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CALGARY,
AB, Dec. 30, 2024 /CNW/ - Simply Solventless
Concentrates Ltd. (TSXV: HASH) ("SSC") is pleased to
announce that it has entered into a share purchase agreement dated
December 28, 2024 (the "SPA")
with Delta 9 Cannabis Inc. ("Delta 9") in respect of the
acquisition of all of the issued and outstanding shares of Delta 9
Bio-Tech Inc. ("Bio-Tech") for cash consideration of $nil
net of approximately $3.0 million of
expected net working capital received, or cash consideration of
$3.0 million without deducting
expected working capital received, payable in a series of payments
of $0.75 million by January 2, 2025 and $2.25
million on the closing date, expected to be January 31, 2025 (the "Acquisition"). SSC
also announces the appointment of Jeff
Holmgren as Chief Financial Officer and the promotion of
Murray Brown, SSC's current Vice
President, Operations, to the position of Chief Operating Officer.
Additionally, all of SSC's 8,700,000 common share purchase warrants
exercisable at a price of $0.40 per
share with an expiry date of December 23,
2024, have been exercised for proceeds of $3,480,000.
Vertically integrating upstream into cultivation is a core SSC
strategic mandate due to a tightening supply demand dynamic pushing
cannabis prices upward, SSC's increasing demand for dried flower
due to the acquisition of leading preroll manufacturer ANC Inc.,
and the desire for SSC to participate in the dried flower product
category which holds a 40% market share (according to Headset
data). The acquisition of Bio-Tech provides SSC with a predictable
volume of high-quality Good Agricultural Collection Practice
("GACP") certified internationally exportable flower, with
low per gram cost of cultivation, for an attractive acquisition
metric of only 0.0x adjusted EBITDA post integration, net of
expected net working capital received. SSC assumes no debt or
liabilities from the Acquisition, and with a large portion of the
synergies being captured prior to closing, SSC believes that
Bio-Tech will contribute meaningfully to further expanded revenue
and adjusted EBITDA in Q1 2025.
SSC will provide Q1 2025 guidance in the weeks after closing of
the Acquisition.
About Bio-Tech
Bio-Tech operates a 95,000 square foot GACP certified cannabis
cultivation facility in Winnipeg,
Manitoba (the "Facility"), with an annual cultivation
capacity of approximately 9,000kg of dried cannabis flower and
trim.
Bio-Tech currently services the recreational dried flower
markets in Ontario, Alberta, Manitoba, Saskatchewan, British Columbia, and the Maritimes, and the
business-to-business wholesale market in Canada and internationally.
The Acquisition
Pursuant to the order of the King's Bench of Alberta (the "Court") issued
July 15, 2024 (as amended and
restated from time to time), Delta 9 and Bio-Tech, among other
entities, collectively, commenced proceedings under the Companies'
Creditors Arrangement Act (the "CCAA"). On July 24, 2024, Bio-Tech entered a court granted
sale and investment solicitation process for the business and/or
assets of Bio-Tech.
SSC has entered into the SPA with Delta 9 in respect of the
Acquisition, pursuant to which SSC will acquire all of the issued
and outstanding shares of Bio-Tech for cash consideration of $nil
net of approximately $3.0 million of
expected net working capital received, or cash consideration of
$3.0 million without deducting
expected working capital received, payable in a series of payments
of $0.75 million by January 2, 2025 and $2.25
million on the closing date, expected to be January 31, 2025. SSC will also enter into a
lease in respect of the Bio-Tech facility, conditional upon closing
of the Acquisition.
Valuation Metrics of Acquisition
- Adjusted EBITDA Multiple (Net of Expected Working Capital
Received): 0.0x estimated annual adjusted EBITDA ($0.0 million consideration net of expected
working capital received / $2.5
million estimated annual adjusted EBITDA of Bio-Tech).
Adjusted EBITDA is a non-IFRS measure. See "Non-IFRS Financial
Measures" below.
