CALGARY, Canada – Simply Solventless Concentrates Ltd. (“SSC”) will acquire all the issued and outstanding shares of cultivator Delta 9 Bio-Tech Inc. for cash consideration of $3.0 million without deducting expected working capital received, payable in a series of payments of $750,000 by January 2, 2025 and $2.25 million on the closing date, expected to be January 31, 2025.
SSC also appointed Jeff Holmgren as Chief Financial Officer and promoted Murray Brown, SSC’s current Vice President of Operations, to the position of Chief Operating Officer.
Additionally, all of SSC’s 8,700,000 common share purchase warrants exercisable at a price of $0.40 per share with an expiry date of December 23, 2024, have been exercised for proceeds of $3,480,000.
Vertically integrating upstream into cultivation is a core SSC strategic mandate due to a tightening supply demand dynamic pushing cannabis prices upward, SSC’s increasing demand for dried flower due to the acquisition of leading preroll manufacturer ANC Inc., and the company’s desire to participate in the dried flower product category, which holds a 40% market share (according to Headset data). The acquisition of Bio-Tech provides SSC with a predictable volume of high-quality Good Agricultural Collection Practice (“GACP”) certified internationally exportable flower, with low per-gram cost of cultivation, for an attractive acquisition metric. SSC assumes no debt or liabilities from the acquisition, and with a large portion of the synergies being captured prior to closing, SSC believes Bio-Tech will contribute meaningfully to further expanded revenue and adjusted EBITDA in Q1 2025.
About Bio-Tech
Bio-Tech operates a 95,000-square-foot GACP-certified cannabis cultivation facility in Winnipeg, Manitoba, with an annual cultivation capacity of approximately 9,000kg of dried cannabis flower and trim.
Bio-Tech currently serves the recreational dried flower markets in Ontario, Alberta, Manitoba, Saskatchewan, British Columbia, and the Maritimes, and the business-to-business wholesale market in Canada and internationally.
The Acquisition
Pursuant to the order of the King’s Bench of Alberta issued July 15, 2024, Delta 9 and Bio-Tech, among other entities, collectively, commenced proceedings under the Companies’ Creditors Arrangement Act (“CCAA”). On July 24, 2024, Bio-Tech entered a court granted sale and investment solicitation process for the business and/or assets of Bio-Tech.
Valuation Metrics of Acquisition
Adjusted EBITDA Multiple (Net of Expected Working Capital Received): 0.0x estimated annual adjusted EBITDA ($0.0 million consideration net of expected working capital received / $2.5 million estimated annual adjusted EBITDA of Bio-Tech). Adjusted EBITDA is a non-IFRS measure. See “Non-IFRS Financial Measures” below.
Adjusted EBITDA Multiple (Without Deducting Expected Net Working Capital Received): 1.2x estimated annual adjusted EBITDA ($3.0 million consideration / $2.5 million estimated annual adjusted EBITDA of Bio-Tech). Adjusted EBITDA is a non-IFRS measure. See “Non-IFRS Financial Measures” below.
Closing of the acquisition is subject to several conditions precedent, including but not limited to the approval of the TSXV, the completion of the reverse vesting order pursuant to the CCAA proceedings and a notification to Health Canada. There is no guarantee that the Acquisition will close on the terms set forth herein or at all.
Key Benefits and Synergies
Key benefits and synergies of the acquisition are as follows:
- Low Cultivation Costs: Upon capture of synergies, it is expected that the all-in cash cost to cultivate will be approximately $0.60-$0.70 per gram, among the lowest for indoor cannabis in Canada.
- No Liabilities: As Bio-Tech is being acquired through CCAA proceedings, SSC will assume no liabilities upon closing of the Acquisition.
- Tax Pools: Bio-Tech has approximately $60 million of accrued non-capital loss tax pools which may be usable to SSC. Should these tax pools be utilized, they are expected to reduce future tax payments by up to $12 million at an effective tax rate of 20%.
- International Exposure: The Facility is GACP certified, allowing for the export of dried flower to international markets, which currently attracts higher selling prices.
- Complimentary Products: SSC does not currently cultivate or sell dried flower. The Acquisition will allow SSC to participate in the dried flower product category, which is the largest cannabis product category in Canada with a market share of approximately 40% (according to Headset data).
