DOJA Cannabis and Tokyo Smoke announce merger and strategic investment from Aphria Inc.
Two Canadian cannabis lifestyle brands join forces in a transformational transaction, bringing together industry leading management teams, British Columbia curated handcrafted cannabis production, a portfolio of visionary brands and a growing nationwide retail footprint.
Provides the first public markets investment opportunity focused on cannabis retail and brand; high-margin verticals with significant growth potential.
A strategic financing of $12.5 million led by Aphria Inc. will bolster the combined company's cash position to approximately $31 million, which the company plans to invest in scaling up production capacity, expanding its retail footprint and further building-out its portfolio of cannabis brands.
Cannabis Company Limited ("DOJA") (CSE: DOJA) and TS Brandco Holdings Inc. ("Tokyo Smoke ") are pleased to announce that they have entered into a binding Letter of Intent ("LOI ") dated December 20, 2017, setting out the terms pursuant to which DOJA proposes to acquire (the " Merger ") all of the issued and outstanding shares in the capital of Tokyo Smoke (the " Tokyo Smoke Shares "). The Merger will create a uniquely positioned cannabis company combining a best-in-class craft cannabis producer with an award-winning lifestyle brand and retail-focused cannabis company. It is anticipated that the combined company resulting from the Merger will use the name "Hiku Brands Company Ltd." (" Hiku " or the " Company ") to refer to the brand house containing premium cannabis brands DOJA, Tokyo Smoke, and Van der Pop.
Concurrently, DOJA is pleased to announce it has entered into a binding agreement with Aphria Inc. (" Aphria ") (TSX: APH) (OTCQB: APHQF) pursuant to which Aphria has committed to make a $10 million strategic equity investment into Hiku. Additionally, the parties have agreed on the terms of a supply agreement, to be entered into in connection with the Merger (the " Supply Agreement "), to secure cannabis concentrate supply for Hiku's premium brand portfolio.Upon completion of the Merger, the Company will have a robust cash position of approximately $31 million, which it plans to invest in expanding its cannabis production capacity, growing its retail footprint, and adding select brands to its portfolio through highly strategic and complementary acquisitions. DOJA's Board of Directors and Tokyo Smoke's Board of Directors have approved the Merger.
Highlights of the Transformational Transaction
Creation of the first retail-focused, craft cannabis producer with a portfolio of leading lifestyle cannabis brands: Hiku will be differentiated as the only Canadian craft cannabis producer with significant national retail presence and a growing portfolio of premium cannabis lifestyle brands including DOJA, Tokyo Smoke, and Van der Pop, appealing to a wide variety of consumers across Canada and globally.
Well positioned to capitalize on Canada's recreational cannabis market through retail:
Hiku has multiple highly recognizable brands and strategies in place to operate retail cannabis stores across various provinces . Vertically integrated operations position Hiku to offer exclusive products in Hiku-owned stores and achieve superior margins versus peers.
Licensed producer under the Access to Cannabis for Medical Purposes Regulations
(ACMPR): 7,100 square foot production facility licensed by Health Canada. DOJA's second facility, a 22,580 sq ft warehouse, will house the FUTURE LAB. The FUTURE LAB is targeting its Phase 1 completion by Q2 2018 and once the facility is fully built-out utilizing an industry leading multi-tier system powered by LED lighting provided by Fluence BioEngineering, DOJA's annual production capacity is expected to be in excess of 5,000 kgs.
Retail locations from Eastern to Western Canada, with plans to expand: Hiku will have seven operational, legal cannabis accessory stores with locations across Canada (Ontario, Alberta and British Columbia), representing an unprecedented platform to build brand awareness and reach consumers. Hiku will prioritize retail expansion in provinces allowing private cannabis retail and Tokyo Smoke and DOJA will respond to the Government of Manitoba's Request for Proposals to establish retail cannabis stores throughout the province.
Strategic Partnership with Aphria: Aphria's strategic investment into Hiku marks Aphria's first venture into British Columbia's premium cannabis market. Combined with the Supply Agreement, the partnership with Aphria brings unparalleled experience in cannabis production and ensures secured supply for what is expected to be a supply-constrained market at the onset of legalization.
Led by industry leading management and team : Hiku management has breadth and depth of expertise, with a proven track record of building and scaling businesses, including SAXX Underwear and a $100 million+ business at Google. The supporting team brings expertise from the retail, cannabis, finance, design, marketing and creative fields.
Well capitalized for local and global growth: Post-Merger, Hiku is expected to have a cash balance of approximately $31 million and to be well positioned to expand within the Canadian market and enter into the emerging global cannabis markets.
Enhanced capital markets profile: The combined entity post-financing is anticipated to have a basic market capitalization of approximately $175 million at the transaction price, as well as increased trading liquidity for existing and prospective shareholders.
DOJA operates a cannabis production facility in British Columbia's Okanagan Valley, and is in the process of building FUTURE LAB, DOJA's new production facility to be located in Kelowna, British Columbia to support production capacity in excess of 5,000 kg per year. DOJA also operates the Culture Café, a café located on Kelowna's busiest street serving as a cannabis information centre that generates brand awareness. With the addition of Tokyo Smoke, an award-winning lifestyle brand with six coffee and cannabis accessory shops, Hiku will have a retail presence across Canada with a portfolio of multiple recognized cannabis brands including DOJA, Tokyo Smoke and Van der Pop. The Company's aggressive growth strategy will be supported by a strong balance sheet, positioning Hiku to be the preeminent craft cannabis brand house in the Canadian adult-use cannabis market.
