SMG - Cansortium and RIV Capital Announce Business Combination | Benzinga
Combined Company's footprint will provide access to Florida, New York, Texas, and Pennsylvania, with significant growth potential and future regulatory catalysts in all four states
Combined Company expected to leverage Cansortium's robust operating expertise as well as RIV Capital's ~US$66 million1,2 cash balance, strengthening both its operating and financial position
Transaction has the support of ScottsMiracle-Gro, which intends to exchange its existing convertible notes in RIV Capital for a new class of non-voting Exchangeable Shares of Cansortium at closing, eliminating US$175 million3 of debt
TAMPA, Fla., May 30, 2024 (GLOBE NEWSWIRE) -- Cansortium Inc. (CSE:TIUM) (OTCQB:CNTMF) ("Cansortium"), a vertically integrated, multi-state cannabis company operating under the FLUENT™ brand, and RIV Capital Inc. (CSE:RIV) (OTC:CNPOF) ("RIV Capital"), a vertically integrated cannabis company operating the EtainTM brand in New York, are pleased to announce that they have entered into a definitive arrangement agreement (the "Arrangement Agreement") pursuant to which Cansortium will acquire all of the issued and outstanding Class A common shares (the "RIV Capital Shares") of RIV Capital in exchange for Cansortium Shares (as defined below) (the "Transaction").
Under the terms of the Arrangement Agreement, RIV Capital shareholders (the "RIV Capital Shareholders") will receive 1.245 of a common share of Cansortium (the "Cansortium Shares") in exchange for each RIV Capital Share held. Upon closing of the Transaction, shareholders of Cansortium (the "Cansortium Shareholders") are expected to hold approximately 51.25% of the combined business of Cansortium and RIV Capital (the "Combined Company") and the RIV Capital Shareholders and The Hawthorne Collective, Inc. ("The Hawthorne Collective"), together, are expected to hold approximately 48.75% of the Combined Company, each on a fully diluted basis.
1 Cash balance of RIV Capital as of March 31, 2024.
2 All references to "$" in this news release are to United States dollars.
3 Based on gross proceeds received in U.S. dollars upon issuance of the convertible notes. The convertible notes are denominated in Canadian dollars with a total outstanding principal amount of approximately C$219.7 million.
Key Transaction Highlights
- Positioned in Key U.S. Markets: The Combined Company will be geographically diversified across the eastern U.S., spanning four key states (Florida, New York, Texas and Pennsylvania), positioning the Combined Company to cover approximately 25% of the U.S. population. These limited license markets in which the Combined Company is expected to hold a strong position have well-staged regulatory catalysts in the near and medium term.
- Bolstering Balance Sheet: The Combined Company is expected to be well capitalized with a pro forma cash balance of approximately US$74 million as of March 31, 2024, in a capital scarce environment, in order to enable the Combined Company to fund highly accretive growth. The Hawthorne Collective's intended exchange of its existing convertible notes in RIV Capital for a new class of non-voting exchangeable shares of Cansortium will eliminate US$175 million of debt, which is expected to fundamentally transform the Combined Company's balance sheet.
- Operational Efficiencies: Cost synergy opportunities are estimated to be approximately US$5-10 million annually over the next few years, which are expected to be realized from anticipated cultivation, processing and operating efficiencies, corporate integration and eliminating duplicative public company costs in the Combined Company.
- Strategic Partnerships: Strategic relationship with The Scotts Miracle-Gro Company ("ScottsMiracle-Gro") (NYSE:SMG) through its investment in RIV Capital via its wholly-owned subsidiary, The Hawthorne Collective and through innovative growing products sold by its wholly-owned subsidiary, The Hawthorne Gardening Company (together with The Hawthorne Collective, "Hawthorne"). The Hawthorne Collective intends to exchange its existing convertible notes in RIV Capital for a new class of non-voting exchangeable shares of Cansortium at closing, further strengthening and reinforcing its relationship with the Combined Company.
- Scalable Talent-Base: Expanded talent-base through the combination of Cansortium and RIV Capital management and operating personnel. The Combined Company will seek to leverage Cansortium's operating expertise and best practices across its footprint.
Upon closing of the Transaction, the Combined Company is expected to operate in four of the largest states by population in the U.S. – Florida, New York, Texas, and Pennsylvania – creating a strategic operating footprint with significant potential growth opportunities in the years ahead. Operations in these states will be comprised of 8 cultivation and processing facilities and 42 retail dispensaries.
