WeedMD Inc. (TSX-V:WMD) (OTCQX:WDDMF) (FSE:4WE)
(“
WeedMD” or the “
Company”), a
federally-licensed producer and distributor of medical-grade
cannabis, is pleased to announce that it has entered into a
definitive agreement dated November 29, 2019 to acquire Starseed
Holdings Inc. (“
Starseed”), a medically-focused,
federally-licensed cannabis company providing cannabis to insured
patients with coverage under their benefit plans (the
“
Acquisition”). The arms-length all-share
Acquisition is valued at approximately $78 million, and Starseed’s
strategic investor, the Labourers’ Pension Fund of Central and
Eastern Canada (“
LPF”), will make a concurrent $25
million equity investment directly into WeedMD (the
“
Strategic Investment” and collectively the
“
Transaction”). The Transaction bolsters the
Company’s leadership position in the medical cannabis market
through Starseed’s exclusive distribution and patient channels,
provides important growth capital and fortifies WeedMD’s balance
sheet.
The Acquisition creates a unique, high-margin
sales channel for WeedMD’s low-cost, high-quality production,
creating a vertically-integrated company that can execute across
the entire value chain. Starseed has launched an industry-first
partnership with Canada’s largest construction union, the Laborers’
International Union of North America (“LiUNA”), to
provide medical cannabis as a fully-covered drug benefit for its
more than 100,000 members and retirees in addition to their
respective dependents.
"We believe that there are three pillars to
long-term success in the cannabis space: quality production, unique
distribution, and a strong balance sheet,” said Keith Merker, CEO
of WeedMD. “This acquisition allows WeedMD to increase its
distribution capabilities, maximize margins and access growth
capital through a strategic investor.”
Angelo Tsebelis, President of Starseed,
commented, "At Starseed, we have focused on building a unique sales
platform that largely mirrors the pharmacy distribution model.
Simply put, by making cannabis a paid benefit we have removed many
of the barriers to mass market uptake of medical cannabis. Coupled
with WeedMD’s high-quality cultivation assets and processing
capabilities, we are well-positioned for accelerated future
growth.”
LPF’s Strategic Investment bolsters the combined
company’s financial position, bringing WeedMD’s pro forma cash
balance to approximately $56 million (as at September 30, 2019 and
including the $25 million Strategic Investment). Upon completion of
the Transaction, existing WeedMD shareholders will own 55% of the
newly-formed company while Starseed shareholders, including LPF,
will own 45% (see Transaction Summary below for details).
Benefits to WeedMD
Shareholders:
- Combining Complementary
Operations Across the Value Chain: WeedMD is matching its
low-cost production platform with Starseed’s high-margin sales
channels to generate substantive margins. WeedMD’s production
capacity creates ample supply for Starseed’s rapidly-growing
patient base, currently at approximately 6,500 patients. Starseed
is currently operating at a medical revenue run rate of
approximately $10 million per year. WeedMD’s cultivation platform
will also enable Starseed to scale the distribution of products in
the adult-use market under its Saturday brand.
- Enhanced Processing and
Distribution Capabilities: Wholly-owned by WeedMD, CX
Industries is expected to reach a processing and extraction
capacity of 200,000 kgs by year-end 2020, providing Canada and
international markets with new and innovative consumption methods.
By leveraging Starseed’s packaging and distribution capabilities at
its fully-licensed Bowmanville facility, the Company has the
necessary infrastructure to meet emerging industry demand,
including expected growth in the retail environment in 2020.
- Significant and Immediate
Cost and Revenue Synergies: Starseed’s cost of goods sold
is expected to decrease significantly by transitioning from
wholesale-purchased product to internally-produced WeedMD supply,
creating an immediate production cost synergy. Furthermore, the
Company has targeted SG&A savings of up to $10 million per year
by end of 2020. On the revenue side, WeedMD expects to benefit from
Starseed’s industry-leading average annual patient spend, which is
approximately three times WeedMD’s predominantly
business-to-business wholesale unit pricing, which creates a
material, recurring, low-turnover revenue opportunity.
- Cornerstone Investor
Fortifies Balance Sheet for Long-Term: Through its $25
million Strategic Investment into WeedMD, LPF is a supportive
strategic investor. Upon completion of the Transaction, LPF will
own approximately 29% of the pro forma company on a fully-diluted,
in-the-money basis. LPF is one of the fastest growing pension funds
in Canada.
- Broadens An Already Strong
Management Team: Starseed’s management team brings
extensive retail, medical, marketing, and financial expertise and
experience, as well as strong industry and client relationships.
These strengths are complementary to WeedMD’s cultivation and
product-focused skillsets.
A summary of the amalgamated entity can be found
on the WeedMD.com website or by clicking here.
Transaction Summary
Upon closing of the Acquisition, WeedMD will
issue 71.8 million shares to Starseed shareholders, which will
result in a pro forma ownership at close equal to: 62% (WeedMD),
18% (Starseed shareholders, excluding LPF), and 19.9% (LFP), on a
fully-diluted, in-the-money basis. The Acquisition values Starseed
at approximately $78 million based on the 15-day WeedMD
volume-weighted average share price of $1.08 (“WeedMD
VWAP”) ended November 27, 2019.
