The agreement with see Wildflower acquire all of the issued and outstanding shares of City Cannabis.
THIS NEWS RELEASE IS INTENDED FOR DISTRIBUTION IN CANADA ONLY AND IS NOT INTENDED FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES
VANCOUVER, British Columbia, June 18, 2019 (GLOBE NEWSWIRE) — Wildflower Brands Inc. (CSE: SUN, OTC: WLDFF) (the “Company” or “Wildflower”) announced on May 28, 2019 the execution of a share purchase agreement (the “Definitive Agreement”) with City Cannabis Corp (“City Cannabis”) to acquire all of the issued and outstanding shares of City Cannabis (the “Acquisition”).
Further particulars of the Acquisition are contained in the May 28, 2019 news release and in the Information Circular referred to hereafter.
The Company has convened an Annual General and Special Meeting (the “Meeting”) of its shareholders for June 26, 2019 to seek disinterested shareholder approval of the Acquisition. In connection with the Meeting, the Company filed a management information circular on SEDAR on June 4, 2019 (the “Information Circular”).
Based on its review of the Information Circular, staff of the Ontario Securities Commission has requested, pursuant to CSA Staff Notice 61-302, that the Company provide further disclosure with respect to the background of the Acquisition and the review and approval processes undertaken by the Company’s board of directors (the “Board of Directors” or the “Board”) with respect thereto. This news release is being issued for that purpose.
Background to the Acquisition
Following City Cannabis obtaining its provincial licenses to operate as a cannabis retail facility from the Province of British Columbia in January 2019, preliminary high-level discussions regarding the Acquisition were initiated by Krystian Wetulani, the Chief Executive Officer and largest shareholder of City Cannabis (the “Vendors’ Representative”).
The Vendors’ Representative was looking to monetize the investment of City Cannabis’ shareholders through an acquisition by a public entity. In addition, the Vendors’ Representative was seeking access to public capital in order to expand City Cannabis’ presence in the cannabis retail market.
Given the knowledge of Wildflower and City Cannabis with the management teams and the respective businesses of each other, as well as each company’s commitment to the development and marketing of health and wellness products using cannabidiol, the proposed Acquisition, in principle, was a logical strategic fit.
In March 2019, formal discussions with respect to the Acquisition commenced between the Company and City Cannabis. In response to such, the board of directors of the Company proceeded to authorize Nash Meghji on March 25, 2019, the sole independent director with respect to the Acquisition (the “Sole Independent Director”), to negotiate the Acquisition on behalf of the Company with the assistance of his external legal and financial advisors.On April 3, 2019, the Company and City Cannabis entered into a high-level, non-binding letter agreement (the “LOI”) outlining the proposed terms of the Acquisition, which was announced to the markets on April 9, 2019. The $45 million purchase price for City Cannabis was arrived at through extensive negotiations between the Sole Independent Director and the Vendors’ Representative.
The Sole Independent Director, in considering the ultimate purchase price for the transaction, (i) engaged in discussions with investment bankers in Canada and the United States and examined other deals in the cannabis space in both Canada and the United States with such advisors, and (ii) consulted with other professional service providers knowledgeable in the cannabis industry and the Board to arrive at the agreed upon purchase price.Following the execution of the LOI, the Company and City Cannabis commenced corporate, legal and tax due diligence and determined that an acquisition of all of the issued and outstanding shares in the capital of City Cannabis in exchange for shares of Wildflower (the “Share Consideration”) was the most appropriate legal structure for the Acquisition.A first draft of the Definitive Agreement was circulated by the Company to City Cannabis on April 23, 2019 and negotiated up until May 27, 2019, the date of execution of the Definitive Agreement.
The key focal points of the negotiations centered around the representations and warranties given by the Vendors’ Representative regarding the City Cannabis business, the survival of such representations and warranties and the indemnification by the Vendors’ Representative for any inaccuracy or breach of such representations and warranties.In and around May 22, 2019, the Company and City Cannabis settled the representations and warranties given by the Vendors’ Representative along with the accompanying survival periods, with the Vendors’ Representative agreeing to indemnify the Company up to the full amount of the Share Consideration for any inaccuracy or breach of representations and warranties made by the Vendors’ Representative.
