Green Growth Brands Enters into Definitive "Stalking Horse" Agreement to Sell its CBD Business, Restructures Backstop Debentures and Secures US$10M Equity Commitment from Key Stakeholder
- Execution of "Stalking Horse" Agreement to sell the Company's CBD Business to The BRN Group with 30 day Go Shop Period
- GGB extends Maturity Date of Backstop Debentures to 2024 with coupon lowered to 5% payable in kind
- GGB receives commitment from Key Stakeholder to Subscribe for US$10 million of proposed US$30 million Equity Financing to support working capital and buildout requirement of the MSO Segment
- Board of Directors form Special Committee to consider strategic alternatives and retain AltaCorp Capital Inc. to solicit and review bids during the Go Shop Period
COLUMBUS, Feb. 24, 2020 /CNW/ - Green Growth Brands Inc. (CSE:GGB) (OTCQB:GGBXF) (" GGB " or the " Company ") announced today that The BRN Group Inc. (" BRN ") has agreed to acquire (the " CBD Transaction ") the Company's cannabidiol business (the " CBD Business "). The Company and an affiliate of BRN (the " Purchaser ") have executed a "stalking horse" asset purchase agreement (the " Stalking Horse Agreement ") in respect of the CBD Transaction pursuant to which the Purchaser will acquire all of the assets and assume the current liabilities and certain other obligations of the CBD Business. It is anticipated that the Company will hold up to a 20% carried interest in the CBD Business following completion of the CBD Transaction.
In connection with the sale of the CBD Business and upon consummation of same, BRN intends to enter into a strategic advisory and services agreement for the CBD Business with an affiliate of Authentic Brands Group LLC (" ABG "). ABG is a brand development, marketing and entertainment company headquartered in New York City.
Through the CBD Business, GGB sells CBD-infused personal care and beauty products, along with other categories, to consumers through mall-based kiosk shops, eCommerce and wholesale agreements under the Seventh Sense and Green Lily brands as well as other highly recognizable licensed brands.
"While we are excited by the consumer demand signals we saw in the CBD Business during the quarter ending December 28, 2019 , and we remain confident in its future potential, the CBD Business remains in its nascency" said Peter Horvath , Chief Executive Officer of GGB. "With high-potential in the future comes material overhead costs and other obligations in the near term. These near-term overhead costs and other obligations, together with constraints on liquidity, have posed significant challenges that have hindered us from growing the CBD Business to its full-potential. At the same time, our MSO Segment continues to generate positive EBITDA despite constraints on our ability to fully execute our MSO business plan due, in part, to previously disclosed legal challenges in Nevada ," added Horvath. "In light of these factors, we have determined it necessary and appropriate to sell the CBD Business and focus on executing our MSO business plan. The board has also formed a special committee to commence a strategic review, which will include consideration of other cost savings measures, designed to position the Company on a pathway to achieve financial stability and ultimately a platform through which we can achieve sustainable profitability and growth. We are committed to significantly reducing our overall operating costs and extending our cash runway while better positioning the Company to refinance its debt and raise additional financing in the future."
Pursuant to the terms of the Stalking Horse Agreement, the Company will sell the assets comprising the CBD Business and the Purchaser will assume the current liabilities and certain other obligations of the CBD Business. It is anticipated that the Company will hold up to a 20% carried interest in the CBD Business following completion of the CBD Transaction. The Stalking Horse Agreement includes a 30-day "go shop" period (the " Go Shop Period ") which permits the Company, with the assistance of its financial advisor, to actively solicit, evaluate and enter into negotiations with third parties that express an interest in acquiring the CBD Business. The go-shop period expires on March 25, 2020 .
The Stalking Horse Agreement also provides for other customary terms for an agreement of this type. A termination fee is payable to the BRN Group in the amount of US$750,000 plus customary expense and deposit reimbursement in the event the Stalking Horse Agreement is terminated by the Company during the Go Shop Period to enter into a superior proposal. The obligations of the Purchaser under the Stalking Horse Agreement have been guaranteed by BRN.
In connection with the sale of the CBD Business and upon consummation of same, BRN intends to enter into a strategic advisory and services agreement for the CBD Business with an affiliate of ABG. The BRN Group is a privately held entity that focuses exclusively on the cannabis sector. See "Related Party Transactions and Financial Hardship".
The Board of Directors has received an opinion from AltaCorp Capital Inc. (" AltaCorp ") to the effect that, as of the date of such opinion, the consideration provided for in the CBD Transaction is fair, from a financial point of view, to the Company, based upon and subject to the assumptions, limitations, qualifications and such other matters as AltaCorp considered relevant.
Strategic Review Process and CBD Sales Process
In connection with the CBD Transaction, the Company has formed a special committee (" Special Committee ") of directors to explore a full range of strategic alternatives with respect the CBD Business. The Special Committee's mandate includes overseeing the negotiation of definitive documentation in connection with the CBD Transaction, any competing proposal or other potential transaction, soliciting, evaluating and negotiating any competing offers, pursuing potential sources of financing and considering a full range of strategic alternatives in relation to the business of the Company and potential cost saving measures and other operational efficiencies.
