Auxly Cannabis Group Inc. (TSX - XLY) (“
Auxly” or
the “
Company”), a leading consumer packaged goods
company in the cannabis products market, today announced that it
has acquired 100% ownership of Sunens Farms Inc.
(“
Sunens”). Pursuant to a share purchase agreement
between Auxly and Peter Quiring, the Company acquired all the
issued and outstanding securities of Sunens not already owned by
Auxly (the “
Acquisition”). Concurrent with the
Acquisition, Sunens and the Company have amended and restated
Sunens’ secured credit facility that was entered into in September
2019 (as amended, the “
Amended and Restated Credit
Facility”) underwritten by a syndicate of lenders led by
the Bank of Montreal (“
BMO”), bringing the total
principal indebtedness thereunder to $62.5 million.
Transaction Details
Auxly acquired all of the issued and outstanding
securities of Sunens not already owned by Auxly from Peter Quiring
for consideration of: (i) $1.6 million, comprised of $500,000 in
cash and $1.1 million in Auxly common shares; (ii) a $3.4 million
unsecured promissory note payable over 30 months in equal monthly
installments with the first payment due 12 months after the date of
closing; and (iii) the transfer of certain non-core assets of
Sunens.
Concurrent with the Acquisition, Sunens has
entered into an Amended and Restated Credit Facility with the
following terms:
- An immediate
cash payment by Auxly of $15 million applied to the outstanding
principal balance of the revolving credit facility, bringing the
outstanding principal amount thereunder to $62.5 million;
- Extension of the
maturity date by a year to September 30, 2023, with an option for
Sunens to extend for an additional year by making a further
principal repayment of $5 million by December 31, 2022; and
- The obligations
of Sunens under the Amended and Restated Credit Facility continue
to be supported by an unsecured $33 million limited recourse
guarantee by Auxly, and a pledge by the Company of all of its
securities of Sunens with new revenue and EBITDA covenants.
Transaction Rationale
“The acquisition of Sunens, a highly automated
greenhouse with a demonstrated ability to grow high-quality
cannabis at scale, increases Auxly’s cultivation capabilities and
strengthens our position as a leader in the Canadian cannabis
market,” said Hugo Alves, CEO of Auxly. “Having full ownership
and operational control of Sunens gives us the security of supply,
quality control, economies of scale and genetic exclusivity that
will enable us to continue delivering quality products to our
consumers under brands that they can trust. The ability to fully
consolidate the activities of Sunens will improve gross margins and
support Auxly’s path to profitability.”
- The Company will immediately begin
integrating Sunens’ proven cultivation capabilities, giving Auxly
the competitive advantages of scale, lower costs and surety of
supply as it continues to build to leadership in 1.0 cannabis
product formats following on the success of its Back Forty branded
flower and pre-rolls product
launches.
- The Acquisition will result in
improvements in Auxly’s blended gross margins, adjusted EBITDA and
net income as Sunens continues to increase production while
eliminating the reliance on Auxly’s third-party cannabis
purchases.
- The facility is fully licensed for
cultivation, processing and sales under the Cannabis Act and
provides the Company with operational flexibility as well as
considerable additional cultivation, storage, processing and
manufacturing capacity and the ability to continue scaling
cultivation to meet the growing consumer demand for Auxly’s branded
products.
“This is a defining moment for Auxly. Our
commitment to quality and consistency in every product we put out
in the market has continued to gain consumer trust and brand
loyalty,” said Mike Lickver, President of Auxly. “Sunens helps us
deepen the connection with our consumers by ensuring we are meeting
their needs through thoughtful innovation and product format
development. We are thrilled to officially welcome the
outstanding people at Sunens to our organization, and it couldn’t
come at a better time. We are working hard to meet the
fast-growing consumer demand for our entire suite of products and
having a library of unique genetics and a consistent supply of
high-quality cannabis will help us ensure that all of our products
get to and stay on shelves across the country.”
- The transaction provides the
Company with complete control over large-scale cultivation with a
proprietary genetic library consisting of more than 150 cannabis
strains, empowering Auxly to tailor its products to evolving
consumer preferences and support the Company’s growing portfolio in
both the 1.0 and 2.0 cannabis product categories.