The Combined Company will operate under the Cansortium name and the Cansortium Shares will continue to trade on the Canadian Securities Exchange (the "CSE") under the symbol "TIUM.U" and on the OTCQB Venture Market under the symbol "CNTMF". Upon closing of the Transaction, it is expected that the Combined Company will be headquartered in Tampa, Fla., which is the current location of Cansortium's corporate offices, and Robert Beasley, the current Chief Executive Officer of Cansortium, will act as Chief Executive Officer of the Combined Company.
Management Commentary
"The plan to bring together these two companies with core strengths in key growth states is expected to position us to drive near-term synergies, capitalize on opportunities for long-term value creation while continuing to provide high-quality service to customers who call Florida and New York home with the FLUENTTM brand experience." said Robert Beasley, Chief Executive Officer of Cansortium. "Upon consummation of the Transaction, we believe the Combined Company will be able to leverage balance sheet liquidity and the ability to opportunistically allocate capital to growth initiatives building upon the strength of our existing operating platform, in addition to a pathway for Cansortium to lead in New York's emerging adult-use market. As a Combined Company, we will continue to focus on growth and profitability while relying on our core principles in cultivation, operating efficiencies and inventory optimization to deliver strong cash flows for shareholders."
William Smith, Executive Chair of Cansortium, said, "I view joining forces with RIV Capital as a natural progression in the expansion of Cansortium. With the addition of the New York cannabis market, Cansortium is expected to hold the distinction of operating in 4 of the 5 highest population states in the U.S. following the closing of the Transaction. Additionally, the resources and market expertise that are expected to be leveraged from RIV Capital and Hawthorne will help position Cansortium to capitalize on the inevitable regulatory changes expected in the U.S. cannabis industry."
Mike Totzke, interim Chief Executive Officer and Chief Operating Officer of RIV Capital, said, "The Combined Company will enable RIV Capital to deliver on its vision of becoming an established multi-state operator, capable of deploying capital for strategic investments beyond New York. In an environment where state-issued cannabis licenses are limited, Cansortium opens doors in important growth markets in the U.S. Additionally, Cansortium has a proven operating model that can bring efficiencies and economies of scale to RIV Capital's cultivation and dispensary operations."
"Through its relationship with RIV Capital, Hawthorne has used its research and development capabilities to recommend innovative growing products to support in the buildout of EtainTM and adult-use in New York, and we look forward to providing continued support to this exciting, larger platform," said Chris Hagedorn, President of Hawthorne and director of RIV Capital. "Hawthorne and ScottsMiracle-Gro are fully supportive of the deal, and we expect that the Combined Company will unlock value drivers to the benefit of our shareholders as well as those of RIV Capital and Cansortium."
Financial Highlights
Select financial highlights of the Transaction are currently expected to be4:
- 2023 pro forma revenue: US$105 million
- 2023 Cansortium Adjusted EBITDA5: US$27 million
- Cash and cash equivalents as of March 31, 2024: US$74 million
- Combined Company's cash position net of debt as of March 31, 2024: US$5 million6
- Total steady state addressable market of the Combined Company's footprint: US$13 billion7
4 Unless otherwise stated, the pro forma financial information referred to in this news release, which gives effect to the Transaction as if it had closed on December 31, 2023, was prepared utilizing accounting policies that are consistent with those disclosed in the audited consolidated financial statements of Cansortium for the year ended December 31, 2023 and RIV Capital for the nine months ended December 31, 2023, and year ended March 31, 2023.
5 Adjusted EBITDA is a non-IFRS measure. See "Non-IFRS Measures" section below.
6 Cash position net of debt is a non-IFRS measure. See "Non-IFRS Measures" section below. The cash position net of debt is equal to the cash balance of RIV Capital as of March 31, 2024, plus the cash balance of Cansortium as of March 31, 2024, less Cansortium's outstanding debt of US$69 million as of March 31, 2024. Cansortium's outstanding debt of US$69 million consists of a US$66 million senior secured term loan, a US$3.1 million convertible debenture and US$0.4 million of combined auto, equipment and insurance financing or loans and excludes employee retention tax credits related liability and the convertible note issued in conjunction with the resolution of the Smith Transaction. The cash position net of debt also assumes the closing of the Hawthorne Notes Exchange.