At the recommendation of the Special Committee, the Company has retained AltaCorp as its financial advisor to run a sales process (the " CBDSales Process ") during the Go Shop Period on behalf of the Company.
The Company expects that the net proceeds, if any, of any transaction in respect of the CBD Business would be used primarily to satisfy obligations of the Company and its subsidiaries and for general working capital purposes and to ensure that the Company continues as a going concern. There can be no assurance that the CBD Transaction or any other transaction in respect of the CBD Business will be completed, or the broader strategic review and CBD Sales Process will result in the completion of any particular transaction or outcome or result in specific measures to conserve cash as the Company addresses its ability to meet its obligations in the near term.
Debt Restructuring and Corporate Reorganization
Backstop Debenture Amendments
The Company further announced today a plan of debt restructuring to help position the Company on a path to achieve financial stability, sustainable profitability and growth. As part of these initiatives, the holders of its outstanding US$23,717,000 aggregate principal amount of 8 . 00% secured convertible debentures that mature one year from issue, with the earliest debenture maturing on October 18, 2020 (the " Backstop Debentures ") have agreed to extend the maturity thereof to 2024 (the " NewMaturity Date "). In addition, the interest rate payable on each Backstop Debenture will be reduced to 5.00%. Accrued interest under the Backstop Debentures may be paid, at the option of the Company, either: (i) in cash; or (ii) through the issuance by the Company of additional debentures on the New Maturity Date with a principal amount equal to such interest amount payable, all on the New Maturity Date. In addition, and in consideration of these concessions from the debenture holders, the Company has agreed to reduce the conversion price of each Backstop Debenture from C$1,225 per proportionate voting share in the capital of the Company (the " PV Shares ") and C$2.45 per common share in the capital of the Company (the " Common Shares ") to the greater of (i) the market price of the Common Shares on the Canadian Securities Exchange (the " CSE ") on the day of this news release and (ii) the volume weighted average trading price of Common Shares on the CSE over the ten trading days following the date of this news release (the " Revised Common Share Conversion Price "). The conversion price per PV Share will be reduced to the Revised Common Share Conversion Price multiplied by 500 (five hundred). A holder of PV Shares may at any time have the option to convert 1 (one) PV Share held into 500 (five hundred) Common Shares. The Debenture Amendments are subject to the requisite approval of the CSE.
On February 21, 2020 , the Company implemented a corporate reorganization as part of its cost reduction initiatives. The reorganization effort will save the Company approximately US$4.0M in annual general and administrative costs related to home office operations.
Equity Commitment from Key Stakeholders
The Company also announced its intention to raise up to US$30 million (the " Gross Proceeds ") pursuant to a non-brokered private placement (" Private Placement ") of common shares (or proportionate voting shares) of the Company in order to provide funding towards the execution of the Company's business plan for the MSO Segment of its business following completion of the CBD Transaction. The Company has received a commitment from All Js Greenspace to subscribe for US$10 million , in the aggregate, of the proposed US$30 million Private Placement. It is anticipated that the Gross Proceeds of the Private Placement will be available to the Company upon the achievement of certain financial and operating milestones. The subscription price for Common Shares under the Private Placement will be the greater of (i) a 10% discount to the then market price of the Common Shares on the CSE on the trading day immediately prior to the date of issuance and (ii) a 10% discount to the volume weighted average trading price of Common Shares on the CSE for the ten trading days immediately prior to the date of issuance (in each case, the " Common ShareSubscription Price "). The subscription price per PV Share will be equal to the Common Share Subscription Price multiplied by 500 (five hundred).
Related Party Transactions and Financial Hardship
The CBD Transaction, amendments to the Backstop Debentures and Private Placement (collectively, the " Related Party Transactions ", each a " Related Party Transaction ") do or may constitute "related party transactions" within the meaning of Multilateral Instrument 61-101 - Protections of Minority Security Holders in Special Transactions (" MI 61-101 "). The Board of Directors of the Company (the " Board "), acting in good faith, and at least two-thirds of the independent members of the Board, acting in good faith, have determined that the Company is in serious financial difficulty with limited alternatives, that the Related Party Transactions are each designed to improve the Company's financial position and that the terms of each Related Party Transaction are reasonable in the Company's circumstances. As such, GGB intends to rely on the exemption from the minority shareholder approval requirements of MI 61-101 based on the financial hardship exemption set forth in Section 5.7(1)(e) of MI 61-101. See "Cautionary Statements – Going Concern Risk".
About Green Growth Brands Inc.
