TORONTO--(BUSINESS WIRE)--Subversive Capital Acquisition Corp. (NEO: SVC.A.U, SVC.WT.U; OTCQX: SBVCF) ("SCAC"), a special purpose acquisition company (SPAC), today announced it has entered into definitive transaction agreements (the “Agreements”) with global icon, entrepreneur and MONOGRAM founder, Shawn “JAY-Z” Carter, entertainment powerhouse Roc Nation, CMG Partners Inc. (Caliva), California’s most trusted cannabis brand and leading direct-to-consumer platform, and Left Coast Ventures, Inc. (Left Coast Ventures), a predominant cannabis and hemp company with low-cost manufacturing and a diversified portfolio of brands, to form TPCO Holding Corp. (The Parent Company) (the “Transaction”). SCAC is the largest SPAC in both cannabis and Canadian history and will seek to redefine the industry with a mission to both consolidate the California cannabis market and create an impactful global company.
Subversive Capital Acquisition Corp., the Largest Cannabis SPAC in History, Announces Transaction with Shawn “JAY-Z” Carter, Roc Nation, Caliva and Left Coast Ventures to Form The Parent Company
Shawn “JAY-Z” Carter, who will become The Parent Company’s Chief Visionary Officer following closing of the Transaction, said: “Although we know we can’t fully redeem the injustices created by the ‘war on drugs’, we can help shape a brighter and inclusive future. The brands we build will pave a new path forward for a legacy rooted in equity, access, and justice. We’re creating something people can trust and we’re investing in our future, our people, and our communities.”
SCAC’s Chairman, Michael Auerbach, said: “California is the most powerful cannabis economy in the world, and we have a unique opportunity to consolidate the market with The Parent Company. With its advanced infrastructure, industry leading operational efficiencies, proven strategy of brands, and cultural influence, The Parent Company is expected to be best positioned for the inevitable end of cannabis prohibition in the United States.”
Steve Allan, who will become The Parent Company’s CEO following closing of the Transaction, said: “In addition to building the most influential portfolio of cannabis and hemp brands in the world, The Parent Company’s vertical operational platform has been designed for growth and future mergers and acquisitions, forging a path to redefine the cannabis industry in California.”
The Parent Company Investment Highlights
- Proven Business Model with Attractive Valuation – Merger of two top California operators, Caliva and Left Coast Ventures, will create a fully vertically integrated platform with cultivation, manufacturing, brands, retail and delivery to support further brand development and an aggressive M&A strategy. Caliva and Left Coast Ventures expect combined pro forma revenues of $185 million in 2020 and $334 million in 2021. These acquisitions together constitute SCAC’s “qualifying transaction”.
- Progressive Operational Platform – Both Caliva and Left Coast Ventures have deep California roots that will allow The Parent Company to own its supply chain, enabling the company to leverage scale and profitably produce and distribute a broad portfolio of cannabis products for every consumer segment. The vertically integrated, omnichannel strategy is designed to maximize gross profit and EBITDA margins, scale consumer reach, generate proprietary consumer data, and beat the illicit market on price, quality, and convenience.
- Omnichannel Platform – Caliva has built and validated a scalable omnichannel business offering customers convenient express or scheduled delivery, and in-store or curbside pick-up, all through a single user-centric e-commerce platform, Caliva.com. This omnichannel e-commerce platform, offering both a robust portfolio of high-margin owned brands as well as third-party brands, is designed to allow The Parent Company to rapidly scale its direct-to-consumer reach to all Californians. Coupled with the powerful sourcing and low-cost manufacturing capabilities at both Left Coast Ventures and Caliva, this omnichannel platform will seek to offer consumers across California compelling pricing and convenience while remaining profitable for The Parent Company.
- Exclusive Brand Partnerships and Leading Cultural Influence – Brand strategy and marketing playbook led by Shawn “JAY-Z” Carter and Roc Nation, leveraging unparalleled cultural influence of leading artists and entertainers to build the most valuable and scalable brand IP in cannabis.
- Unrivaled Consumer Reach – Caliva currently reaches over 50% of consumers in California through their existing platform for delivery. The Parent Company is expected to have the greatest consumer reach of any cannabis company in California reaching 75% of consumers in the state by the end of 2021 and almost 90% by the end of 2022 through scaling of its omnichannel platform.
- Strong Balance Sheet – SCAC currently holds approximately $575 million in cash-in-trust, which would make The Parent Company one of the most well-capitalized cannabis companies in the United States assuming no redemptions. The Parent Company expects to pursue an aggressive M&A strategy to accelerate growth, market share gains, and profitability.