- Adjusted EBITDA Multiple (Without Deducting Expected Net
Working Capital Received): 1.2x estimated annual adjusted EBITDA
($3.0 million consideration /
$2.5 million estimated annual
adjusted EBITDA of Bio-Tech). Adjusted EBITDA is a non-IFRS
measure. See "Non-IFRS Financial Measures" below.
Closing of the Acquisition is subject to several conditions
precedent, including but not limited to the approval of the TSXV,
the completion of the reverse vesting order pursuant to the CCAA
proceedings and a notification to Health Canada. There is no
guarantee that the Acquisition will close on the terms set forth
herein or at all.
Key Benefits and Synergies
Key benefits and synergies of the Acquisition are as
follows:
- Low Cultivation Costs: Upon capture of synergies, it is
expected that the all-in cash cost to cultivate will be
approximately $0.60-$0.70 per gram, among the lowest for indoor
cannabis in Canada.
- No Liabilities: As Bio-Tech is being acquired through CCAA
proceedings, SSC will assume no liabilities upon closing of the
Acquisition.
- Tax Pools: Bio-Tech has approximately $60 million of accrued non-capital loss tax pools
which may be usable to SSC. Should these tax pools be utilized,
they are expected to reduce future tax payments by up to
$12 million at an effective tax rate
of 20%.
- International Exposure: The Facility is GACP certified,
allowing for the export of dried flower to international markets,
which currently attracts higher selling prices.
- Complimentary Products: SSC does not currently cultivate or
sell dried flower. The Acquisition will allow SSC to participate in
the dried flower product category, which is the largest cannabis
product category in Canada with a
market share of approximately 40% (according to Headset data).
- Supply Chain: In the opinion of SSC, the supply demand dynamic
is balancing in the Canadian wholesale cannabis marketplace, making
it more difficult to procure the inputs that SSC requires. The
Acquisition secures a supply of high-quality flower and trim for
use in SSC's prerolls and in the manufacturing of concentrates and
hash.
- Prerolling: Bio-Tech sells regular and infused prerolls in
numerous markets. SSC's subsidiary ANC Inc. will bring this
manufacturing in-house, maximizing efficiency.
- Vapes: Bio-Tech sells vape cartridges in numerous markets, and
it currently outsources all vape manufacturing. This manufacturing
will come in-house at SSC's Massive Hash Factory facility, reducing
production costs.
- Inventory Velocity: Bio-Tech sells several products that SSC
currently manufactures, including hash, which will help maximize
inventory turnover.
- Facility Cost Savings: SSC will be able to rationalize the
activities performed at its various facilities, reducing fixed
operating costs by approximately $750,000 annually once rationalized (prior to the
estimated post integration adjusted EBITDA figure of $2,500,000).
- Cost Synergies: Administration, including but not limited to
public company costs, accounting, IT, governance, and HR will be
shared, reducing costs significantly.
- Blended Excise Rate: Bio-Tech pays lower excise rates as a
cultivator, which will lower SSC's overall corporate blended excise
tax rate.
Bio-Tech Financial Figures and Preliminary Proforma
Bio-Tech financial figures and preliminary projected proforma
are as follows:
- Bio-Tech Production: Bio-Tech is currently producing
approximately 9,000kg per year of high-quality cannabis. It is
believed that production can be increased to 15,000-18,000kg per
year with approximately $4.0 million
of capital investment, which is not planned at this time.
- Bio-Tech Revenue: Bio-Tech is expected to generate
approximately $12.0 million of
annualized gross revenue, which would represent an increase of
approximately 25% from current SSC levels. It is believed that the
current average selling price per gram of $1.11/g can be increased through international
export and through other initiatives.
- Bio-Tech Adjusted EBITDA: After capturing synergies, Bio-Tech
is expected to generate approximately $2.5
million of annualized adjusted EBITDA (prior to any facility
rationalization as noted above), which would represent an increase
of approximately 23% from current SSC levels.
