CALGARY, Alberta – Decibel Cannabis Company Inc., a market leader in premium cannabis and extract manufactured products, acquired AgMedica Bioscience Ltd., a leader in international medical cannabis exports, pursuant to an assignment agreement dated October 28, 2024, with Callisto Capital Corp. in exchange for a $6.3 million unsecured convertible debenture.
The conversion of the Convertible Debenture into common shares in the capital of the Company is contingent upon the Company obtaining each of the following: (i) the final approval of the TSX Venture Exchange (the “TSXV”) in respect of the Transaction; and (ii), if applicable, the approval of the disinterested shareholders of the Company in accordance with the rules and policies of the TSXV.
“I am excited to announce the acquisition of AgMedica. An euGMP certification is an international standard that Decibel has been contemplating for quite some time, this acquisition accelerates that timeline.
The AgMedica facility becomes the cornerstone of our international strategy as it allows us to extend our products and brand to the rest of the world. Furthermore, this marks the first step of Decibel’s new strategy as we execute on profitable growth opportunities enhanced by synergistic and accretive transactions,” said Benjamin Sze, CEO.
Transaction Highlights
AgMedica was acquired by the Company from Callisto pursuant to the assignment agreement whereby Callisto assigned all of its rights and obligations pursuant to a subscription agreement dated October 28, 2024 between, inter alia, Callisto, Atlas Global Brands Inc. and AgMedica, in connection with an Approval and Reverse Vesting Order granted pursuant to Atlas’ CCAA process involving Atlas and its subsidiaries (including AgMedica) in exchange for the Convertible Debenture.
If the Convertible Debenture converts into Common Shares in accordance with its terms, Callisto may become a “Control Person” (as such term is defined in the rules and policies of the TSXV) of the Company. The conversion price per Common Share under the Convertible Debenture is $0.055, which was determined based on the closing price of the Common Shares on the TSXV on October 25, 2024. In the event the Control Person approval is not obtained, the Convertible Debenture will no longer be convertible, will begin accruing interest at a rate of 15% per annum, and the principal amount plus interest accrued thereon will be repayable on April 28, 2025. All of the directors and officers of the Company, together with certain shareholders of the Company, who collectively own approximately 20% of the outstanding Common Shares, have entered into voting and support agreements pursuant to which they have agreed to vote their Common Shares at the Meeting in favour of the conversion feature of the Convertible Debenture and the potential creation of Callisto as a Control Person.
Decibel projects that AgMedica could contribute $30MM of net revenue and $4MM of EBITDA in 2025, totalling an anticipated $130MM of net revenue and $25MM of adjusted EBITDA in 2025 on a pro-forma basis.
The Company estimates a ~1.6x EBITDA multiple paid based on management’s 2025 projections prior to further optimization and automation initiatives.
The Transaction is expected to materially expand Decibel’s international footprint with EU GMP certification that enables export of flower and a variety of extract products, with proven sales to 7 different countries including Australia, Denmark, Germany, Israel, Norway, Spain, and the United Kingdom.
Adds EU GMP and IMC-GAP certified annual flower production of 5.1 metric tonnes per annum (“TPA”), when combined with Decibel’s GACP facility, expands total TPA of exportable flower to more than 12.
Decibel anticipates AgMedica to contribute free cash flow generation in 2025 with limited working capital requirements in the near term as a result of AgMedica being sold free and clear of certain historical liabilities.
In connection with, and directly following completion of the Transaction, AgMedica entered into a 5 year industrial lease for the AgMedica facility in Chatham, Ontario, as well as a sale and leaseback agreement with Callisto pursuant to which certain equipment of AgMedica was transferred to Callisto and leased back to AgMedica for a nominal cost for the term of the AgMedica facility lease. AgMedica has the option to repurchase the equipment at the end of the term of the lease for a nominal value.
In connection with the Transaction, Decibel also acquired GreenSeal Nursery Ltd., a licensed nursery that holds and maintains certain cannabis genetics.
The Transaction is subject to the receipt of the final approval of the TSXV following the filing of all final documentation in accordance with the TSXV’s conditional approval letter dated October 16, 2024.
Further opportunities for growth as a result of the Transaction include but are not limited to:
- Further potential growth in export extract products to meet growing consumer trends;
- Support for Decibel’s recent vape launches in Australia and United Kingdom markets and new product launches;
- Flexibility to utilize Thunderchild or third-party good agricultural and collecting practice (GACP) production to supply certain international markets;
- Potential to grow contract manufacturing operations to provide partners access to international markets;
- EU GMP validation of bubble hash and edibles;
- Expand AgMedica production by an additional 4.7 TPA with additional investment;
- Improve AgMedica production yields which are below Decibel’s current operated cultivation facilities; and
- Optimization of production and automation to enhance profitability.
Private Placement
In connection with the Transaction, the Company intends to complete a non-brokered private placement financing of Common Shares for gross proceeds of between $3,000,000 to $3,500,000, or such other amount as may determined by the Company. The terms of the Offering will be determined in the context of the market.
About Decibel
Decibel focuses on delivering products that delight customers through a commitment to robust innovation and product quality. Leading brands General Admission, Qwest and Vox are among its portfolio sold both across Canada and beginning to extend towards new countries to create a global footprint. Decibel operates a processing and manufacturing facility in Calgary, Alberta and two cultivation facilities in Creston, British Columbia and Battleford, Saskatchewan.