Obtaining an indemnity from the Vendors’ Representative up to the full amount of the Share Consideration was a key negotiation point for the Company.On May 23, 2019, the board of directors of the Company received the oral opinion of GMP Securities L.P. (“GMP”) to the effect that, as of the date of the GMP’s fairness opinion (the “GMP Fairness Opinion”), and subject to the assumptions and limitations therein, the consideration to be paid by the Company to City Cannabis shareholders was fair, from a financial point of view, to the Company. The oral opinion was subsequently confirmed by delivery of the written GMP Fairness Opinion on May 24, 2019.
Following the receipt of the GMP Fairness Opinion and settling the key negotiation points in the Definitive Agreement, the Company proceeded to execute the Definitive Agreement.
Board Review and Approval Process
The Company’s Board of Directors is currently comprised of four directors: William MacLean, Stephen Pearce, Nash Meghji and Justin Turnquist. In anticipation of entering into the LOI with City Cannabis, the Board was advised by its external counsel that the Acquisition would constitute a “related party transaction” for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) on account of the interests held in City Cannabis by certain related parties of the Company.
As a result, the Board of Directors examined the relationships between the directors, the Company and its management and determined that Nash Meghji was the sole “independent” director of the Company under applicable securities laws, including MI 61-101 and National Instrument 52-110 – Audit Committees, and as such would be free from any interest and any business or other relationship that could, or could reasonably be perceived to, materially interfere with the exercise of his independent judgment or his ability to act with a view to the best interests of the Company in connection with the negotiation of the Acquisition.
On March 25, 2019, the Board determined that it would be in the best interests of the Company that Mr. Meghji be appointed by the Board as the Sole Independent Director in order to undertake and supervise a process he considered appropriate, efficient and effective in respect of the review and negotiation of the Acquisition.
In connection with such appointment, the Board charged the Sole Independent Director with, among other things, the following mandate and responsibilities and authorized and empowered the Sole Independent Director to take the following actions:to consider, assess and review, with the assistance of any professional advisors, whether the Acquisition was advisable and in the best interests of the Company;
- to consider, review and approve the terms and conditions of the Acquisition that may be available to the Company, with the benefit of advice from the professional advisors;
- to supervise the negotiations of the terms and conditions of the Acquisition in a manner that the Sole Independent Director considered necessary or desirable, and to oversee the preparation of any related legal agreements or other documentation, in each case, with the benefit of advice from outside advisors;
- to provide advice and guidance to the Board or other committees of the Board from time to time as to matters considered by the Sole Independent Director to be related or reasonably ancillary to his mandate, together with the recommendations of the Sole Independent Director with respect thereto;
- to report to the Board as to whether the Sole Independent Director recommended that the Board pursue the Acquisition and his reasons for approving the Acquisition; and
- to consider, to the extent determined to be appropriate by the Sole Independent Director, such other matters related or reasonably ancillary to the Acquisition, as are necessary or appropriate to address the interests of the Company’s stakeholders.
Following the appointment of the Sole Independent Director, the Company retained GMP to provide financial advice and assistance and prepare a fairness opinion in connection with the Acquisition; notwithstanding that MI 61-101 does not require that a fairness opinion be obtained in the circumstances of the Acquisition.
The Sole Independent Director did not elect to obtain a formal valuation on account of the Company being entitled to rely upon the exemption provided in paragraph 5.5(b) of MI 61-101 which provides for an exemption to the requirement to have a formal valuation if no securities of the Company are listed or quoted on the Toronto Stock Exchange, the New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock Market, or a stock exchange outside of Canada and the United States, other than the Alternative Investment Market of the London Stock Exchange or the PLUS markets operated by PLUS Markets Group plc.On April 3, 2019, the Company and City Cannabis entered into the LOI.
