Tokyo Smoke Archives - Green Market Report

Debra BorchardtJuly 11, 2018

Canopy Growth Corporation (CGC) is acquiring Hiku Brands Company Ltd. (HIKU.CN) and paying a premium for the shares. Canopy is paying C$1.91 per share, which is a 33% premium based on the average price over a 20-day period. Hiku shareholders will receive 0.046 each of a Canopy Growth share.

Consequently, WeedMD has terminated its plans to merge with Hiku and will receive a $10 million termination fee. The companies had announced an “Arrangement Agreement” back in April. That deal was more a merger than an acquisition.

“This Transaction represents an incredible step in the Hiku journey that both realizes immediate benefits for our shareholders and at the same time provides an unparalleled opportunity to join forces with a preeminent global cannabis player,” said Alan Gertner, Chief Executive Officer of Hiku. “Ultimately, together we will continue to build one of the world’s most engaging and successful cannabis retail and brand business. Canopy is a truly special cannabis company that is well positioned to lead both in Canada and around the world.”

Hiku has been building a stable of cannabis brands including retail outlet Tokyo Smoke which has been conditionally awarded one of four master retail licenses in Manitoba, Van der Pop’s female-focused educational platforms, and Maïtri, our Quebec based cannabis brand featuring high-quality handmade accessories. Hiku’s wholly-owned subsidiary, DOJA Cannabis Ltd., is federally licensed to cultivate and sell cannabis pursuant to the ACMPR, owning two production facilities in the heart of British Columbia’s Okanagan Valley.

“Hiku equals brands. Canopy is built on brands. So we combined them,” said Bruce Linton, Chairman & CEO, Canopy Growth, in haiku.

Stock Performance

Hiku stock (DJACF) jumped over 1% on the OTC Markets and was lately trading $1.12, down from its 52-week high of $3.87, but above its year low of $0.20. Canopy Growth stock fell over 1% to lately trade at $28.75, down from its year high of $36.55. WeedMD was falling over 1% to lately trade at $1.56 on the OTC Markets.

Transaction Details

According to the company statement transaction highlights include:

Secures an Immediate Attractive Premium for Hiku Shareholders: The Transaction provides Hiku shareholders with a premium of 33% based on the 20-day volume weighted average prices of the Canopy Shares and the Hiku Shares as of July 9, 2018, and a premium of 21% based on the closing prices of the Canopy Shares on the TSX and the Hiku Shares on the CSE on July 9, 2018.
Strengthening a Leading Vertically Integrated Global Cannabis Company: Canopy Growth is a leading diversified global cannabis company and market leader with distinct brands and an award-winning product portfolio that spans federally legal markets around the globe in both medical and recreational segments. This transaction strengthens the diversity and range of brands in the portfolio and improves access to multiple demographic segments
Integration of Retail Operations: The Transaction provides Canopy Growth and Hiku with an integration and expansion opportunity with respect to retail stores in provinces where direct consumer sales will be permitted pursuant to the Cannabis Act, including a pipeline of growth opportunities.
Complimentary Portfolio of Brands: The Transaction provides Canopy Growth and Hiku with the opportunity to leverage a combined portfolio of established brands through their respective retail stores across the country and thereby generate incremental opportunities with distributors.
Alignment with Strong Management Team: Hiku’s strong management team brings best-in-class retail, design and marketing experience, which are well aligned with and further supplements Canopy’s existing strategy and operations.
Strong Access to and Immediate Availability of Capital: Canopy Growth recently closed the issuance of convertible notes amounting to $600 million in gross proceeds. This capital and liquidity will support both Companies continued expansion efforts
Continued Participation in Expanded Platform for Future Growth: Hiku shareholders, through their ownership of Canopy Shares, will have the opportunity to participate in the growth of Canopy Growth and will benefit from the enhanced growth prospects of the combined company. The Transaction will provide substantial infrastructure and operational support to accelerate Hiku’s growth strategy, future product development and innovation, together with Canopy Growth and its global partners.
Enhanced Liquidity and Capital Markets Profile: Canopy Growth is listed on both the New York Stock Exchange (“NYSE”) and the TSX. Canopy Shares are highly liquid with an average daily trading volume of approximately 5.4 million shares, representing approximately C$197 million on a daily basis over the last three months.

William SumnerMay 31, 2018

The luxury cannabis company Hiku Brands Ltd. (HIKU) announced the filing of its financial results for the quarter ending on March 31, 2018.

“The first quarter of 2018 was one that focused on solidifying our vertically integrated cannabis company and positioning us to win in the legal adult-use market in Canada.” said Alan Gertner, CEO of Hiku. “With our solid foundation of Tokyo Smoke and its existing retail footprint, our artisanal handcrafted cannabis grown at DOJA’s state of the art facility in British Columbia, and our iconic brands like Van der Pop and Maïtri, we believe that Hiku is very well positioned to usher in the adult-use cannabis sector in Canada.”

The company’s revenue for the quarter was relatively small, totaling C$246,143. The vast majority of that revenue was gobbled up by the retail cost of sales, which totaled C$202,431. The company managed to squeak out a gross profit of C$15,554. Overall, Hiku posted a net loss of $9.1 million for a loss per share of eight cents versus last year’s loss per share of one cent.

Although the numbers on paper are less than favorable, it is important to note that this is still a relatively new company that hasn’t even begun to sell dried cannabis. Since launching in January 2018, the company has been busy obtaining retail licenses and forging partnerships.

