MONTRÉAL –
Canada House Cannabis Group Inc. (CSE: CHV) (“Canada House” or the “Company”), a fully integrated medical cannabis company, and Montréal Cannabis Médical Inc. (“MTL Cannabis”), a Montreal based “flower-first” Licensed Producer, today announced the entering into of a second restated share exchange agreement (the “Second Restated SEA”) in respect of the Company’s completion of the second tranche of its previously announced acquisition of all of the issued and outstanding shares of MTL Cannabis (the “Transaction”).
Transaction Summary
The first stage of the Transaction closed on August 30, 2022 and resulted in the acquisition by the Company of approximately 24.99% of the issued and outstanding shares of MTL Cannabis in in exchange for 49.99% of the issued and outstanding common shares (“Common Shares”) of the Company (the “Tranche One Consideration Shares”) (see the press release of the Company dated August 30, 2022). The Second Restated Share Exchange Agreement continues to provide for the acquisition by the Company of the remaining 75.01% of the issued and outstanding shares of MTL Cannabis in a second tranche (the “Tranche Two Closing”) on, except as described in the MIC (as defined below), substantially equivalent economic terms for the second tranche as set forth in the restated Share Exchange Agreement dated as of July 22, 2022. In consideration for the shares of MTL Cannabis to be acquired at the Tranche Two Closing, the Company is to issue such number of Common Shares (the “Tranche Two Consideration Shares”) as when added to the Tranche One Consideration shares equals 80.0% of the issued and outstanding shares of the Company on a post-issuance basis.
The percentages of Common Shares noted above will be subject to anti-dilution adjustments in favour of the vendors of the MTL Cannabis shares wherein additional Common Shares will be issued up to 49.99% of the Common Shares prior to the Subsequent Closing and up to 80.0% following the Subsequent Closing in the event of the issuance of Common Shares upon the conversion of the principal and accrued interest of the Company’s $6.5 million convertible debenture (the “Archerwill Debenture”) issued to Archerwill Investments Inc. (“Archerwill”) on August 5, 2020. Similar anti-dilution protection will apply in the event warrants issued to Archerwill on the repayment of the debenture are exercised for Common Shares, except that only 50% of such Common Shares shall be subject to ant-dilution protection (refer to the MIC for further information).
The Tranche Two Closing is subject to a number of conditions customary for a transaction of this nature, including but not limited to (i) approval by the shareholders of Canada House of the acquisition at the Special Meeting and (ii) receipt of applicable third party and regulatory approvals including the approval of the Canadian Securities Exchange (the “CSE”). The Tranche Two Closing will occur as soon as possible following the satisfaction of all such closing conditions.
The Transaction constitutes a “reverse takeover” of the Company and, upon the Tranche Two Closing, the Company will change its legal name to and operate as MTL Cannabis Corp., with its Common Shares to trade on the CSE under the ticker symbol “MTLC” or such other name and ticker symbol as the Company and MTL Cannabis may approve and be deemed acceptable to the regulatory authorities.
Shareholder Meeting and Voting Support
Approval for the Transaction will be sought from the Company’s shareholders at the annual and special meeting of shareholders of Canada House to be held on July 28, 2023, at 9:00 a.m. (Eastern time) at the offices of Fasken Martineau DuMoulin LLP, 800 Victoria Square, Suite 3500, Montreal, Quebec H4Z 1E9 in Boardrooms 11 and 12. Shareholders also will be able to hear the meeting live and ask questions, but will not be able to vote, virtually via the following connectivity particulars: fasken.zoom.us/j/97475921717.
The Transaction will require the approval of a majority of the votes cast by the Company’s disinterested shareholders present in person or represented by proxy at the Shareholder Meeting. The Company has received voting support agreements from shareholders holding, in aggregate, approximately 22.22% of the Common Shares of the Company (representing approximately 40.89% of the Common Shares held by disinterested shareholders of the Company for purposes of the resolution to approve the Transaction), pursuant to which each has agreed to vote their Common Shares in favour of the Transaction.
Materials for the Shareholder Meeting, including the management information circular of the Company dated as of June 28, 2023 (the “MIC”), have been posted under the Company’s profile on SEDAR at www.sedar.com and have been mailed to shareholders of the Company.
Shareholders are encouraged to vote their Common Shares at their earliest convenience.
Operational Update
Since the completion of the first tranche of the Transaction, Canada House and MTL Cannabis have successfully integrated their business operations, leading to strong and continually improving financial performance for both companies as highlighted below:
Stronger Financial Position. If the Tranche Two Closing is completed, the Company is expected to have significantly increased revenue, cash-flow from operations and, over time, a stronger balance sheet with lower leverage ratios and additional cash versus the Company’s current stand-alone financial position. The Company has already benefited from Tranche One transaction with MTL Cannabis as can be seen in recent Q3 financial results – with second consecutive quarterly net profit while achieving record revenue, positive cash flow and operating profit for a third successive quarter.
Strength of Brands and Recreational Sales Volume. The combined Company expects to continue benefitting from the strength of the MTL Cannabis’ portfolio of brands in the recreational cannabis market, the high-quality production standards that MTL Cannabis brings to the Canadian recreational and medical markets (and which have been adopted with initial success by IsoCanMed Inc.), and the strength of the two entities’ distribution channels to ensure that all production can be distributed into market.
Success of Medical Business. Abba Medix Corp. (“Abba”) and Canada House Clinics (“CHC”) continue to grow their medical presence diligently and deliberately, driven by Abba’s leading portfolio of medical cannabis products and CHC’s provision of leading cannabinoid therapy services. Abba’s monthly medical cannabis sales have doubled in each of the last three annual periods and now exceed $1.5M monthly. CHC continues to be a leader in helping veterans with medical cannabis and now supports over 4,600 veterans.
