Medmen receives $20M (U.S.) in financing commitments 2020-09-16 16:58 ET - News Release
Ms. Esther Song reports
MEDMEN ANNOUNCES US$20 MILLION FINANCING COMMITMENTS -- DESIGNATED NEWS RELEASE
Medmen Enterprises Inc. has received financing commitments totalling over $20-million (U.S.) from existing lenders and institutional investors. The commitments include (1) $10-million (U.S.) in gross proceeds under a new unsecured convertible facility, (2) $5.7-million (U.S.) in additional gross proceeds under its senior secured term loan led by Stable Road Capital and (3) $5-million (U.S.) in additional gross proceeds under its senior secured convertible facility led by Gotham Green Partners.
"We are pleased with the continued support from our existing capital partners as we continue our recent track record of execution," said Medmen executive chairman Ben Rose. "The financing package is a significant milestone for the company and is a reflection of the commitment the company has made to strengthen the balance sheet, accelerate its path to profitability and sustainability, and focus on its core retail business. We look forward to continue expanding the Medmen brand."
Unsecured convertible facility:
The company entered into a $10-million (U.S.) unsecured convertible debenture facility with certain institutional investors. On Sept. 16, 2020, the company closed on an initial $1-million (U.S.), with subsequent tranches expected to be closed in the coming months, subject to certain conditions. Under the convertible facility, the convertible debentures shall have a conversion price equal to the closing price on the trading day immediately prior to the closing date, a maturity date of 24 months from the date of issuance and will bear interest from the date of issuance at 7.5 per cent per annum, payable semi-annually in cash. The debentures issued to the investors for the initial tranche have a conversion price of 16.7 U.S. cents per Class B subordinate voting share.
Subject to certain conditions, the company has the right to call additional tranches, totalling $1-million (U.S.) each, no later than 20 trading days following the issuance of each tranche, including the initial tranche, up to a maximum of $10-million (U.S.) under all tranches. The timing of additional tranches can be accelerated based on certain conditions. The investors have the right to at least four additional tranches, with any such subsequent tranche to be at least $1-million (U.S.).
At the closing of each additional tranche, the company shall issue share purchase warrants equal to 55 per cent of the number of shares a debenture is convertible into for a particular tranche. Each warrant will be exercisable to purchase one share for a period of 24 months from the date of issuance at an exercise price equal to 120 per cent of the volume-weighted average price of the shares on the Canadian Securities Exchange for the period ending on the trading day immediately prior to the applicable closing of each tranche. As part of the initial tranche, the company issued to the investors a total of 3,293,413 warrants, each exercisable at 21 U.S. cents per share for a period of 24 months from the date of issuance.
The debentures shall provide for the automatic conversion into shares in the event that the shares trade at a volume-weighted average trading price that is 50-per-cent above the conversion price on the CSE for 45 consecutive trading days.
Senior secured term loan
The company has also entered into a further amendment to the commercial loan agreement that governs its senior secured term loan with funds managed by Stable Road Capital and its affiliates. The amendments include, among other things, an increase in the potential size of the facility by $12-million (U.S.), of which $5.7-million (U.S.) is fully committed by the term loan lenders. On Sept. 16, 2020, the company closed on $3-million (U.S.), with the remaining $2.7-million (U.S.) expected to be financed on Sept. 30, 2020.
The principal amount of the incremental notes will carry an interest rate of 18 per cent per annum, to be paid as follows: (a) 12 per cent shall be paid in cash monthly in arrears and (b) 6 per cent shall accrue monthly to the outstanding principal as payment in kind.
The October, 2018, loan was also amended to include, among other things, a modification to the minimum liquidity covenant, which extends the period during which it is waived from Sept. 30, 2020, to Dec. 31, 2020. The minimum liquidity threshold resets to $5-million (U.S.) thereafter to $7.5-million (U.S.) effective on March 31, 2021, and then to $15-million (U.S.) effective on Dec. 31, 2021.
As consideration for the increase in the size of the facility under the October, 2018, loan and the amendment to the covenant, the company is issuing warrants as follows: on the closing of the initial $3-million (U.S.), the company issued to the term loan lenders a total of 30 million warrants, each exercisable at 20 U.S. cents per share for a period of five years and 20,227,865 warrants, each exercisable at 34 U.S. cents per share for a period of five years; on closing of the remaining $2.7-million (U.S.) tranche, the company will issue to the term loan lenders an additional 27 million warrants, each exercisable at the greater of (a) 20 U.S. cents per share and (b) 115 per cent multiplied by the volume-weighted average trading price of the shares for the five consecutive trading days ending on the trading day immediately prior to the applicable financing date of the second tranche.
Senior secured convertible facility
On Sept. 14, 2020, the company was also advanced an additional $5-million (U.S.) in gross proceeds under its senior secured convertible facility led by funds affiliated with Gotham Green Partners. In connection therewith, the company is co-issuing, with its subsidiary MM CAN USA Inc., additional senior secured convertible notes to the lenders under the facility in an aggregate principal amount equal to the incremental advance with a conversion price per share equal to 20 U.S. cents. As consideration for the purchase of the additional notes, participating lenders will receive a $468,564 (U.S.) fee with a conversion price of 20 U.S. cents per share, consistent with the terms of the facility.
Pursuant to the terms of the facility, the conversion price for 5 per cent of the existing notes outstanding prior to tranche 4 and incremental advance (including paid-in-kind interest accrued on such notes), being 5 per cent of an aggregate principal amount of $170,729,923 (U.S.), was amended to 20 U.S. cents per share. The company issued to the lenders 25 million share purchase warrants of the company, each of which is exercisable to purchase one share for a period of five years from the date of issuance at an exercise price equal to 20 U.S. cents per share, and cancelled 1,080,255 share purchase warrants of the company held by holders of the existing notes and, in exchange, issued 16,875,000 share purchase warrants of the company at an exercise price equal to 20 U.S. cents per share. The notes issued in connection with the incremental advance, the restatement fee notes, the incremental advance warrants, the replacement warrants and any shares issuable as a result of conversion or exercise of the same, will be subject to a hold period from the date of issuance of such notes or such warrants as applicable.
The facility was amended to include, among other things, a modification to the minimum liquidity covenant, which extends the period during which it is waived from Sept. 30, 2020, to Dec. 31, 2020. The minimum liquidity threshold resets to $5-million (U.S.) thereafter to $7.5-million (U.S.) effective on March 31, 2021, and then to $15-million (U.S.) effective on Dec. 31, 2021.
Further details on the facility are available can be found on the company's press release dated March 30, 2020.
About Medmen Enterprises Inc.
Medmen is North America's leading cannabis retailer with flagship locations in Los Angeles, Las Vegas, Chicago and New York. Medmen offers a robust selection of high-quality products, including Medmen-owned brands [statemade], LuxLyte and Medmen Red through its premium retail stores, proprietary delivery service, as well as curbside and in-store pickup. Medmen Buds, an industry-first loyalty program, provides exclusive access to promotions, product drops and content. Medmen believes that a world where cannabis is legal and regulated is safer, healthier and happier.
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