Hiku Brands Company Ltd. (fka DJACF)

[JohnCM]

Clarification and Retraction, Hiku Brands and WeedMD to Merge in Transformational Transaction to Create Vertically Integrated Cannabis Company


April 19, 2018 14:07 ET

The Transaction combines a premium cannabis brand house and retail focused operator in Hiku, with the significant production capabilities and differentiated medical brand in WeedMD

Vertically integrated operations over the entire cannabis value chain
Coast-to-coast and diversified cannabis cultivation platform with four facilities, and planned expansion capacity to have the ability to produce over 56,000 kg by mid-2019

Brings together an experienced management team with leading capabilities in branding, marketing, retail and cannabis production

WeedMD shareholders to receive 1.4185 common shares of Hiku for each share of WeedMD

TORONTO, April 19, 2018 (GLOBE NEWSWIRE) -- Hiku Brands Company Ltd. (“Hiku”) (CSE:HIKU) and WeedMD Inc. (TSX-V:WMD) (OTC:WDDMF) (FSE:4WE) (“WeedMD”), are at the request of IIROC, providing a clarification to their joint press release of earlier today. The companies re-affirm that they are pleased to announce that today they have entered into a definitive agreement (the “Arrangement Agreement”) to merge both companies (the “Transaction”).

The Transaction combines two highly-complementary businesses and creates a vertically integrated company. Upon completion of the Transaction, existing Hiku and WeedMD shareholders will own approximately 51.75% and 48.25% of the combined company, respectively, on a fully-diluted basis. Upon closing of the Transaction, it is anticipated that the common shares of the pro forma resulting entity will be listed on the TSX Venture Exchange (“TSX-V”), subject to regulatory approvals. Joint management will be hosting a conference call on Friday, April 20, 2018 beginning at 10:00AM EST. See end of the press release for details.

Highlights of the Transaction:

Highly Complementary Strengths: The Transaction combines Hiku’s portfolio of brands, visionary marketing and experiential retail stores with WeedMD’s scalable cannabis production capabilities, deep genetics library, and innovative research and development initiatives
Visionary Leadership with Significant Experience: Experienced management team with leading capabilities in branding, marketing, retail and cannabis production

Dynamic Retail Growth Across Canada: The combined company plans to aggressively pursue the expansion of its existing retail store network, including the addition of legal retail cannabis stores and online cannabis sales channels where permitted in British Columbia, Alberta, Saskatchewan and Manitoba where Tokyo Smoke was conditionally awarded one of four master licenses for retail cannabis sales

Diversified Cannabis Cultivation: This combination brings together four indoor and greenhouse growing facilities in Ontario and British Columbia, with the option for future expansion on more than 100 acres of property at the existing sites. Current planned capacity could exceed 56,000 kg by mid-2019 upon completion of WeedMD's 610,000 square foot greenhouse expansion at its 14 acre greenhouse facility in Strathroy, Ontario

Extensive and Unique Genetics: Deep library of unique cannabis genetics is the basis for premium cannabis products in both the adult-use and medical markets

Enhanced Capital Markets Profile: Increased scale of the combined company will enhance its capital markets profile, in addition, the combined entity will be listed on TSX-V, subject to regulatory approvals
Expanded Platform for Future Growth: Together, the combined company will have substantial and burgeoning infrastructure to support the acceleration of future product development and expansion

Synergies from being Vertically Integrated: Having branded stores, cannabis dispensing stores, and owned production facilities ensures a vertically integrated company that can best drive greater margins in the wholesale and retail markets of the new cannabis sector
Transaction Summary

The Transaction will be carried out by way of a plan of arrangement of WeedMD under the Business Corporations Act (Ontario), pursuant to which WeedMD shareholders will receive 1.4185 Hiku common shares (each, a “Hiku Share”) in exchange (the “Exchange Ratio”) for each WeedMD common share (a “WeedMD Share”), representing the equivalent of C$2.52 per WeedMD Share and a premium of 60% based on the closing prices of Hiku Shares on the Canadian Stock Exchange (“CSE”) and the WeedMD Shares on the TSX-V on April 18, 2018, and a premium of 79% based on the 20-day volume-weighted-average-price (“VWAP”) of the Hiku Shares on the CSE and WeedMD Shares on the TSX-V as of April 18, 2018.

In addition, each outstanding option and warrant to purchase a WeedMD Share will be exchanged for an option or warrant, as applicable, to purchase a Hiku Share, based upon the Exchange Ratio. Assuming no convertible securities of WeedMD are exercised prior to the completion of the Transaction, Hiku will issue approximately 142 million Hiku Shares in exchange for the WeedMD shares to be exchanged pursuant to the Transaction.

