovember 14, 2018

Harvest Enterprises Inc. announced that it has closed its reverse takeover (RTO) of RockBridge Resources Inc., which will now be known as Harvest Health & Recreation Inc. Harvest Enterprises is just the latest in a growing number of cannabis companies going public in Canada through a reverse takeover.

Most recently, Cresco Labs LLC went public on the Canadian Securities Exchange (CSE) through an RTO of Vancouver-based Randsburg International Gold Corp., and Acreage Holdings, one of the largest vertically integrated cannabis companies in the U.S., has also announced plans to go public through an RTO.

As part of the RTO, the company created a three-class voting structure for shareholders, taking effect on November 14, 2018. Holders of subordinate voting shares are entitled to one vote per share on all matters to be voted on by shareholders. Multiple Voting shareholders are entitled to 100 votes per share, and Super Voting shareholders are entitled to 200 votes per share.

The RTO was made possible through a series of actions; including an exchange of shares between existing shareholders of the acquired company, a share exchange between existing holders of common shares of Harvest FINCO, Inc., and an amalgamation among the Corporation, Harvest Finco Canada and 1185928 B.C. Ltd.

In conjunction with the RTO, HVST Finco (Canada) Inc. also announced that it has completed a brokered private placement offering.

Co-led by Eight Capital, Canaccord Genuity Corp. and GMP Securities L.P, the offering issued 33,305,294 subscription receipts of the company at a price of $6.65 per subscription receipt. The offering generated in total $218,149,676 in gross proceeds. Upon the closing of the offering, the subscription receipts were converted into common shares in the capital of Harvest Finco Canada and subsequently exchanged into subordinate voting shares of the company.

Harvest Health has received conditional approval from the CSE to lists its subordinate voting shares. The shares are expected to commence trading under the symbol “HARV” on November 15, 2018.

Debra BorchardtOctober 1, 2018

One of the earliest cannabis companies Dixie Brands is joining its peers in the rush to become a publicly traded company. Dixie will complete a reverse takeover (RTO) of a Canadian public company, Academy Explorations Limited and will be subsequently renamed Dixie Brands (USA) Inc. Both of the companies have gotten board and shareholder approval for the RTO and the shares will be listed on the Canadian Securities Exchange.

By going public on the CSE, we’re investing in Dixie’s future for continued growth with a focus on quality, product innovation, and scale,” says Dixie CEO Chuck Smith.

In addition to announcing the RTO, Dixie also closed its Series C fundraising round of approximately $25 million. According to the company statement, the Series C round was originally offered as a non-brokered private placement for $20 million, however, due to positive investor demand, Dixie increased the maximum offering amount to $25 million with board and shareholder approval.

“The financing round we have just closed will provide resources for Dixie to expand our brand throughout the U.S. and into Canada,” Smith states. “Dixie has been a leader in the cannabis industry since its inception. We have nine years of experience developing intellectual property and building a brand that creates an incredible platform for our company and shareholders. We look forward to providing the same safe, high quality, and consistent product to patients and adult-use consumers throughout the U.S. and Canada.”

Dixie History

Dixie was an early pioneer of cannabis branding beginning with a feature on 60 Minutes at a time when few cannabis product companies existed. It began with one product, the Dixie Elixir, a THC-infused soda, and the company has built up its portfolio to include more than 30 different categories across more than 100 individual products.

In 2018, Dixie entered into a Canadian license agreement with Auxly Cannabis Group Inc. (CBWTF), a vertically integrated global cannabis company. Under the agreement, Auxly will work with Dixie to create products for the adult-use recreational market in Canada. Those products will be developed and manufactured at Dosecann in the BioCommons Research Park in Charlottetown, PEI and Dosecann will serve as Dixie’s hub of cannabis research and innovation.

With regards to its domestic business, Dixie is currently operating in four states (Colorado, California, Nevada, and Maryland) and plans to expand into four to six additional states in 2019 through partnerships with licensed and regulated producers in each state. The company has recently expanded its hemp-based offerings by introducing Aceso Wellness, a human dietary supplement line, and Therabis, a pet food supplement portfolio, at the end of 2016.