7 Sum of Florida market size per BDSA June 2023 market forecasts, New York market size per MGP Consulting New York illicit Cannabis Market Absorption Analysis and Pennsylvania market size per MJBiz 2023 Factbook. Note, this amount does not ascribe value to the Texas market.
Transaction Summary and Shareholder Approvals
The Transaction will be effected by way of a court-approved plan of arrangement pursuant to the Business Corporations Act (Ontario) (the "Arrangement") requiring the approval of at least two-thirds of the votes cast by the RIV Capital Shareholders voting at an annual general and special meeting of shareholders to consider the Transaction, which is expected to be held in the third quarter of 2024. Certain of RIV Capital's directors and officers and a significant shareholder holding an aggregate 20.2% of the RIV Capital Shares have entered into voting support agreements with Cansortium to, among other things, vote in favor of the Transaction.
The closing of the Transaction is subject to shareholder and court approvals, as well as the receipt of all required regulatory approvals, the closing of the Hawthorne Notes Exchange (as defined below), the completion of the Smith Transaction (as defined below), the requirement for RIV Capital to maintain a certain minimum cash balance as of a specified date prior to closing and the satisfaction of certain other closing conditions customary in transactions of this nature. For further details relating to the Hawthorne Notes Exchange and the Smith Transaction, see the "Concurrent Transactions" section below. The Arrangement Agreement includes customary provisions, including non-solicitation, "fiduciary out" and "right to match" provisions as well as a termination fee of US$3,000,000 payable by RIV Capital to Cansortium and a termination fee of US$5,000,000 payable by Cansortium to RIV Capital, in certain specified circumstances.
Assuming timely receipt of all necessary court, shareholder, regulatory and other third-party approvals, the closing of the Hawthorne Notes Exchange and the completion of the Smith Transaction and the satisfaction of all other conditions, closing of the Transaction is expected to occur in the fourth quarter of 2024.
A description of the Transaction will be set forth in the management information circular of RIV Capital (the "RIV Capital Circular"), which will be mailed to RIV Capital Shareholders and filed with the Canadian securities regulators on System for Electronic Document Analysis and Retrieval + ("SEDAR+").
In connection with the Hawthorne Notes Exchange, which is expected to close on the business day prior to the closing date of the Transaction, Cansortium will hold an annual general and special meeting of shareholders (the "Cansortium Meeting") where the Cansortium Shareholders will be asked to consider a special resolution authorizing an amendment to its articles of incorporation (the "Amendment Proposal") to create a new class of non-voting exchangeable shares (the "Exchangeable Shares"). The Exchangeable Shares will not carry voting rights, rights to receive dividends or other rights upon dissolution of Cansortium, but will be convertible into Cansortium Shares on a one-for-one basis. The Amendment Proposal must be approved by at least two-thirds of the votes cast by Cansortium Shareholders voting at the Cansortium Meeting. Certain of Cansortium's directors and officers and significant shareholders holding approximately 26.8% of the voting power of the issued and outstanding Cansortium Shares and proportionate voting shares have entered into voting support agreements with RIV Capital to, among other things, vote in favor of the Amendment Proposal.
A description of the the Amendment Proposal, the Smith Transaction, the Hawthorne Notes Exchange and the Hawthorne Exchange Agreement (as defined below) will be set forth in the management information circular of Cansortium (the "Cansortium Circular"), which will be mailed to Cansortium Shareholders and filed with the Canadian securities regulators on SEDAR+ at www.sedarplus.ca. The Cansortium Meeting is expected to be held in the third quarter of 2024 / concurrently with the meeting of shareholders of RIV Capital.
Approvals and Recommendation
The Transaction has been unanimously approved by the boards of directors of Cansortium (the "Cansortium Board") and RIV Capital (the "RIV Capital Board"). The RIV Capital Board has unanimously determined, after receiving financial and legal advice along with the Independent Fairness Opinion (as defined below) and following the receipt and review of a unanimous recommendation of the RIV Capital Strategic Growth Committee, that the Transaction is in the best interests of RIV Capital and is fair to the RIV Capital Shareholders and the RIV Capital Board recommends that the RIV Capital Shareholders vote in favor of the Transaction.
Each of Moelis & Company LLC and INFOR Financial Inc. provided the RIV Capital Board with an opinion, dated May 29, 2024, to the effect that, as of the date of such opinion, the consideration payable pursuant to the Transaction is fair, from a financial point of view, to the RIV Capital Shareholders, ...