LPF has entered into a subscription agreement
related to the Strategic Investment pursuant to which it has
purchased subscription receipts (the “Subscription
Receipts”) for aggregate gross proceeds of $25,000,000.
The issue price of each Subscription Receipt shall be at a price
equal to the greater of: (i) $1.0832, or (ii) the minimum price
permitted by the rules of the TSX Venture Exchange. Upon WeedMD
obtaining shareholder approval for the Strategic Investment, each
Subscription Receipt shall be automatically exchanged for one
WeedMD common share. Upon the exchange of the Subscription
Receipts, pro forma ownership in the Company will be equal to: 55%
(WeedMD), 16% (Starseed shareholders, excluding LPF), and 29%
(LFP), on a fully-diluted, in-the-money basis.
The pro forma company’s board of directors will
be comprised of four representatives from WeedMD and three
representatives from Starseed. In addition, certain members of
Starseed’s management will join the management team of the combined
entity.
No WeedMD shareholder approval is anticipated in
connection with the Acquisition. However, the Acquisition and
Strategic Investment are subject to regulatory approvals, as well
as other customary closing conditions.
The Acquisition is expected to close in December
2019. There will be a special meeting of WeedMD shareholder’s
related to the Strategic Investment, which is expected to occur in
February 2020.
WeedMD Approval and
Recommendation
WeedMD’s Board of Directors (the “WeedMD
Board”) has unanimously approved the Acquisition and
Strategic Investment, determining that the Transaction is in the
best interests of WeedMD and its shareholders. The WeedMD Board
also received a verbal fairness opinion (the “Fairness
Opinion”) provided by INFOR Financial Inc. that, subject
to the assumptions, qualifications and limitations contained in the
Fairness Opinion, the consideration being paid to Starseed pursuant
to the Acquisition and the concurrent Strategic Investment, is
fair, from a financial point of view, to WeedMD.
Starseed Approval and
Recommendation
The Starseed Board of Directors (the
“Starseed Board”) has unanimously approved the
Acquisition, determining that the Acquisition is in the best
interests of Starseed and its shareholders.
Certain Starseed shareholders, including LPF,
who collectively beneficially own, or exercise control or direction
over, approximately 68% of the outstanding Starseed shares
(“Starseed Shares”), have entered into voting
support agreements pursuant to which each has agreed to vote their
Starseed Shares in favour of the Acquisition and all other matters
in favour of the Acquisition.
Summary of Starseed Financial
Information
Nine Months Ended September 30, 2019
(unaudited)
Total Revenue |
$ |
4,799,576 |
|
Cost of Goods Sold |
$ |
7,335,923 |
|
Operating loss |
$ |
(15,908,447 |
) |
|
|
Total Assets |
$ |
51,303,709 |
|
Total Liabilities |
$ |
5,913,949 |
|
|
|
|
|
Advisors and Counsel
Stoic Advisory Inc. is acting as the exclusive
financial advisor to WeedMD. INFOR Financial Inc. is acting as
financial advisor to the WeedMD Board and provided an independent
Fairness Opinion to the WeedMD Board. Torkin Manes LLP is acting as
legal counsel to WeedMD.
Canaccord Genuity Corp. is acting as the
exclusive financial advisor to Starseed. Dentons Canada LLP is
acting as legal counsel to Starseed. NATIONAL Public Relations is
acting as communications advisor.
About WeedMD Inc.
WeedMD Inc. is the publicly-traded parent
company of WeedMD Rx Inc., a federally-licensed producer of
cannabis products for both the medical and adult-use markets. The
Company owns and operates a 158-acre state-of-the-art greenhouse,
outdoor and processing facility located in Strathroy, Ontario.
WeedMD also operates CX Industries Inc., a wholly-owned subsidiary
of WeedMD Inc. CX Industries operates out of the Company’s
fully-licensed 26,000 sq. ft. Aylmer, Ontario production facility
which specializes in cannabis extraction and processing. WeedMD has
a multi-channeled distribution strategy that includes selling
directly to medical patients, strategic relationships across the
seniors’ market and supply agreements with Shoppers Drug Mart as
well as six provincial distribution agencies where WeedMD’s
adult-use brand Color Cannabis is sold.
About Starseed Holdings
Inc.
Starseed Holdings Inc., through its wholly-owned
subsidiary Starseed Medicinal Inc., is a license holder under the
Cannabis Act. With a unique customer-centric approach to safe and
responsible onboarding and use of medical cannabis, Starseed is a
leading company in Canada to sell medical cannabis to captive
customer groups through drug benefit plans. Through an
industry-first, exclusive partnership with LiUNA, the largest
construction union in Canada, along with other employers and union
groups. In the adult-use market, Starseed sells its product in four
provinces, including Ontario, Alberta, Saskatchewan and British
Columbia under its Saturday brand.