Past Management

Dixie has seen a change of management over the past couple of years as one of its original founders moved on to another company. Tripp Keber founded Dixie Holdings with Chuck Smith in 2010 in Colorado in the early stages of cannabis legalization with the THC-infused soda. In 2017, Co-founder Tripp Keber is resigned in order to take a new position that partnered Dixie with Rose Capital based in Miami, Florida. At the same time, Keber, also resigned from the board at MassRoots (MSRT) as that company’s founder Isaac Dietrich reclaimed his company.

Debra BorchardtSeptember 5, 2018

The Flowr Corporation is the latest cannabis company in a crowded launch calendar to raise money ahead of going public. The Canadian cannabis company lead by former MedReleaf founders raised roughly C$36 million in an oversubscribed offering. This raise solidly positions the company for its reverse take over of The Needle Capital Corp. which is expected to happen on or about September 10.

The Flowr Group consists of Tom Flow, a founder and former COO of MedReleaf, as its President and Vinay Tolia, Flowr’s incoming Chief Executive Officer. Flowr builds and operates large-scale, GMP compliant cultivation facilities utilizing its own patented growing systems.

The company recently signed a Memorandum of Understanding to supply premium cannabis to the British Columbia Liquor Distribution Board which will be the sole retailer of non-medicinal cannabis in the province following the October 17 legalization of adult recreational consumption. The company also announced earlier in the year that it had been selected by the Hawthorne Canada subsidiary of The Scotts Miracle-Gro Company(SMG) for an exclusive strategic R&D alliance.

“Completing this oversubscribed offering is another exciting milestone on Flowr’s journey to producing the finest cannabis experience in the world as well as an acknowledgment of investors’ belief in our business model,” said Tolia. “Coming on the heels of obtaining our Health Canada sales license, these funds will enable us to scale operations and provide consumers and patients with Flowr’s clean, consistent, premium-quality product in the medicinal and adult-use markets.”

According to the company statement, the proceeds will be used for the buildout of Flowr’s 85,000 square foot Kelowna, BC cultivation facility. The Kelowna facility, which is currently approximately 20% complete, is being built using proprietary designs and patent-pending growing systems that are expected to enable Flowr to grow ultra-clean, premium quality cannabis at scale and with high yields. Flowr expects the facility to reach full capacity in 2019, targeted to be in excess of 12,000 kilograms annually. The company is also building a 50,000 square foot research and development facility integrated into its Kelowna campus and funded through an exclusive alliance with the Hawthorne Gardening subsidiary.

Following the RTO, the shares will trade on the Toronto Venture Exchange with 13,807,734 subscription receipts sold at a price of C$2.60 per receipt for gross proceeds of C$35,900,104 with Clarus Securities and Eight Capital as the Agents.

Debra BorchardtAugust 1, 2018

Kannalife Sciences, Inc. a biopharmaceutical and phyto-medical company completed a share exchange transaction with TYG Solutions Corp. (TYYG) in order to become a publicly traded company. Kannalife still has a 72-day waiting period to apply to FINRA for a name change and new ticker symbol.

Kannalife says it will be the only publicly traded company in the cannabinoid therapeutics space which holds an exclusive license to a U.S. government patent from the National Institutes of Health (“NIH”).

Kannalife Sciences currently holds two licenses with NIH. The first, an exclusive license for the commercialization of U.S. Patent #6,630,507, “Cannabinoids as Antioxidants and Neuroprotectants” which the company calls the “‘507 Patent”, to research and develop novel cannabinoid-based therapeutics to treat hepatic encephalopathy and the second, a non-exclusive license under the same ‘507 Patent to treat chronic traumatic encephalopathy (CTE).

In addition to that Kannalife said it has developed its own patented molecules led by KLS-13019 and was recently awarded U.S. Patent #9,611,213, “Functionalized 1,3-benzene diols and their method of use for the treatment of hepatic encephalopathy.” According to a February 10, 2016 publication in the American Chemical Society KLS-13019 was found to be 50-fold more potent as a neuroprotectant and >400-fold safer than CBD.