- Supply Chain: In the opinion of SSC, the supply demand dynamic is balancing in the Canadian wholesale cannabis marketplace, making it more difficult to procure the inputs that SSC requires. The Acquisition secures a supply of high-quality flower and trim for use in SSC’s prerolls and in the manufacturing of concentrates and hash.
- Prerolling: Bio-Tech sells regular and infused prerolls in numerous markets. SSC’s subsidiary ANC Inc. will bring this manufacturing in-house, maximizing efficiency.
- Vapes: Bio-Tech sells vape cartridges in numerous markets, and it currently outsources all vape manufacturing. This manufacturing will come in-house at SSC’s Massive Hash Factory facility, reducing production costs.
- Inventory Velocity: Bio-Tech sells several products that SSC currently manufactures, including hash, which will help maximize inventory turnover.
- Facility Cost Savings: SSC will be able to rationalize the activities performed at its various facilities, reducing fixed operating costs by approximately $750,000 annually once rationalized (prior to the estimated post integration adjusted EBITDA figure of $2,500,000).
- Cost Synergies: Administration, including but not limited to public company costs, accounting, IT, governance, and HR will be shared, reducing costs significantly.
- Blended Excise Rate: Bio-Tech pays lower excise rates as a cultivator, which will lower SSC’s overall corporate blended excise tax rate.
Bio-Tech Financial Figures and Preliminary Proforma
Bio-Tech financial figures and preliminary projected proforma are as follows:
- Bio-Tech Production: Bio-Tech is currently producing approximately 9,000kg per year of high-quality cannabis. It is believed that production can be increased to 15,000-18,000kg per year with approximately $4.0 million of capital investment, which is not planned at this time.
- Bio-Tech Revenue: Bio-Tech is expected to generate approximately $12.0 million of annualized gross revenue, which would represent an increase of approximately 25% from current SSC levels. It is believed that the current average selling price per gram of $1.11/g can be increased through international export and through other initiatives.
- Bio-Tech Adjusted EBITDA: After capturing synergies, Bio-Tech is expected to generate approximately $2.5 million of annualized adjusted EBITDA (prior to any facility rationalization as noted above), which would represent an increase of approximately 23% from current SSC levels.
Executive Appointments
Jeff Holmgren is a seasoned finance executive with a passion for corporate leadership and hands-on strategic entrepreneurialism. Jeff’s career started at Ernst & Young LLP, where he obtained his chartered accountant designation and an in-depth knowledge of financial reporting, securities compliance and corporate governance serving clients in both public and private, domestic and international sectors, followed by over 20 years of executive level experience serving as CFO for numerous public and private oil and gas companies until his transition to the cannabis industry in 2018. Jeff’s deep understanding of the regulatory environment, capital markets and familiarity with the cannabis consumer was integral to the growth of Trees Cannabis into a national cannabis retailer, where as co-founder, CFO and later President, he navigated the complex and challenging business environment until its sale in 2024. With a unique aptitude for corporate restructuring, strategic growth and leadership, Jeff is honoured to have the opportunity to leverage his knowledge and experience with the industry leading team at SSC.
Holmgren replaces Jeff Hall as SSC’s Chief Financial Officer.
Prior to promotion to Chief Operating Officer, Murray Brown served as SSC’s Vice President of Operations. Murray has been instrumental in SSC’s growth, driving acquisition integration and the expansion of SSC’s operating capabilities company wide. Murray boasts four decades of experience at the executive level in cannabis, oil and gas services, and manufacturing. Prior to joining SSC, Murray served as Vice President, Operations for a licensed cannabis producer for a period of five years.
Option Grant
In connection with the appointment of Holmgren as CFO, SSC has granted him 400,000 stock options with an exercise price of $0.64 per share and expiring five years from the date of grant. The appointment of Holmgren and the option grant remains subject to the final approval of the TSXV.
$0.40 Warrant Update
All of SSC’s 8,700,000 common share purchase warrants exercisable at a price of $0.40 per share with an expiry date of December 23, 2024, have been exercised for proceeds of $3,480,000. The expiry date of these warrants was December 23, 2024, as December 21, 2024, the original expiry date, was on a Saturday.
About Simply Solventless Concentrates Ltd.
SSC is a public company incorporated under the Business Corporations Act (Alberta). SSC’s mission is to provide pure, potent, terpene-rich ready-to-consume cannabis products to discerning cannabis consumers.