- Sunens is already producing unique
cannabis strains, including Ontario’s top-selling Wedding Pie, as
well as Animal Mints and Fruity Pebbles OG – all of which are
currently sold to and used exclusively by Auxly for its full suite
of cannabis products.
Auxly remains focused on bringing new,
innovative branded cannabis products to Canadian consumers and
believe that this Acquisition will allow for continued growth,
improved cost structure and near-term positive adjusted EBITDA.
ON BEHALF OF THE BOARD
"Hugo Alves” CEO
About Auxly Cannabis Group Inc. (TSX:
XLY) (OTCQX: CBWTF)
Auxly is a leading Canadian cannabis company
dedicated to bringing innovative, effective, and high-quality
cannabis products to the wellness and adult-use markets. Auxly's
experienced team of industry first-movers and enterprising
visionaries have secured a diversified supply of raw cannabis,
strong clinical, scientific and operating capabilities and leading
research and development infrastructure in order to create trusted
products and brands in an expanding global market.
Learn more at www.auxly.com and stay up to date
at Twitter: @AuxlyGroup; Instagram:
@auxlygroup; Facebook: @auxlygroup; LinkedIn:
company/auxlygroup/.
Investor Relations:
For investor enquiries please contact our
Investor Relations Team: Email: IR@auxly.comPhone:
1.833.695.2414
Media Enquiries
(only):
For media enquiries or to set up an interview
please contact:Email: press@auxly.com
Notice Regarding Forward Looking
Information:
This news release contains certain
"forward-looking information" within the meaning of applicable
Canadian securities law. Forward-looking information is frequently
characterized by words such as "plan", "continue", "expect",
"project", "intend", "believe", "anticipate", "estimate", "may",
"will", "potential", "proposed" and other similar words, or
information that certain events or conditions "may" or "will"
occur. This information is only a prediction. Various assumptions
were used in drawing the conclusions or making the projections
contained in the forward-looking information throughout this news
release. Forward looking information includes, but is not limited
to: the anticipated benefits of the Company’s acquisition of
Sunens; the Company’s execution of its product development and
commercialization strategy; the intention to grow the business,
operations and existing and potential activities of Auxly and
Sunens; the expectation and timing of future revenues; the ability
of the Company to maintain and grow its market share; discussions
of plans or potential for expansion of capacity at the Sunens
facility; consumer preferences; political change, future
legislative and regulatory developments involving cannabis and
cannabis products; and competition and other risks affecting the
Company in particular and the cannabis industry generally.
A number of factors could cause actual results
to differ materially from a conclusion, forecast or projection
contained in the forward-looking information in this release
including, but not limited to, whether: Sunens performs
consistently with management's expectations; Sunens will generate
sufficient cash flow to satisfy its payment obligations under the
Amended and Restated Credit Facility; Sunens will remain in
compliance with its operating covenants under the Amended and
Restated Credit Facility; the Company is able to successfully
integrate Sunens’ operations with its own; the expected benefits of
the acquisition materialize in the manner expected, or at all;
Sunens is able to maintain the necessary governmental and
regulatory authorizations to conduct business; there is acceptance
and demand for current and future Company products by consumers and
provincial purchasers; and general economic, financial market,
regulatory and political conditions in which the Company and its
subsidiaries operate will remain the same. Additional risk factors
are disclosed in the annual information form of the Company for the
financial year ended December 31, 2020 dated April 23, 2021.
The forward-looking information in this release
is based on information currently available and what management
believes are reasonable assumptions. Forward-looking information
speaks only to such assumptions as of the date of this release. In
addition, this release may contain forward-looking information
attributed to third party industry sources, the accuracy of which
has not been verified by Auxly. Readers should not place undue
reliance on forward-looking information contained in this release.
The forward-looking information contained in this release is
expressly qualified by the foregoing cautionary statements and is
made as of the date of this release. Except as may be required by
applicable securities laws, the Company does not undertake any
obligation to publicly update or revise any forward-looking
information to reflect events or circumstances after the date of
this release or to reflect the occurrence of unanticipated events,
whether as a result of new information, future events or results,
or otherwise.Neither Toronto Stock Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the Toronto Stock Exchange) accepts responsibility for
the adequacy or accuracy of this release.
__________________________________________
i OCS Data, Wedding Pie 28g SKU is the #1 selling SKU in Ontario
QTD.
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/6b937006-9b93-4623-bca4-44f4847283b7
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