Green Growth Brands creates remarkable experiences in cannabis and CBD. Led by CEO Peter Horvath and a leadership team of consumer-focused retail experts, the Company's brands include CAMP, Seventh Sense Botanical Therapy, The+Source, Green Lily, and 8 Fold. The Company also has a licensing agreement with the Greg Norman™ Brand to develop a line of CBD-infused personal care products designed for active wellness. GGB is expanding its cannabis operations throughout the U.S., via dispensaries in Nevada , Massachusetts and Florida and the largest network of CBD shops in malls across the country and ShopSeventhSense.com. Learn more about the vision at GreenGrowthBrands.com.
Forward Looking Information
Certain information in this news release constitutes forward-looking statements under applicable securities law. Any statements that are contained in this news 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", "expect", "intend", "forecast" and similar expressions. Forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; marketing costs; loss of markets; future legislative and regulatory developments involving medical and recreational marijuana; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favorable terms; the marijuana industry in the United States , income tax and regulatory matters; the ability of the Company to implement its business strategies; competition; currency and interest rate fluctuations and other risks, including those factors described under the heading "Risks Factors" in (i) the Company's Annual Information Form dated November 26, 2018 which is available on the Company's issuer profile on SEDAR and (ii) the Company's Short Form Prospectus dated August 15 , 2019. Information relating to the Company's second quarter results in this news release is based upon unaudited internal financial statements prepared by management and subject to final review procedures.
Readers are cautioned that the foregoing list is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by GGB's management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. The forward-looking statements contained in this release, including without limitation, the completion of the CBD Transaction; the completion of the proposed Debenture Amendments, including the receipt of approval of holders of Outstanding Debentures and the CSE; the expected benefits of any corporate reorganization; the successful negotiation of an extension on the repayment of the Moxie advance and expense reimbursement; the successful negotiation of an extension on the maturity date on convertible secured notes of Spring Oaks Greenhouses, Inc., is made as of the date hereof and the Company is not obligated to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Going Concern Risk
As previously disclosed, the continuing operations of the Company remain dependent upon its ability to continue to raise adequate financing, to commence profitable operations in the future, and repay its liabilities arising from normal business operations as they become due. As at and for the 13 week period ending December 28, 2019 , the Company had a working capital deficit of $133,478,662 and used cash for operating activities of $12,589,708 . Notwithstanding the CBD Transaction, CBD Sales Process and the strategic review of the CBD Business there remains a significant risk that the Company will be unable to realize sufficient cost savings, find sufficient sources of financing for on-going working capital requirements and other material obligations that are due or maturing in the short term or to negotiate extensions or alternate payment terms in respect of such debt. These material uncertainties cast significant doubt upon the Company's ability to meet its obligations as they come due and to continue as a going concern. As previously announced, US$5 million was payable to MXY Holdings LLC (" Moxie ") on or before February 5, 2020 (assuming a five-day cure period following January 31, 2020 ). The Company has been working to secure a deferral of this obligation and is also seeking short-term financing from certain of its key stakeholders in connection therewith. In addition to the Moxie payment, The Company and its subsidiaries have material obligations that are due or that are coming due in the near term. The Company has drawn all amounts available to it under the previously announced working capital backstop commitment provided by All Js Greenspace LLC (" All Js ") and Chiron Ventures Inc. (collectively, the " Backstop Parties ") for purposes of funding the Company's operations. In addition, for purposes of funding the Company's operations All Js advanced approximately US$1.5 million from its portion of the previously announced US$52.3 million debenture repayment backstop commitment. Notwithstanding the US$1.5 million advance from All Js, there is no guarantee that either of the Backstop Parties will permit additional funds to be drawn from the debenture repayment backstop commitment for purposes of funding the Company's operations. Amounts drawn from the debenture backstop commitment to fund operations reduce the funds available to refinance the debentures upon maturity. The Company has ceased negotiations with United Capital Partners LLC (" UCP ") in respect of the previously announced potential debt financing transaction with UCP of up to US$50 million . The Company is actively pursuing alternative sources of financing, but investors are cautioned that additional financing may not be available when needed or, if available, the terms of such financing might not be favourable to the Company and might involve substantial dilution to existing shareholders. Failure to raise capital when needed will have a material adverse effect on the Company's ability to pursue its business strategy, and accordingly could negatively impact the Company's business, financial condition and results of operations. Failure to obtain sufficient financing and/or to successfully execute on one or more strategic alternative transactions could result in the Company defaulting on its obligations and force the Company or its subsidiaries into reorganization, bankruptcy or insolvency proceedings.
US Securities Law Disclaimer
This announcement does not constitute an offer, invitation or recommendation to subscribe for or purchase any securities and neither this announcement nor anything contained in it shall form the basis of any contract or commitment. In particular, this announcement does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States , or in any other jurisdiction in which such an offer would be illegal.
The securities referred to herein have not been and will not be registered under the Securities Act of 1933, as amended (the " Securities Act ") or under the securities laws of any state or other jurisdiction of the United States and may not be offered or sold, directly or indirectly, within the United States , unless the securities have been registered under the Securities Act or an exemption from the registration requirements of the Securities Act is available.
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SOURCE Green Growth Brands
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