- Industry-Defining Social Impact – Led by Shawn “JAY-Z” Carter, The Parent Company will fund The Parent Company Social Equity Ventures with an initial target of $10 million and an annual contribution of at least 2% of its net income to invest in minority-owned and Black-owned cannabis businesses and contribute to the effort to rectify the wrongs of prohibition through initiatives that are working toward meaningful change in the criminal justice system. These initiatives will include bail reform, industry vocational training, job placement, expungement clinics, and Social Equity application support.
- Experienced Management Team – The Parent Company will be led by an experienced executive team with deep knowledge of the combined companies, the cannabis industry, and the consumer packaged goods, technology and financial industries. Following the closing of the Transaction, The Parent Company will be led by:
- Steve Allan as CEO
- Brett Cummings as CFO, President of Left Coast Ventures
- Dennis O’Malley as COO, President of Caliva
- Shawn “JAY-Z” Carter as Chief Visionary Officer
The Parent Company’s Board of Directors is expected to include:
- Michael Auerbach, Founder and Chairman of SCAC
Subversive Capital Acquisition Corp., a special-purpose company that’s growing in the cannabis business, said it acquired two California companies and named Shawn “Jay-Z” Carter as its chief visionary officer.
Subversive is buying Caliva, a cannabis brand with direct-to-consumer sales, and Left Coast Ventures Inc., a producer of cannabis and hemp products. The deals will create a new holding company and include US$36.5 million of equity commitments from new and existing shareholders.
The holding company, which will be called TPCO Holding Corp., expects revenue from the combined entities to be US$185 million in 2020 and US$334 million next year. The deals’ aim is to “both consolidate the California cannabis market and create an impactful global company.” The new company aims to reach 75 per cent of California consumers and Jay-Z will run its brand strategy and work on a related project to reform criminal justice.
The cannabis industry has seen a flurry of transactions as more U.S. states open up even though marijuana remains illegal on the federal level. With efforts to decriminalize it nationally, investors are trying to establish companies that can emerge as the cannabis equivalent of a Budweiser or a Coca-Cola.
Jay-Z, a top-selling rapper who has started his own music label, clothing line and chain of sports bars, may help the brands develop the necessary cachet. Subversive described his post as a newly created position that focuses on the company’s strategic agenda and leading growth initiatives. He previously launched his own line of cannabis with Caliva and served as its chief brand strategist.
“Although we know we can’t fully redeem the injustices created by the ‘war on drugs,’ we can help shape a brighter and inclusive future,” Jay-Z said in a statement. “The brands we build will pave a new path forward for a legacy rooted in equity, access, and justice.”
Drug laws, particularly for marijuana, have long been blamed for disproportionately incarcerating Black people. TPCO will seek to establish US$10 million in funding and dedicate 2 per cent of its annual net income to invest in cannabis businesses owned by Black people and other minorities and initiatives to promote justice reforms.
Transaction Terms and Conditions
Pursuant to the terms of the definitive transaction agreement with respect to Caliva (the “Caliva Agreement”), SCAC will directly purchase each share of capital stock of Caliva owned by Canadian shareholders and, immediately thereafter, Caliva will merge with a newly-formed wholly-owned Delaware subsidiary of SCAC, with Caliva continuing as the surviving entity and becoming a wholly-owned subsidiary of SCAC (collectively, the “Caliva Transaction”). Under the terms of the Caliva Agreement, upon closing of the Caliva Transaction the Caliva shareholders will receive aggregate consideration of approximately $282.9 million (subject to certain adjustments and holdbacks).
Left Coast Ventures Transaction
Pursuant to the terms of the definitive transaction agreement with respect to Left Coast Ventures (the “LCV Agreement”), SCAC will acquire Left Coast Ventures by merging such entity with and into a newly-formed wholly-owned subsidiary of SCAC, with Left Coast Ventures continuing as the surviving entity and becoming a wholly-owned subsidiary of SCAC (the “LCV Transaction”). Under the terms of the LCV Agreement, upon closing of the LCV Transaction the Left Coast Ventures shareholders will receive aggregate consideration of approximately $142.2 million (subject to certain adjustments and holdbacks) less the Sisu Consideration (as defined below). Left Coast Venture shareholders will receive consideration in the form of newly issued SCAC Common Shares, subject to exceptions for certain U.S. persons that will receive consideration in cash. In connection with the consummation of the LCV Transaction, SCAC has also agreed to repay in full certain promissory notes of LCV for an aggregate amount equal to $15.0 million (the “LCV Note Repayment”) which LCV Note Repayment will adjust the consideration paid to Left Coast Ventures shareholders on closing.
In addition, the Left Coast Venture shareholders may receive up to approximately 3.9 million additional SCAC Common Shares in the event the VWAP of SCAC Common Shares reaches $13.00, $17.00 and $21.00 within three years of closing (with one-third of such shares delivered at each such price threshold).