Non-GAAP Measures
To supplement the financial measures prepared in
accordance with Canadian generally accepted accounting principles
(GAAP), the Company uses certain non-GAAP financial measures,
including Adjusted EBITDA (non-GAAP). The Company believes that
these non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide useful information about the
Company's operating results and liquidity and enhance the overall
ability to assess the Company's financial performance. The
Company uses these measures, together with other measures of
performance under GAAP, to compare the relative performance of
operations in planning, budgeting and reviewing the performance of
its business.
However, these measures are not prepared in
accordance with GAAP nor do they have any standardized meaning
under GAAP. In addition, other companies may use similarly titled
non-GAAP financial measures that are calculated differently from
the way we calculate such measures. Accordingly, our non-GAAP
financial measures may not be comparable to such similarly titled
non-GAAP measures. We caution investors not to place undue reliance
on such non-GAAP measures, but instead to consider them with the
most directly comparable GAAP measures. Non-GAAP financial measures
have limitations as analytical tools and should not be considered
in isolation. They should be considered as a supplement to, not a
substitute for, or superior to, the corresponding measures
calculated in accordance with GAAP.
As indicated above, for guidance purposes, the
Company does not provide reconciliations of projected Adjusted
EBITDA (non-GAAP) to projected GAAP net income (loss), due to the
inherent difficulty in forecasting and quantifying certain amounts
that are necessary for such reconciliations.
Conference Call with Joint Management:
On November 29, 2019, joint management will be available for
analyst and media questions following opening remarks by Keith
Merker, CEO of WeedMD and Nichola Thompson, CFO of WeedMD - who
will provide an overview WeedMD’s Q3 2019 financial results.
They will be joined by Angelo Tsebelis, President of Starseed to
provide an overview of the Transaction.
Date: |
Friday, November 29, 2019 |
Time: |
1 p.m. Eastern Standard
Time |
Dial-in Number: |
Canada/USA: 1-800-319-4610.
International Toll: 1-604-638-5340Participants, please dial in and
ask to join the WeedMD call. |
Replay Dial-in: |
Canada/USA: 1-800-319-6413.
International Toll: 1-604-638-9010Replay Access Code: 3858Replay
will be available after 12:00 p.m. Eastern Time, until December 29,
2019 |
|
|
For further information, please
contact:
For Investor Inquiries:
James WilliamsDirector, Capital MarketsEmail:
investor@weedmd.com
Daniel WeinermanDirector, Investor
RelationsEmail: dweinerman@national.ca
For Media Enquiries:
Marianella delaBarreraVP, Communications &
Corporate AffairsTel: 416-897-6644Email: marianella@weedmd.com
Aubin HavillMarketing ManagerTel:
1-844-756-7333Email: aubin.havill@starseed.com
To learn more, visit us at www.weedmd.com
Forward Looking
Information:
This press release contains “forward-looking
information” within the meaning of applicable Canadian securities
legislation which are based upon WeedMD’s current internal
expectations, estimates, projections, assumptions and beliefs and
views of future events. Forward-looking information can be
identified by the use of forward-looking terminology such as
“expect”, “likely”, “may”, “will”, “should”, “intend”,
“anticipate”, “potential”, “proposed”, “estimate” and other similar
words, including negative and grammatical variations thereof, or
statements that certain events or conditions “may”, “would” or
“will” happen, or by discussions of strategy.
The forward-looking information in this news
release is based upon the expectations, estimates, projections,
assumptions and views of future events which management believes to
be reasonable in the circumstances. Forward-looking information
includes estimates, plans, expectations, opinions, forecasts,
projections, targets, guidance or other statements that are not
statements of fact. Forward-looking information in this news
release include, but are not limited to, statements with respect to
internal expectations, expectations with respect to actual
production volumes, expectations for future growing capacity and
the completion of any capital project or expansions.
Forward-looking information necessarily involve known and unknown
risks, including, without limitation, risks associated with general
economic conditions; adverse industry events; loss of markets;
future legislative and regulatory developments; inability to access
sufficient capital from internal and external sources, and/or
inability to access sufficient capital on favourable terms; the
cannabis industry in Canada generally; the ability of WeedMD to
implement its business strategies; competition; crop failure; and
other risks.
Any forward-looking information speaks only as
of the date on which it is made, and, except as required by law,
WeedMD does not undertake any obligation to update or revise any
forward-looking information, whether as a result of new
information, future events or otherwise. New factors emerge from
time to time, and it is not possible for WeedMD to predict all such
factors. When considering this forward-looking information, readers
should keep in mind the risk factors and other cautionary
statements in WeedMD’s Annual Information Form dated June 21, 2019
(the “AIF”) and other disclosure documents of WeedMD filed with the
applicable Canadian securities regulatory authorities on SEDAR at
www.sedar.com. The risk factors and other factors noted in the AIF
and other disclosure documents could cause actual events or results
to differ materially from those described in any forward-looking
information.
NEITHER THE TSX VENTURE EXCHANGE NOR ITS
REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE
POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR
THE ADEQUACY OR ACCURACY OF THIS RELEASE.
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