Rollup Strategy initiated.
This is the first acquisition and on closing puts NHL on an immediate revenue path.
Look for more of this.
Also check out Zeke Shortes LinkedIn profile.
He's NHL's new partner/investor in New Mexico.
Nutritional High to acquire 51% of Zephyr
2015-04-10 07:36 ET - News Release
Mr. David Posner reports
NUTRITIONAL HIGH ANNOUNCES NEW MEXICO ACQUISITION
Nutritional High International Inc. has entered into a binding letter of intent (LOI) dated April 8, 2015, to acquire a 51-per-cent equity interest in Zephyr Management Inc., an exclusive management company being established to provide management and real estate services to Sacred Garden, an entity licensed to produce medical cannabis in New Mexico.
David Posner, chief executive officer of Nutritional High, commented: "Nutritional High continues to execute on our business strategy in order to capitalize on the burgeoning marijuana industry in the United States. In addition to our progress in Colorado and Illinois, the acquisition of Zephyr will represent a landmark cross-border transaction enhancing our presence in the rapidly growing marijuana sector in the United States. The transaction will immediately bring a profitable business under our umbrella and will provide a licensed platform to offer Nutritional High's edible products to the New Mexico medical market. Nutritional High is excited to contribute its resources and expertise to help expand Sacred Garden's business, and is looking forward to working with its management team."
The transaction is conditional on, among other things, the approval of the New Mexico Department of Health (DOH), a department responsible for implementing Lynn and Erin Compassionate Use Act, which governs the beneficial use of medical cannabis in the state of New Mexico.
About Sacred Garden
Sacred Garden, a not-for-profit entity, is one of the 24 licensed entities under the act to produce medical cannabis in the state of New Mexico from seed to sale. All licensed entities in New Mexico are not for profit. Sacred Garden was formed in September, 2010, and has grown to be one of the dominant players in the New Mexico market. Sacred Garden currently owns and operates a cultivation operation and medical cannabis dispensary in Santa Fe (the population of Santa Fe metropolitan area is approximately 144,000). The DOH, a department responsible for implementing the act, limits the number of cannabis plants produced by one producer to 150 per facility. Sacred Garden was recently approved by the DOH to increase its plant count to 450 (maximum allowed), and to capitalize on this opportunity Sacred Garden will replace the existing cultivation centre in Santa Fe with a larger one, which will effectively provide 14,000 square feet of the cultivation space. Sacred Garden will also construct an additional medical cannabis dispensary in Albuquerque (population of Albuquerque metropolitan area is approximately 908,000).
On the basis of the unaudited financial statements for the year ended on Dec. 31, 2014, Sacred Garden had revenue of $1.7-million and net income of approximately $245,000, with approximately 70 per cent of its revenue derived from the sales of the dried cannabis flower. Nutritional High will assist Sacred Garden, though Zephyr, to capitalize on the growth opportunities presented by an increase in the permitted plant count. Nutritional High believes the New Mexico edible product market is undersupplied and intends to bring its expertise in developing marijuana-infused products to capitalize on the opportunity by supporting Sacred Garden's expansion plans in become a leading manufacturer of high-quality edible products with consistent THC levels.
Transaction terms
The transaction is expected to close on May 31, 2015, upon the parties entering into definitive agreement and a shareholder agreement, which shall include customary provisions. Closing of the transaction is subject to the parties obtaining all requisite governmental, regulatory, shareholder and board approvals of, exemptions from and consents to the transaction, including approval of the regulatory authorities of the state of New Mexico.
In consideration for the transaction, at closing, the company shall issue to Zeke and Kelly Shortes 20 million common shares in the capital of the company. The consideration shares will be subject to the following escrow provisions: regulatory escrow, whereby 75 per cent of the consideration shares will be placed into a standard three-year escrow pursuant to the policies of the Canadian Securities Exchange, and performance-based escrow, whereby 25 per cent of the consideration shares will be placed into escrow until such time Zephyr earns a normalized gross revenue of a minimum of $3.5-million (U.S.) on the basis of the trailing 12-month period and net earnings of Zephyr are at least $500,000 (U.S.) (before deducting for any interest payable pursuant to the purchaser's loan for the same trailing 12-month period. The company will also issue a finders' fee equal to 1.5 per cent of the consideration shares to an arm's-length party.
On or prior to the closing date, the company shall also provide loan to Zephyr a first secured loan in the amount of $500,000 for a period of five years, bearing an interest rate of 12 per cent per annum. The proceeds of the purchaser's loan will be used by Zephyr for the build out of the new dispensary and a new cultivation center in Albuquerque and general working capital. The vendors shall also retain 6,000 non-voting preferred shares. Each preferred share is redeemable by the holder at a price of $100 per preferred share and carries a preferred dividend rate of $12 per annum, payable quarterly.
Prior to or on the closing date, Mr. Shortes, president of Sacred Garden, shall have entered into an employment agreement with Zephyr for a period of five years, on terms and conditions satisfactory to the company and Mr. Shortes, each acting reasonably. The employment agreement will provide a monthly salary of $15,000 (U.S.) per month; for severance equal to four times the annual salary in the circumstance that Mr. Shortes is terminated without cause, payable in four equal instalments over 12 months, and that Mr. Shortes will enter into a non-competition/non-solicitation agreement.
Closing of the transaction is also subject to a number of conditions including the following:
Entry into a management agreement between Sacred Garden and Zephyr to oversee and supervise production, distribution and marketing for Sacred Garden, co-ordinate facility operations and maintenance, and perform periodic audit and process testing to ensure compliance with corporate policy and applicable regulatory requirements in exchange for fees to be negotiated;
Zephyr and the company to enter into an intellectual property licensing agreement whereby NHII shall be paid a royalty of 10 per cent of any gross sales to other dispensaries of any marijuana-infused products which use NHII's brands;
Entry into a shareholder agreement in a form satisfactory to the company which will include usual rights of first refusal provisions, shotgun provisions, negative controls on the operation of the business of Zephyr, including a provisions that if Mr. Shortes is terminated without cause within 24 months of the closing date, the vendors may repurchase from the company 51-per-cent interest in Zephyr in exchange for 16.75 million consideration shares or the equivalent amount in cash. If Mr. Shortes is terminated without cause and the vendors do not exercise the option to repurchase 51-per-cent interest in Zephyr, the vendors may require the purchaser to purchase their 49-per-cent equity interest in Zephyr at fair market value, which purchase price will be paid half in cash and half in common shares of the company;
Approval of the DOH of the transaction as contemplated above;
Satisfactory due diligence review by the company.
There is no assurance that the transaction will be approved by the DOH, that the parties will obtain all requisite approvals for the transaction, or that the company will be able to complete the transaction on terms favourable to the company or at all.
Option issuance
The company also wishes to announce the issuance of 150,000 options to a consultant to the company. Each option is exercisable into one common share of the company at a price of 10 cents per common share for up to five years.
We seek Safe Harbor.