Most recently the company announced that it would merge with the medical cannabis brand WeedMD, which also filed their financial results today. The company reported a 33% quarter over quarter increase in sales and a revenue of $1.14 million.

Although WeedMD also reported a net loss of $1.4 million, the company should be able to absorb the loss with a cash balance of approximately $48 million; most of which was raised in the last quarter. Should the merger between the two companies go through, both parties stand to benefit.

WeedMD will be able to supply that cannabis production infrastructure that is currently lacking in Hiku. Merging with Hiku, which specializes in high end cannabis brands, will allow WeedMD to sell its cannabis at a higher price and increase its profit margin. At the moment both companies are burning through their budget, but once recreational cannabis sales go live in Canada that may not be the case.

Debra BorchardtDecember 21, 2017

Cannabis Company Limited known as DOJA Cannabis (DJACF) is merging with TS Brandco Holdings, known as Tokyo Smoke as DOJA buys all of TS Brandco’s outstanding and issued shares. The combined company will be known as Hiku Brands Company Ltd. and will house the cannabis brands of DOJA, Tokyo Smoke, and Van der Pop.

As part of the agreement, Aphria (APHQF) has committed to making a $10 million strategic equity investment into the new company Hiku and the parties have agreed to a supply agreement for Hiku’s brands. As a result of this deal, Hiku will be hitting the market with a solid $31 million in cash.

The Retail Push

Both DOJA and Tokyo Smoke have been positioning themselves as lifestyle brands. This deal will now allow the companies to sell exclusive products in their own retail locations. According to the company statement, “Hiku will have seven operational, legal cannabis accessory stores with locations across Canada (Ontario, Alberta and British Columbia). Hiku will prioritize retail expansion in provinces allowing private cannabis retail and Tokyo Smoke and DOJA will respond to the Government of Manitoba’s Request for Proposals to establish retail cannabis stores throughout the province.” The Hiku team brings with it a strong traditional retail experience with the founder of SAXX Underwear and a $100 million+ business at Google.

Management Commentary

“We have created the leading brand house in Cannabis,” said Trent Kitsch, CEO of DOJA. ” Where high quality and design will shape the Cannabis Future. I am confident Hiku will be trusted by consumers to design better customer experiences and products, resulting in greater market share. Tokyo Smoke’s experienced management team has proven its ability to build and acquire respected cannabis brands and create brand awareness in a difficult-to-navigate regulatory environment. The combination of cannabis production, retail footprint, and a portfolio of cannabis brands gives us the opportunity to realize the significant value of complete vertical integration.”

“This strategic investment in and supply agreement with Hiku further bolsters our relationship with Tokyo Smoke and now DOJA, and reaffirms our commitment to expanding our product offering ahead of the recreational market,” said Vic Neufeld, Chief Executive Officer of Aphria. “This transaction has the twofold benefit of providing us access to strong brands, through Tokyo Smoke and DOJA, and craft-cultivated British Columbia bud, through DOJA. Quality product and recognizable consumer brands will be key differentiators for patients and consumers, and we’re looking forward to continuing our work with Hiku to create premium cannabis brands in Canada.”

Deal Terms

DOJA will acquire all of the outstanding Tokyo Smoke Shares in exchange for shares of DOJA. Based upon the number of Tokyo Smoke Shares outstanding as at December 21, 2017, if the Merger is completed, DOJA will issue approximately 55.6 million DOJA Shares to the shareholders of Tokyo Smoke in exchange for their Tokyo Smoke Shares. DOJA shares were lately trading at $1.11 on the OTC Marketplace.

Aphria, along with Uji Capital known as the strategic investors have entered into binding agreements to acquire from DOJA 8,992,805 subscription receipts of DOJA at a purchase price of $1.39 per receipt, equivalent to DOJA’s five-day volume weighted share price, for aggregate gross proceeds of $12.5 million.

Debra BorchardtOctober 26, 2017

Cannabis lifestyle brand Tokyo Smoke announced the closing of its oversubscribed Series B funding of approximately $6 million CAD or $4.7 million USD. The funds will be used to continue retail expansion, marketing, and strategic acquisitions, accelerating Tokyo Smoke’s vision of becoming a category-defining cannabis brand.

“We are incredibly grateful for the support from investors in this round and their show of confidence in Tokyo Smoke. Having raised over $10 million in the past 10 months, this funding will further empower us to take great strides in our retail expansion and put us closer to achieving our goal of building the largest cannabis related retail infrastructure in Canada,” says Alan Gertner, co-founder, and CEO of Tokyo Smoke.

Tokyo Smoke sells medical marijuana products and paraphernalia. It also sells coffee, clothing and even home goods like candles and incense. The clothing line is limited and consists of a pair of sweatpants, a couple of t-shirts and a hat. The best sellers are mostly the smoking accessories, but the company also sells several coffee accessories too.

The funding round was led by Aphria Inc., (APHQF) one of Canada’s largest medical cannabis producers, and Green Acre Capital Fund I LP, a fund dedicated to strategic investments in cannabis properties. In addition, Tokyo Smoke also received a strategic investment from Paul Rowan, a design pioneer in the housewares industry and a founding partner at Umbra, a well-known home goods company.

“With the recent announcement in Alberta and strong operational partners in the region, we look forward to the possibility of dispensing and on-site consumption. Ontario’s government-run model is something we long prepared for, and our in-store operations will be readied to take on a new dimension,” said Gertner. “The Tokyo Smoke team is excited to take advantage of the opportunities that abound as more provinces announce retail and distribution plans, meeting the shifting landscape with energy and optimism.”