Executive Appointments
SSC is pleased to announce that it has appointed Jeff Holmgren as its Chief Financial Officer,
and that Murray Brown has been
promoted to the position of Chief Operating Officer.
Jeff is a seasoned finance executive with a passion for
corporate leadership and hands-on strategic entrepreneurialism.
Jeff's career started at Ernst & Young LLP, where he obtained
his chartered accountant designation and an in-depth knowledge of
financial reporting, securities compliance and corporate governance
serving clients in both public and private, domestic and
international sectors, followed by over 20 years of executive level
experience serving as CFO for numerous public and private oil and
gas companies until his transition to the cannabis industry in
2018. Jeff's deep understanding of the regulatory environment,
capital markets and familiarity with the cannabis consumer was
integral to the growth of Trees Cannabis into a national cannabis
retailer, where as co-founder, CFO and later President, he
navigated the complex and challenging business environment until
its sale in 2024. With a unique aptitude for corporate
restructuring, strategic growth and leadership, Jeff is
honoured to have the opportunity to leverage his knowledge and
experience with the industry leading team at SSC.
Jeff Holmgren replaces
Jeff Hall as SSC's Chief Financial
Officer. SSC thanks Jeff Hall for
his contributions to SSC in his time as CFO.
Prior to Murray's promotion to Chief Operating Officer, Murray
served as SSC's Vice President, Operations. Murray has been
instrumental in SSC's growth, driving acquisition integration and
the expansion of SSC's operating capabilities company wide. Murray
boasts four decades of experience at the executive level in
cannabis, oil and gas services, and manufacturing. Prior to joining
SSC, Murray served as Vice President, Operations for a licensed
cannabis producer for a period of five years.
Option Grant
In connection with the appointment of Jeff Holmgren as CFO, SSC has granted
Jeff Holmgren 400,000 stock options
with an exercise price of $0.64 per
share and expiring five years from the date of grant. The
appointment of Jeff Holmgren and the
option grant remains subject to the final approval of the TSXV.
$0.40 Warrant Update
All of SSC's 8,700,000 common share purchase warrants
exercisable at a price of $0.40 per
share with an expiry date of December 23,
2024, have been exercised for proceeds of $3,480,000. The expiry date of these warrants was
December 23, 2024, as December 21, 2024, the original expiry date, was
on a Saturday.
About Simply Solventless Concentrates Ltd.
SSC is a public company incorporated under the Business
Corporations Act (Alberta).
SSC's mission is to provide pure, potent, terpene-rich ready to
consume cannabis products to discerning cannabis consumers.
For more information regarding SSC, please see
www.simplysolventless.ca.
Third-Party Information
All third-party information contained herein, including
information regarding Bio-Tech which has been provided by
management of Bio-Tech, has not been independently verified by SSC.
While SSC believes such information to be reliable, SSC makes no
representation or warranty as to the accuracy of such
information.
