CALGARY, AB – Simply Solventless Concentrates Ltd. has entered into a services agreement for CannMart Inc. and a share purchase agreement with Lifeist Wellness Inc. for the acquisition of all of the shares of CannMart, a wholly owned subsidiary of Lifeist. The agreements related to the Transactions are dated June 25, 2024. CannMart Labs Inc., another of Lifeist’s subsidiaries, which is currently in Companies’ Creditors Arrangement Act (Canada) proceedings, is not involved in the Transactions.
SSC also announced a non-brokered private placement of up to 14,000,000 units at a price of $0.25 per Unit for aggregate gross proceeds of up to $3,500,000. Each Unit consists of one common share and one-half of one common share purchase warrant of SSC, each whole warrant being exercisable for one common share of SSC at a price of $0.40 per share for a period of two years from the date of issue. All securities issued under the Financing will be subject to a hold period expiring four months and one day from the date of issue.
Strategic Rationale of Transaction
Jeff Swainson, SSC’s President & CEO, stated: “Through CannMart, Lifeist has done a fantastic job of building two great brands, Roilty and Zest Cannabis, and achieving national reach and substantial revenue capability. Continuing SSC’s strategic objective of opportunistic acquisitions, these Transactions establish SSC as one of the leaders in hydrocarbon concentrates, taking the baton from Lifeist, and building strongly upon SSC’s leadership position in solventless concentrates. On a proforma basis, we expect to hold the #2 concentrates market share position in Alberta, #1 in Saskatchewan and Manitoba, and #6 in Ontario, and by 2024 year end we project to more than double our current annualized gross revenue to $40.0 million and our net income to $6.2 million, representing post money per share growth rates of 154% and 124%, respectively. The Financing is intended to fund these initiatives and the commissioning of in-house hydrocarbon extraction, while significantly strengthening our balance sheet with additional working capital. Moving forward, the focus of our talented team will be the integration of CannMart, continued profitable organic branded revenue growth and opportunistic acquisitions such that we provide continued value to our shareholders.”1
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1 Market share data obtained from Headset and estimated on an aggregate basis.
Lifeist and CannMart Profile, Transaction Synergies, Proforma Figures
CannMart is a wholly-owned subsidiary of Lifeist, a TSX Venture Exchange (“TSXV”) listed issuer trading under the symbol “LFST”. Lifeist is a health-tech company that leverages advancements in science and technology to build breakthrough ventures that transform human wellness. For more information regarding Lifeist and CannMart, including financial information, see Lifeist’s SEDAR+ profile at www.sedarplus.ca.
CannMart owns the brands Roilty and Zest Cannabis, and these brands are leaders in hydrocarbon extract products in Alberta, Ontario, Saskatchewan, and Manitoba, and with a presence in Quebec, the Maritimes, and the Territories.
CannMart has a Health Canada licensed facility in Ontario near the Ontario Cannabis Store warehouse.
Key Transaction synergies and projected proforma figures are as follows:
- Complimentary Products: SSC does not currently sell hydrocarbon extracts, and the Transactions give SSC a leading position in that category through CannMart.
- Proforma Concentrates Market Share: Expected to be proforma #2 concentrates market share in Alberta, #1 in Saskatchewan and Manitoba, and #6 in Ontario.
- Proforma 2024 Exit Gross Revenue: 220% increase in gross revenue, from $12.4 million annualized in Q1 2024 to $40.0 million proforma annualized in Q4 2024.
- Proforma Normalized Net Income: 182% increase in normalized net income, from $2.2 million annualized in Q1 2024 to $6.2 million proforma annualized in Q4 2024 (normalized net income is a non-IFRS measure. See “Non-IFRS Financial Measures” below).
- Proforma Gross Revenue per Share: A 154% increase in gross revenue per share, from $0.23/share annualized in Q1 2024 to $0.59/share proforma annualized in Q4 2024.
- Proforma Net Income per Share: 124% increase in net income per share, from $0.04/share annualized in Q1 2024 to $0.09/share proforma annualized in Q4 2024.
- Proforma Operating Costs: $5.0 million proforma annual reduction in operating costs due to significant synergies and the reduction of duplicated resources.
- Proforma Inventory Turnover: A 219% improvement in inventory turnover from approximately 0.5x annualized in Q1 2024 to 1.50x proforma annualized in Q4 2024.
- Proforma Current Ratio: A 63% improvement in current ratio from approximately 0.5x annualized in Q1 2024 to 1.50x proforma annualized in Q4 2024.
- SSC Facility Utilization: Expected to increase SSC’s current facility utilization from approximately 25% to 50%.
