Ventura Cannabis and Wellness Corp. (CSE:VCAN) (“Ventura Cannabis”,
“VCAN”, or the “Company”) is pleased to announce that final pricing
has now been determined for the Company’s sale of Cathedral Asset
Holding Corporation (“CAHC” or “Cathedral”) to Vibe Bioscience
(CSE:VIBE) (“Buyer”) described in its press release of August 30,
2020. Closing of the sale of CAHC remains subject to the completion
of a routine inventory inspection and the closing is anticipated to
take place on September 15, 2020.
Summary
On August 30 and 31, 2020, Ventura announced it
had sold its cannabis assets for a total of $2,222,400 exchangeable
for common shares in the Buyer in two tranches: (1) $333,360, and
(2) $1,889,040 with a provision in the Purchase Agreements that
provides a mechanism for a premium pricing adjustment based on
certain conditions.
The conditions have now increased the price for
the first tranche from $333,360 to $401,369 or an increase of
20.4%. This consideration is in addition to 800,000 share purchase
warrants each exercisable for one common share of Buyer at a price
of $.60 per common share for a period of 12 months.
The second tranche, announced August 31 2020,
which has been reported to be $1,889,040, has the identical
mechanism as the first tranche for re-pricing and warrants. The
closing of the second tranche is subject to approval by the
Company’s shareholders, which will be sought at a special meeting
scheduled for October 23, 2020.
The consideration amount for the first tranche
is locked in as of September 10, 2020 and $401,369 of shares in the
Buyer will be issued to Ventura shareholders. Subject to the
shareholder vote, the second tranche will close and, once
finalized, all shares in Buyer will be distributed to shareholders
as a dividend.
“I am pleased we got a premium on our assets,”
said Chris Heath, CEO of Ventura. “If the mechanism for pricing
remains the same, during the next 30-day Value Weighted
Average Price (VWAP) period for the second tranche, we would see
our cannabis assets sold for over 7 cents a share, plus two million
total warrants.
I look forward to the shareholder vote. I have
spoken with several large shareholders with over 15.1% of our
outstanding shares and they are enthusiastic about the premium we
have received so far.
Vibe is in a much stronger position than we are,
with scale in the California marketplace. With nearly ten times the
revenues, twice the cash and a plan for revenue growth, they are a
much better currency for our shareholders to hold than where
Ventura was just a few months ago: we were a small loss-making
cannabis operator with the overhang of heavy contingent liabilities
from operating an addiction rehab business that treated thousands
of addicts and employed hundreds of former addicts.
Now, with a successful shareholder vote, we
exchange this for common stock in Vibe which has no reported
contingent liability issues. Our alternative to this transaction is
liquidation which will provide shareholders with much less
value.”
Update on Rehab Entity Proceeds from
Divestment
History
- On April 18, 2019 shareholders approved that Ventura divest the
addiction rehabilitation services business (“Rehab Business”) and
invest in the cannabis sector.
- On October 10, 2019 Ventura announced that it was accelerating
the disposition of the Rehab Business assets and expected to
collect less than previously expected. At the time it was disclosed
that the industry for addiction rehabilitation services has
struggled, with many bankruptcies in the past number of years,
making it increasingly difficult to realize a premium for the
assets.
- On January 30, 2020 the quarterly financial statements in note
7, as well as in the accompanying news release, Ventura disclosed
management had become aware of potential contingent liabilities as
a result of divesting the Rehab Business, making the publicly
listed entity unsuitable for acquisition or re-investment.
- On June 30, 2020, Ventura posted quarterly financial statements
for the quarter ending May 31, 2020 with the following figures that
described the financial impact of the divestment:
(in thousands) |
|
|
|
Cash (as of May 31, 2020) |
$2,750 |
Inventory (as of May 31, 2020) |
$120 |
Accounts Receivable (as of May 31, 2020) |
$3,730 |
Less: Allowance for doubtful accounts (as of August 31, 2020) |
$500 |
Total Accounts Receivable (as of August 31, 2020) |
$3,230 |
Net proceeds from Real Estate (as of August 31, 2020) (details
below) |
$100 |
Total Assets |
$6,200 |
|
|
Accounts Payables (as May 31, 2020) |
$1,620 |
Short term lease obligations (as May 31, 2020) |
$1,030 |
Long term lease obligations (as May 31, 2020) |
$1,650 |
Net Amount contributed to the cannabis asset (reported August 31,
2020) |
$1,300 |
Total Liabilities |
$5,600 |
|
|
Net potential amount to be collected after VIBE
sale (subject to satisfaction of contingent liabilities
and assuming no further provisions for allowance for doubtful
accounts) |
$600 |
|
|
Net Amount per share |
$0.016 |
In both reported FY2018 and FY2019 audited
financial results, the Rehab Business lost money and the balance
sheet had eroded due to a challenging market as pricing collapsed
and costs increased. Most of the subsidiaries ceased operations at
the end of 2019, however additional expenses continued. The
management was tasked with the typical and standard process of
disposing of a business no longer generating revenues, yet with
reported long-term liabilities. In the reported quarter ending May
30, 2020, Ventura provisioned $396,000 for an allowance of doubtful
accounts and for the quarter ending August 30, 2020, Ventura has
provisioned an additional $500,000 for an allowance of doubtful
accounts, further reducing the Company’s Accounts Receivables.