During the period commencing in early April 2019 and ending in late May 2019, the Sole Independent Director engaged with his professional advisors to determine the optimal structure for the Acquisition and entered into extensive negotiations with Cannabis City on the terms and conditions of the Definitive Agreement. During such time, the Sole Independent Director had numerous meetings with his professional advisors in order to determine whether the Acquisition was advisable and in the best interests of the Company and was able to deliberate without influence from the other directors of the Board.In considering the Acquisition, the Sole Independent Director considered the GMP Fairness Opinion together with the following factors:
- City Cannabis has a history of operating as a profitable cannabis retailer, with revenues from sales in 2019 anticipated to be $34 million;
- the acquisition of City Cannabis is expected to be accretive to shareholders of Wildflower;
- City Cannabis has three leases in premier locations, two in Vancouver and one in Toronto;
- City Cannabis has a demonstrated ability to obtain licenses in the regulated market;City Cannabis provides direct access to the consumer to determine trends and obtain feedback; and
- City Cannabis provides a testing ground for new products.
As result of his consideration of the foregoing factors, including the GMP Fairness Opinion, the Sole Independent Director determined that the Acquisition was advisable and in the best interests of the Company and passed a resolution authorizing the Company to, among other things, enter into the Definitive Agreement with the shareholders of City Cannabis to effect the Acquisition.
Messrs. MacLean, Pearce and Turnquist declared their respective interests in and did not participate in deliberations on, and abstained from voting in respect of resolutions relating to, the Acquisition, on account of their conflict as related parties to the transaction.
ABOUT CITY CANNABIS CO.
City Cannabis is a cannabis retailer holding two of the eight City of Vancouver licences to sell cannabis and the first company to obtain multiple licences in the Province of British Columbia. City Cannabis has been profitably operating various dispensaries in Vancouver since Vancouver commenced licensing cannabis retailers. British Columbia is the heart of cannabis country in Canada, with a long history of cannabis production and consumption. As part of City Cannabis’ strategy, it is looking for premier locations to operate in. Its Robson and Granville location is the premier location in Western Canada, located at the junction of the Entertainment District and Shopping District of downtown Vancouver.
Wildflower Brands is a Vancouver-based company developing and designing brands that focus on plant-based health and wellness products. All of our brands work in synergy, toward becoming a global wellness leader.
The Acquisition is anticipated to close on June 28, 2019. A copy of the Definitive Agreement is available under Wildflower’s profile on SEDAR at www.sedar.com.
The securities to be issued in connection with the Acquisition have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons (as defined in Regulation S promulgated under the U.S. Securities Act) unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.Completion of the Acquisition is subject to a number of conditions, including but not limited to, the listing of the Consideration Shares on the CSE, requisite shareholder approvals, and disinterested shareholder approval. Where applicable, the Acquisition cannot close until the required shareholder approval is obtained. There can be no assurance that the Acquisition will be completed as proposed or at all.Investors are cautioned that, except as disclosed in the management information circular of the Company to be prepared in connection with the Acquisition, any information released or received with respect to the Acquisition may not be accurate or complete and should not be relied upon. Trading in the securities of Wildflower should be considered highly speculative.
Cautionary and Forward-Looking Statements
This news release contains forward‐looking statements and forward‐looking information within the meaning of applicable securities laws. These statements relate to future events or future performance. All statements other than statements of historical fact may be forward‐looking statements or information. Forward‐looking statements and information are often, but not always, identified by the use of words such as “appear”, “seek”, “anticipate”, “plan”, “continue”, “estimate”, “approximate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “would” and similar expressions.Forward-looking statements and information are provided for the purpose of providing information about the current expectations and plans of management of the Company relating to the future. Readers are cautioned that reliance on such statements and information may not be appropriate for other purposes, such as making investment decisions. Since forward‐looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the marijuana industry in general such as operational risks in growing; competition; incorrect assessment of the value and potential benefits of various transactions; ability to access sufficient capital from internal and external sources; failure to obtain required regulatory and other approvals and changes in legislation, including but not limited to tax laws and government regulations. Accordingly, readers should not place undue reliance on the forward‐looking statements, timelines and information contained in this news release. Readers are cautioned that the foregoing list of factors is not exhaustive.The forward‐looking statements and information contained in this news release are made as of the date hereof and no undertaking is given to update publicly or revise any forward‐looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws or the Canadian Securities Exchange. The forward-looking statements or information contained in this news release are expressly qualified by this cautionary statement.The Canadian Securities Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved of the contents of this press release.
For more information about Wildflower Brands, visit wildflowerbrands.co. To learn, engage and shop our wellness products visit buywildflower.com.
Investor Relations Contact:
Will Elston, Investor Relations