- CannMart Facility: The CannMart facility will serve as a packaging, storage, and logistics hub for both CannMart and SSC products and brands, allowing more cost-effective shipping to Ontario, Manitoba, Quebec, and the Maritimes.
- 2024 Business Plan: Achieves planned exit 2024 provincial product listings, annualized gross revenue, and annualized net income by July, 2024.
- Hydrocarbon Extraction: SSC plans to commission in-house hydrocarbon extraction by Q4 2024, increasing gross margin by approximately $1,000,000 per year.
CannMart Inc. Services Agreement
Under the Services Agreement, SSC will help to manage the day-to-day operations of CannMart.
Key terms of the Services Agreement are as follows:
- SCC will receive the benefit of 100% of CannMart’s revenue, less a service fee of 10% of net revenue. On a net basis, SSC will receive benefit of 90% of CannMart’s net revenue.
- SSC will pay 100% of CannMart’s operating expenses.
- All Service Fee payments paid by SSC to CannMart during the term of the Services Agreement will be deducted from the purchase price in respect of the acquisition of CannMart.
- SSC will receive the benefit of a further purchase price adjustment to reflect $500,000 of CannMart inventory at the effective date of the Services Agreement.
- The Services Agreement will terminate upon closing of the acquisition of CannMart.
Share Purchase Agreement
SSC will acquire all the issued and outstanding shares of CannMart on the following terms (the “Acquisition”):
- Purchase Price: $500,000 cash, $500,000 in Units on the same terms as the Financing, and a vendor takeback note (“VTB”) of $1,500,000 on closing of the Acquisition.
- Bonus Payment: A bonus payment equal to 20% of CannMart gross revenue generated over $3.0 million in each of the quarters following the date of the Services Agreement. The bonus payment will be satisfied by an increase in the principal amount of the VTB.
- Working Capital & Debt: SSC will assume zero accounts payable, debt, or working capital.
- CannMart Assets: Through the Acquisition, SSC will indirectly acquire all of CannMart’s provincial product listings, intellectual property (including the brands Roilty and Zest Cannabis), facility equipment and security systems, and Health Canada licences.
The valuation metrics of the Acquisition are as follows:
- Acquisition valuation of approximately 0.18x estimated 12 month forward gross revenue (net of inventory acquired).
- Assumes approximately $20 million annual gross revenue.
Closing of the Acquisition is subject to a number of conditions precedent, including but not limited to the approval of the TSXV, notification which is satisfactory to Health Canada and approval of the shareholders of Lifeist. There is no guarantee that the Acquisition will close on the terms set forth herein or at all.
$3,500,000 Private Placement of Units
The Financing is expected to close on or around July 5, 2024. Each Unit is priced at $0.25 per Unit. Each Unit consists of one Common Share and one-half of one Warrant, with each whole Warrant being exercisable for one Common Share at a price of $0.40 per share for a period of two years from the date of issue. If, at any time prior to the expiry date of the Warrants, the closing price of the Common Shares on the TSXV is greater than $0.40 for any 10 consecutive trading days, SSC may, at SSC’s discretion, and at any time going forward, deliver a notice to the holders of Warrants accelerating the expiry date of the Warrants to the date that is 30 days following the date of such notice. Any unexercised Warrants shall automatically expire at the end of the Accelerated Exercise Period.
All securities issued under the Financing will be subject to a hold period expiring four months and one day from the date of issue.
SSC intends to use the net proceeds of the Financing to facilitate the Services Agreement, to fund the Acquisition, and to commission in-house hydrocarbon extraction equipment.
The Financing is subject to the approval of the TSXV.
On a proforma basis, assuming completion of the maximum Financing, SSC is expected to have approximately 67.8 million common shares outstanding (basic), of which approximately 25% will be held by insiders. Of SSC’s outstanding common shares, approximately 17.0 million (26%) are escrowed pursuant to TSXV policies. Further details with respect to SSC’s escrowed securities can be found in SSC’s filing statement dated October 31, 2023 which is available on SSC’s SEDAR+ profile at www.sedarplus.ca.
Board and Management Changes
Jeff Lawrence, SSC’s Vice President, Sales & Marketing, has been promoted to the position of Chief Commercial Officer.
SSC has granted to several employees an aggregate of 575,000 stock options under SSC’s equity incentive plan at an exercise price of $0.25 per share and expiring on June 20, 2027. The option grants and appointment of Jeff Lawrence remains subject to the final approval of the TSX Venture Exchange.
Colin Davison, a member of SSC’s board of directors, and Randeep Gill, SSC’s Vice President, Commercial, have resigned due to personal reasons. SSC thanks Colin and Randeep for their contributions.
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.