Management either (1) sold, (2) liquidated or
(3) collected assets to offset these reported liabilities. In every
case, the Rehab Business, when it was launched over 7 years ago,
was built envisioning a long-term business. Therefore, obligations
were made and reported on all Financial Statements that were
lengthy in time. Property was purchased and re-purposed to house
addicts and provide treatment, all of which made for a challenge in
quick sale or liquidation.
Update on Real Estate holdings for the quarter
ending August 31, 2020
Los Angeles In-Patient Real Estate
The subsidiary holding the in-patient centers in
Los Angeles, California, has reduced, settled or eliminated all of
its long term contracts, leases, disputes and commitments,
including, but not limited to, long term lease obligations, vendor
contracts and employment disputes.
It sold the real estate, located in the center
of Los Angeles, California to a provider of addiction
rehabilitation services for more than the mortgage (and fees
associated with selling the property). This amount of net
cash has been added to the balance sheet of the cannabis asset.
Corona In-Patient Real Estate
The subsidiary holding the in-patient centers in
Corona, California, has reduced, settled or eliminated most of its
long term contracts, leases, disputes and commitments, including,
but not limited to, long term lease obligations, vendor contracts
and employment disputes.
The real estate, located far away from any urban
center and re-purposed to treat and house addicts, was put on the
market for sale for several months. The only offer was for less
than the mortgage on the properties. The adjoining properties must
be sold “as one” under the terms of the mortgage. The properties
are residential properties that are not easily configurable into
one large property by a potential buyer and therefore are difficult
to sell in the current environment.
Until late in 2019, this subsidiary collected
20% of all bills collected and US$25,000 per month for rent. When
the business shuddered, there was a cost of US$15,000 to maintain
the mortgage and no rent or revenues to cover costs. Management has
been advised that the value of the homes as structured cannot be
sold in excess of the mortgage amount at this time, therefore the
management decided to stop paying the US$15,000 per month on the
mortgage and the homes have started the foreclosure process. The
mortgage was not secured by the parent corporation and is
non-recourse to the parent.
Reported Potential Contingent Liabilities
Potential contingent liabilities make the parent entity, listed
on the CSE, unsuitable for acquisition or re-investment. The Rehab
business treated thousands of addicts and employed hundreds more as
part of the treatment protocol. As reported on January 30, 2020: It
is uncertain currently to determine the outcome of these potential
claims and demands or our potential liability, if any.
“We have seen many of our rehab business
competitors become insolvent over the past few years and this year
we are seeing our cannabis industry competitors face the same
fate,” continued Mr. Heath. “While our share price during that time
didn’t increase, I am proud that we are able to deliver a potential
for that outcome by owning Vibe shares.
It has been a long and challenging undertaking
divesting the rehab businesses, however I am happy to say we are
finally at the end,” continued Mr. Heath. “The Company, from its
inception and until it pivoted into cannabis, organized and
operated itself to achieve long-term growth and sustainability.
Selling loss-making entities is very difficult, especially in the
COVID-19 environment. As is collecting from payors that know we
ceased operations. None of this was easy, but we were able to get
$1.3 million in cash to invest in the cannabis side of our
business.”
As with any loss-making business that is either
sold, wound down or liquidated, assets are generally hard to
collect or realize and liabilities and expenses tend to have
longevity and, unless negotiated, continue. As the economy
suffered starting in March from COVID-19, the events of 2020 have
compounded the challenge to optimizing asset collections while
reducing liabilities. Management believes that it is close to
finalizing the divestment and continues to believe, as reported in
last quarter’s financial statements, that $1.3 million in net
assets will be contributed to the cannabis asset.
For more information
contact:
Ventura Cannabis and Wellness Corp. Chris Heath CEO (424)
372-1123 investor@venturacanna.com www.venturacanna.com
Certain statements contained in this
presentation constitute “forward-looking information” as such term
is defined in applicable Canadian securities legislation. The words
“may”, “would”, “could”, “should”, “potential”, “will”, “seek”,
“intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect”,
“confident” and similar expressions as they relate to the Company.
Such statements reflect the Company’s current views and intentions
with respect to future events, and current information available to
the Company, and are subject to certain risks, uncertainties, and
assumptions. The forward-looking information included are made as
of September 10, 2020, and the Company undertakes no obligation to
publicly update or revise any forward-looking information, other
than as required by applicable law. VCAN holds or is acquiring
marijuana assets in the United States. Previously disclosed
acquisitions are still subject to closing. Marijuana is legal in
each state VCAN is looking to operate, however marijuana remains
illegal under US federal law, and the approach to enforcement of US
federal law against marijuana is subject to change. Shareholders
and investors need to be aware that adverse enforcement actions
could affect their investments and that VCAN’s ability to access
private and public capital could be affected and or could not be
available to support continuing operations.
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