Concurrently with the completion of the LCV Transaction, Left Coast Ventures will acquire Sisu Extraction, LLC (“Sisu”) pursuant to an agreement and plan of merger dated November 23, 2020 (the “Sisu Agreement”). Pursuant to the terms of the Sisu Agreement, the transaction will be structured as a merger of a newly-formed wholly-owned subsidiary of Left Coast Ventures with and into Sisu, with Sisu continuing as the surviving entity. Under the terms of the Sisu Agreement, upon closing of the Sisu Transaction the Sisu members will receive aggregate consideration of approximately $76.3 million of consideration (subject to certain adjustments and holdback, the “Sisu Consideration”). Sisu members will receive consideration in the form of $15.0 million in cash and the remainder in newly issued SCAC Common Shares, subject to exceptions for certain U.S. persons that will receive consideration in cash.
OG Enterprises Transaction
Pursuant to the terms of the definitive transaction agreement (the “OG Enterprises Agreement”) with respect to OG Enterprises Branding, Inc. (“OG Enterprises”), Caliva will acquire the remaining 50% interest in OG Enterprises, which is currently 50% owned by Caliva and 50% owned by an affiliate of Shawn “JAY-Z” Carter, by merging such entity with and into Caliva (the “OG Enterprises Transaction”), with Caliva continuing as the surviving entity. Under the terms of the OG Enterprises Agreement, upon closing of the OG Enterprises Transaction the affiliate of Mr. Carter will receive 5.0 million SCAC Common Shares and will have the contingent right to receive up to an additional 1.0 million SCAC Common Shares post-closing in the event the VWAP of SCAC Common Shares reaches $13.00, $17.00 and $21.00 within three years of closing (with one-third of such shares delivered at each such price threshold). The affiliate of Mr. Carter will enter into a lock-up agreement upon closing of the Transaction restricting sales of SCAC Common Shares for six months after the closing of the Transaction.
Roc Nation Transaction
Pursuant to the terms of the binding heads of terms agreement (the “Roc Agreement”) with respect to Roc Nation, LLC (“Roc Nation”), The Parent Company will become Roc Nation’s “Official Cannabis Partner”, Roc Nation will provide The Parent Company with special access and rights with respect to Roc Nation’s roster of artists and athletes and Roc Nation will promote The Parent Company’s brand portfolio and provide various services specifically described therein.
The Roc Agreement will be effective as of the consummation of SCAC’s qualifying transaction and will remain in effect for an initial period of three years, provided that The Parent Company and Roc Nation may elect to extend the term for an additional three years upon terms to be mutually agreed. Over the initial three year term, of the Roc Nation agreement, The Parent Company will pay to SC Branding, LLC the following consideration in SCAC Common Shares: (i) $25 million payable following commencement of the term; (ii) $7.5 million payable in respect of the second year of the term; and (iii) $7.5 million payable in respect of the third year of the term.
About Roc Nation
Roc Nation, founded in 2008 by JAY-Z, has grown into the world’s preeminent entertainment company. Roc Nation works in every aspect of modern entertainment, with recording artists, producers, songwriters, and more. Roc Nation’s client list includes some of the world’s most recognizable names in entertainment, from Rihanna and Rapsody to Buju Banton and Snoh Aalegra. Roc Nation is a full-service organization, supporting a diverse roster of talent via artist management, music publishing, touring, production, strategic brand development, and beyond. Roc Nation Sports was founded in 2013, bringing the organization’s full-service touch to athletes across the NFL, NBA, MLB, and global soccer. For further information, visit rocnation.com.
Caliva is a leading single-state cannabis operator in California. Founded in 2015, Caliva’s industry advantage comes from its vertical integration and direct-to-consumer platform. This direct-to-consumer experience enables customers to purchase cannabis at Caliva’s retail stores and place orders online for in-store pickup or same-day delivery straight to their door. Caliva’s plant-based solutions serve over 1 million customers and are designed to fit any lifestyle. Caliva’s commitment to compliance and quality reinforce its position as THE MOST TRUSTED NAME IN CANNABIS™. For more information visit caliva.com or follow along on Instagram, @GoCaliva.
About Left Coast Ventures
Headquartered in Santa Rosa, CA, Left Coast Ventures is a diversified cannabis and hemp company specializing in cultivation, extraction, manufacturing, brand development, and distribution. Left Coast Ventures and its subsidiaries are working to shape the future of the legal cannabis industry in the United States through acquisitions, investments, and incubation while building a respected portfolio of top shelf brands. Wholly owned, licensed, and/or distributed brands within the Left Coast Ventures portfolio include Marley Natural, Mind Your Head by Mickey Hart, Mirayo by Carlos Santana, JEF, SoulSpring, Provault, Chill, Headlight, Get Zen, New Frontier Brewing, and Yummi Karma/High Gorgeous.