“While we certainly don’t consider ourselves an ‘anything cannabis’ company, we haven’t lost sight of the fact that Kannalife was among a select few companies in the pharmaceutical space to approach drug development in cannabinoid therapeutics,” Kannalife Sciences CEO Dean Petkanas said. “We were indeed, not only early movers but also a pioneer in the pre-clinical research of cannabidiol (CBD) for certain disorders. In that, we have also developed alternative cannabidiol-derived new chemical entities (NCEs) to advance some of the clinical benefits of CBD while improving upon some of the pharmacokinetic limitations of CBD.”

Petkanas added, “The transaction with TYYG allows us to look toward the future as a publicly traded company and continue our research into developing disruptive cannabinoid-based therapeutics for neurodegenerative and oxidative stress-related diseases.”

Debra BorchardtJune 13, 2018

Chicago-based cannabis company Green Thumb Industries (GTI) will begin trading on June 13 under the ticker symbol “GTII” on the Canadian Securities Exchange. GTI’s owner VCP23 LLC did a reverse take over (RTO) of Bayswater Uranium Corporation raising C$87 million or $67 million through a private placement.

The bookrunners were GMP Securities and Canaccord Genuity on behalf of a syndicate of agents (including Beacon Securities Limited, Echelon Wealth Partners Inc., and Eight Capital) to complete the brokered financing. Cassels Brock & Blackwell LLP served as counsel to GTI regarding the financing and the listing on the CSE. In connection with the transaction, Bayswater was de-listed from the Toronto Venture Exchange effective June 12, 2018.

“Listing on the CSE provides access to capital to fuel the company’s strategic growth,” said GTI Founder and Chairman Ben Kovler. “But it doesn’t change our focus on capital allocation and execution to optimize shareholder value. We will continue to move the business forward while providing the best possible customer experience.”

VCP reported revenue in its filing for the three months ending March 31, 2018, as $10.9 million with a gross profit of $4.8 million and a net loss of $1.5 million. VCP also reported that its total revenue for the year ending December 31, 2017, was $16.5 million with a net loss of $4 million.

GTI owns and operates seven manufacturing facilities, distributes a well-rounded suite of branded cannabis products, and operates a chain of retail locations in seven highly regulated, limited supply U.S. markets: Illinois, Pennsylvania, Ohio, Massachusetts, Maryland, Florida, and Nevada. The company announced yesterday that it was awarded five dispensary licenses in Ohio and plans to open locations in Cleveland, Toledo, Lorain and two in Lakewood.

“GTI is an experienced dispensary operator with 13 dispensaries currently open and on its way to a 50-store retail chain,” says GTI Ohio, LLC partner Bobby George. “I’m thrilled to be part of the team that will bring quality medical marijuana to Ohio patients, with safety and security among our top priorities. GTI is excited to soon be a part of these Ohio communities – and it’s especially gratifying for me to have a role in providing access to this medicine for my fellow Ohioans.”

GTI recently opened its 13^th RISE dispensary and is on its way to a 50-store retail chain. GTI employs more than 350 people and serves hundreds of thousands of patients and customers each year. GTI was named a Best Workplace 2018 by Crain’s Chicago Business. GTI’s revenue in 2017 exceeded $20 million and is on track for continued growth in 2018.

“The opportunity to touch the lives of more customers through expanding our brand distribution footprint and the RISE retail experience is extremely rewarding,” says GTI Chief Executive Officer Pete Kadens. “We have the right infrastructure and people in place — and we will work to maximize GTI’s potential for the shareholders who’ve entrusted us with their capital.”

A review of the company’s top executives share ownership and compensation seems reasonable. Founder and Chairman Ben Kovler owns 23.7% of the shares, CEO Pete Kadens owns 12% of the shares making a total compensation of $345k for 2018 and CFO Anthony Georgiadis owns 2.9% of the shares and will earn $300k for 2018.