Trent Kitsch, CEO of DOJA, said, "We have created the leading brand house in Cannabis. Where high quality and design will shape the Cannabis Future. I am confident Hiku will be trusted by consumers to design better customer experiences and products, resulting in greater market share. Tokyo Smoke's experienced management team has proven its ability to build and acquire respected cannabis brands and create brand awareness in a difficult-to-navigate regulatory environment. We see leveraging those skills and their strong retail operating abilities as highly complementary to our current operations and beneficial to the long-term trajectory of our company. The combination of cannabis production, retail footprint, and a portfolio of cannabis brands gives us the opportunity to realize the significant value of complete vertical integration."
Alan Gertner, CEO of Tokyo Smoke, added, "DOJA is an incredible organization, team and brand. DOJA's deeply authentic BC story combined with being one of the only licensed producers that have access to unique genetics through an import license creates a platform to provide customers an unrivaled premium experience. Not to mention, DOJA's cultivation team has already demonstrated their ability to deliver on all levels of production, including quality, yield and ensuring the plant's fullest potential is expressed through aroma, flavor and effects. Craft British Columbia approach, top notch branding, and retail will allow Hiku to have a distinctive business; high quality control, high demand and high margin."
"This strategic investment in and supply agreement with Hiku further bolsters our relationship with Tokyo Smoke and now DOJA, and reaffirms our commitment to expanding our product offering ahead of the recreational market," said Vic Neufeld, Chief Executive Officer of Aphria. "This transaction has the twofold benefit of providing us access to strong brands, through Tokyo Smoke and DOJA, and craft-cultivated British Columbia bud, through DOJA. Quality product and recognizable consumer brands will be key differentiators for patients and consumers, and we're looking forward to continuing our work with Hiku to create premium cannabis brands in Canada."
Benefits to DOJA Shareholders
Tokyo Smoke owns two premium cannabis brands in the cannabis industry, Van der Pop and Tokyo Smoke, the recipient of the 2017 Canadian Cannabis Brand of the Year Award
Internationally acclaimed and award-winning cannabis accessory stores with locations cross country
The addition of a management team with deep relevant experience from Google, Samsung, Bain & Company, Barneys New York, David's Tea, Lululemon, Kit & Ace, PharmaCan Capital (now Cronos Group), Privateer and Marley's Natural
Completed licensing and supply deals in Canada
Strategic investment of $12.5 million led by Aphria and including Uji Capital
Merger Structure and Terms
Under the terms of the Merger, DOJA will acquire all of the outstanding Tokyo Smoke Shares in exchange for shares of DOJA (" DOJA Shares "). The LOI currently contemplates the parties entering into a definitive agreement (the " Definitive Agreement ") prior to January 15, 2018, and completing the Merger by no later than March 31, 2018, unless otherwise agreed by the parties. The Merger is subject to requisite regulatory approvals, including the approval of the Canadian Securities Exchange, requisite Tokyo Smoke shareholder approval and standard closing conditions, including the approval of the Definitive Agreement by the boards of the respective companies and completion of due diligence investigations to the satisfaction of each of the parties. The legal structure for the Merger will be confirmed after the parties have considered all applicable tax, securities law, and accounting efficiencies. Based upon the number of Tokyo Smoke Shares outstanding as at December 21, 2017, if the Merger is completed, DOJA will issue approximately 55.6 million DOJA Shares to the shareholders of Tokyo Smoke in exchange for their Tokyo Smoke Shares.
Aphria, along with Uji Capital (collectively the " Strategic Investors ") have entered into binding agreements with DOJA pursuant to which the Strategic Investors will acquire from DOJA, on a non-brokered private placement basis, 8,992,805 subscription receipts (the " Subscription Receipts ") of DOJA at a purchase price of $1.39 per Subscription Receipt, equivalent to DOJA's five day volume weighted share price, for aggregate gross proceeds of $12.5 million (the " Strategic Financing ").
The Subscription Receipts will be automatically convertible in to units of Hiku (the " Units ") upon the satisfaction of certain escrow release conditions, with each Unit comprised of one common share of Hiku (a " Common Share ") and one Common Share Purchase Warrant of Hiku (a " Warrant "). Each Warrant will be exercisable to acquire one common share (a " Warrant Share ") for a period of two years from the closing date of the Merger at an exercise price of $2.10 per Warrant Share. If, following the closing of the Merger, the volume weighted average price of the Common Shares on the Canadian Securities Exchange is equal to or greater than $3.05 for any twenty (20) consecutive trading days, Hiku may, upon providing written notice to the holders of the Warrants, accelerate the expiry date of the Warrants to the date that is 30 days following the date of such written notice.
Closing of the Strategic Financing is subject to the satisfaction of certain closing conditions including, but not limited to, closing of the Merger, the receipt of all necessary approvals, including the approval of the Canadian Securities Exchange.