Leveraging the Strengths of MTL Cannabis. MTL Cannabis has demonstrated operational proficiency with respect to cultivation, processing, and distribution, in addition to the ability to commercialize products in recreational channels domestically as well as internationally. The Company’s wholly-owned subsidiary, IsoCanMed Inc. (“ICM”), has benefited greatly from this expertise after migrating its production facility to MTL Cannabis’s cultivation methodologies through the extensive integration efforts taken on by the respective management and operating teams. ICM has been fully operational since September 2022 and has reduced its dried flower production costs substantially, with 100% of the dried flower cultivated from this facility now being sold through MTL Cannabis’s recreational sales channels.
Trading Halt
Trading in the common shares of the Company will remain halted until the Tranche Two Closing and all requirements of the CSE have been met and it has issued its final approval for the Transaction and the listing of the Common Shares on the CSE. It is currently anticipated that the transaction will close shortly after the receipt of shareholder approval at the Shareholder Meeting. It is also currently anticipated that trading will resume during the third calendar quarter. A more specific date will be communicated to the market when known.
Further Amendments to Archerwill Investment Instruments
To facilitate the Tranche Two Closing and to facilitate the operating of the business of the Company following the Tranche Two Closing, the Company has entered into agreements to amend certain of the investment instruments the Company has with Archerwill (the “Archerwill Amendments”). The terms of the Archerwill Amendments are disclosed in the MIC.
Related Party Transaction Matters
The entering into of the Second Restated SEA may be considered a “related party transaction” under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transaction (“MI 61-101”). Mr. Richard Clement and Mr. Michel Clement, who are shareholders of MTL Cannabis, are now considered to be “Related Parties” under MI 61-101 following the Tranche One Closing by virtue of having beneficial ownership of over 10% of all the outstanding voting securities of the Company. Pursuant to MI 61-101, the Company is seeking “minority approval” (as defined in MI 61-101) for the entering into of the Second Restated SEA at the Shareholder Meeting.
The agreements to amend the investment instruments with Archerwill may also be considered to be a “related party transaction” under MI 61-101. Archerwill is considered to be a Related Party to the Company by virtue of having beneficial ownership of over 10% of all the outstanding voting securities of the Company. Pursuant to MI 61-101, the Company is seeking “minority approval” (as defined in MI 61-101) for the Archerwill Amendments at the Shareholder Meeting.
The entering into of the Second Restated SEA and the Archerwill Amendments each are exempt from the formal valuation requirement in MI 61-101 as no securities of the Company are listed on any of the stock exchanges and trading platforms listed in 5.5(b) of MI 61-101.
Please refer to the Company’s MIC for more information regarding the related party transactions to be considered at the Shareholder Meeting.
About MTL Cannabis
MTL Cannabis is a privately owned licensed producer of Cannabis headquartered in Montreal, Québec and operating from a 57,000 sq ft licensed indoor grow facility in Pointe Claire, Québec.
As a flower-first company built for the modern street, MTL Cannabis uses proprietary hydroponic growing methodologies supported by handcrafted techniques to produce products that are truly craft for the masses. MTL Cannabis focuses on craft quality cannabis products, including lines of dried flower, pre-rolls and hash marketed under the “MTL Cannabis”, “Low Key by MTL” and “R’belle” brands for the Canadian market through nine distribution arrangements with various provincial cannabis distributors. MTL Cannabis has also developed export channels for bulk and unbranded GACP quality cannabis, including for Portugal and Israel. Please visit www.mtlcannabis.ca
About Canada House Cannabis Group
Canada House Cannabis Group is a 24.99% shareholder of MTL Cannabis and is the parent company of Abba Medix Corp., a Licensed Producer in Pickering, Ontario that produces high quality medical grade cannabis; IsoCanMed Inc., a Licensed Producer in Louiseville, Québec growing best-in-class indoor cannabis, in its 64,000 sq. ft. production facility; Canada House Clinics Inc., with clinics across the country that work directly with primary care teams to provide specialized cannabinoid therapy services to patients suffering from simple and complex medical conditions.
Canada House Cannabis Group’s goal is to become the leading cultivator of premium craft cannabis, distributor of medical cannabis and provider of medical cannabis clinic services. Please visit www.canadahouse.ca or the Company’s public filings at www.sedar.com.
Cautionary Statement Regarding Forward-Looking Information. This press release contains forward- looking statements, including statements that relate to, among other things, the Company’s clinic, production and technology businesses, its future plans, the Company’s markets, objectives, goals, strategies, intentions, beliefs, expectations and estimates, and can generally be identified by the use of words such as “may”, “will”, “could”, “should”, “would”, “likely”, “possible”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”, “objective” and “continue” (or the negative thereof) and words and expressions of similar import. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Material assumptions used to develop forward-looking information in this news release include, among other things, the closing of the transaction with Montreal Cannabis and the receipt of all necessary regulatory and shareholder approvals associated therewith, the regulations related to cannabis use under the Access to Cannabis for Medical Purposes Regulations and the act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts, passed by the Canadian Federal government, making cannabis and cannabis based edibles, vapes and oils legal for recreational use on October 17, 2018 and October 17, 2019; Company liquidity and capital resources, including the availability of additional capital resources to fund its activities; level of competition; the ability to adapt products and services to the changing market; the ability to attract and retain key executives; and the ability to execute strategic plans. Additional information about material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the Company’s most recent annual and interim Management’s Discussion and Analysis under “Risk and Uncertainties” as well as in other public disclosure documents filed with Canadian securities regulatory authorities. The Company does not undertake any obligation to update publicly or to revise any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except as required by law.
Neither the CSE nor its Regulation Services Provider (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this release.