The implementation of the Transaction will be subject to the approval of at least 66 2/3% of the votes cast by holders of WeedMD Shares at the annual and special meeting of WeedMD shareholders expected to take place in June 2018. In addition to the WeedMD shareholder approval, the Transaction is also subject to the receipt of certain regulatory, court and stock exchange approvals and certain other closing conditions customary in transactions of this nature.

The Arrangement Agreement has been unanimously approved by the boards of directors of each of WeedMD and Hiku. The financial advisor to Hiku, BMO Capital Markets, has provided an opinion to the board of directors of Hiku that, subject to the assumptions, limitations and qualifications set out in such opinion, the Exchange Ratio provided for in the Arrangement Agreement is fair, from a financial point of view, to Hiku.

Eight Capital has provided a fairness opinion to the board of directors of WeedMD that, subject to the assumptions, limitations and qualifications set out in such fairness opinion, the consideration to be received by WeedMD shareholders in connection with the Transaction is fair, from a financial point of view, to such WeedMD shareholders.

The directors and senior officers of WeedMD have entered into customary voting support agreements to vote in favour of the Transaction.

The Arrangement Agreement includes certain non-solicitation covenants subject to the right of WeedMD and Hiku to accept a superior proposal in certain circumstances, with both Hiku and WeedMD having a five-business day right to match any such superior proposal for the other party. The Arrangement Agreement also provides for the payment of a C$10 million mutual termination fee if the Transaction is terminated in certain specified circumstances.

Furthermore, upon completion of the Transaction, Alan Gertner will remain the Chief Executive Officer of Hiku and Keith Merker, currently the Chief Financial Officer of WeedMD, will assume the position of President of Hiku. It is expected that the combined company will have a seven-member board, with three members to be appointed by Hiku, three members to be appointed by WeedMD, and one member to be mutually agreed to by Hiku and WeedMD.

The combination of Hiku and WeedMD creates a premium cannabis brand house with fully vertically integrated operations, an expanding network of retail stores, a growing medical business and four scalable cannabis production facilities, two of which are currently licensed. As a result of the Transaction, Hiku will operate a diverse cannabis supply chain that includes a large portfolio of unique genetics for its growing brand portfolio and emerging nationwide retail sales channels. The entity combines Hiku’s strength in retail and branding – ensuring a high quality, consistent and educational consumer experience in the adult-use cannabis market – with WeedMD’s existing service and quality in the medical market.

“Our vision at Hiku has always been that cannabis is a consumer product – in which brands, retail and customer experience will ultimately win,” said Alan Gertner, Chief Executive Officer of Hiku. “The combination of Hiku and WeedMD creates a cannabis company capable of fulfilling the vision of delivering the best in class experiences from in-store to product, from medical to adult-use, but also capturing full retail and wholesale margins.”

Bruce Dawson-Scully, Chief Executive Officer of WeedMD, said, “WeedMD was founded on the principles of product and patients first. Our goal since inception has been on procuring world class genetics, cultivating premium medical cannabis, and delivering it with best-in-class service to our valued patient base. We look forward to the next step in WeedMD’s journey by merging with Hiku, a complimentary group that furthers our mission by bringing our focus and passion into a more robust platform. Having access to brands and a growing retail footprint to execute on our growth plan together with our cultivation and existing medical expertise is intended to ensure significant benefits to our shareholders and expected to present significant upside as Canada marches towards legalization.”

Hiku has built a portfolio of engaging cannabis brands, immersive retail experiences and handcrafted cannabis production. Hiku's Tokyo Smoke retail banner was awarded Brand of the Year at the 2017 Lift Cannabis Awards. In February 2018, Tokyo Smoke, Hiku’s wholly owned subsidiary, was awarded one of only four conditional master licenses for cannabis retail in Manitoba, an important milestone in Hiku’s Canada-wide cannabis retail expansion plans.

With a retail footprint led by Tokyo Smoke, cannabis production through DOJA’s ACMPR licensed facility, and Van der Pop’s female-focused educational platforms, Hiku houses a portfolio for cannabis in Canada’s adult-use market. WeedMD operates a 26,000 square foot indoor facility with over 1,500 kg of current production capacity and is fully funded for a large-scale production expansion of a 14-acre greenhouse on a 98-acre property representing the possibility for an increase to more than 50,000 kg of capacity upon completion of its 610,000 square foot greenhouse expansion. The combined companies create a brand-focused retail business with the ability to provide product quality and selection on par with the retail experience itself.

Further information regarding the Transaction will be included in WeedMD’s information circular that WeedMD will prepare, file and mail in due course to its shareholders in connection with the annual and special meeting of WeedMD shareholders to be held to consider the Transaction. All WeedMD shareholders are urged to read the information circular once it becomes available as it will contain additional important information concerning the Transaction. The Arrangement Agreement will be filed on the SEDAR profiles of Hiku and WeedMD on the SEDAR website at www.sedar.com. A copy of the transaction presentation will be available online at www.hiku.com.