Notice on Forward Looking Information
This press release contains forward-looking statements and
forward-looking information (collectively, "forward-looking
statements") within the meaning of applicable securities laws. Any
statements that are contained in this press release that are not
statements of historical fact may be deemed to be forward-looking
statements. Forward-looking statements are often identified by
terms such as "may", "should", "anticipate", "will", "estimates",
"believes", "intends", "expects", "projected", "approximately" and
similar expressions which are intended to identify forward-looking
statements. More particularly and without limitation, this press
release contains forward looking statements concerning the benefits
of the Acquisition, including financial projections and synergies
of the Acquisition, revenue growth, the timing of SSC providing Q1
2025 guidance, the expected closing date of the Acquisition, the
net working capital of Bio-Tech on closing of the Acquisition, tax
pools of Bio-Tech usable post-closing of the Acquisition,
capitalizing on SSC's business plan and SSC's and Bio-Tech's
operations and performance following the Acquisition. SSC cautions
that all forward-looking statements are inherently uncertain, and
that actual performance may be affected by a number of material
risks, factors, assumptions and expectations, many of which are
beyond the control of SSC, including expectations and assumptions
concerning SSC, the ability to satisfy conditions precedent to the
closing of the Acquisition, including approval of the TSXV, a
notification to Health Canada and completion of the CCAA court
proceedings, the ability to realize expected revenue and cost
synergies of the Acquisition on the timelines expected, the risk
that the businesses will not be integrated successfully, the
ability to maintain relationships with customers, employees and
suppliers, the timing and market acceptance of products,
competition in SSC's markets, SSC's reliance on customers,
fluctuations in interest rates, SSC's ability to maintain good
relations with its customers, employees and other stakeholders,
changes in law or regulations, SSC's ability to protect its
intellectual property, as well as other risks and uncertainties,
including those described in SSC's filings available on SEDAR+ at
www.sedarplus.ca. The reader is cautioned that assumptions used in
the preparation of any forward-looking statements may prove to be
incorrect. Events or circumstances may cause actual results to
differ materially from those predicted as a result of numerous
known and unknown risks, uncertainties and other factors, many of
which are beyond the control of SSC. The reader is cautioned not to
place undue reliance on any forward-looking statements. Such
information, although considered reasonable by management at the
time of preparation, may prove to be incorrect and actual results
may differ materially from those anticipated. Forward-looking
statements contained in this press release are expressly qualified
by this cautionary statement.
The forward-looking statements contained in this press release
are made as of the date of this press release, and SSC does not
undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new
information, future events or otherwise, except as expressly
required by securities law.
Future Oriented Financial Information
This press release contains future-oriented financial
information and financial outlook information (collectively,
"FOFI") about gross revenue, adjusted EBITDA, operating
costs and inventory turnover of SSC, which are subject to the same
assumptions, risk factors, limitations and qualifications as set
forth in the above paragraphs. FOFI contained in this document was
approved by management as of the date of this document and was
provided for the purpose of providing further information about
SSC's future business operations assuming closing of the
Acquisition. SSC and its management believe that FOFI has been
prepared on a reasonable basis, reflecting management's best
estimates and judgments, and represent, to the best of management's
knowledge and opinion, SSC's expected course of action. However,
because this information is highly subjective, it should not be
relied on as necessarily indicative of future results. SSC
disclaims any intention or obligation to update or revise any FOFI
contained in this document, whether as a result of new information,
future events or otherwise, unless required pursuant to applicable
law. Readers are cautioned that the FOFI contained in this document
should not be used for purposes other than for which it is
disclosed herein. Differences in the timing of capital expenditures
or revenues and variances in production estimates can have a
significant impact on the key performance measures included in
SSC's guidance. SSC's actual results may differ materially from
these estimates.
Non-IFRS Financial Measures
This press release includes references to "adjusted EBITDA"
which is not defined under International Financial Reporting
Standards (IFRS). The intent of this non-IFRS measure is to provide
additional useful information to investors and analysts. This
non-IFRS measure does not have a standardized meaning prescribed by
IFRS and is therefore unlikely to be comparable to similar measures
presented by other entities. As such, this non-IFRS measure should
not be considered in isolation or used as a substitute for measures
of performance prepared in accordance with IFRS.
Adjusted EBITDA is calculated as income before interest, taxes,
depreciation and amortization expenses. Adjusted EBITDA is
considered as a useful measure by management of SSC to
understand profitability excluding the effects of capital
structure, taxation and depreciation, but may not be appropriate
for other purposes. Adjusted EBITDA is not defined under IFRS and
therefore should not be considered an alternative to, or more
meaningful than, income (loss) and comprehensive income (loss).
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy any securities in any
jurisdiction.
Neither 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.
SOURCE Simply Solventless Concentrates Ltd.