CANADA HOUSE WELLNESS GROUP ENTERS INTO RESTATED SHARE EXCHANGE AGREEMENT FOR THE ACQUISITION OF MTL CANNABIS OVER TWO TRANCHES
Tuesday, July 26, 2022, 12:00 PM ET
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Canada House also Enters into Amending Agreements to Restructure Certain Debt Obligations
MONTRAL, July 26, 2022 /CNW/ - Canada House Wellness Group (CSE: CHV) ("Canada House" or the "Company"), a fully integrated medical cannabis company, and Montral Cannabis Mdical Inc. ("MTL Cannabis"), a Montreal based "flower-first" Licensed Producer, today announced that they have entered into a definitive restated share exchange agreement (the "Restated Agreement") for Canada House's previously announced acquisition of all of the issued and outstanding shares of MTL Cannabis (the "Transaction") (see the press release of the Company dated August 9, 2021).
Originally contemplated as a transaction that would have been effected in a single-step, the parties Restated Agreement provides for the Transaction to be effected over two stages. The first stage of the Transaction (the "Initial Closing") provides for the acquisition by the Company of approximately 24.99% of the issued and outstanding shares of MTL Cannabis in exchange for 49.99% of the issued and outstanding common shares ("Common Shares") of the Company (currently anticipated to be 683,380,223 Common Shares) post-issuance. The second stage (the "Subsequent Closing") will result in the Company's acquisition of the remaining 75.01% of the issued and outstanding shares of MTL Cannabis in exchange for such number of Common Shares that when added to the Common Shares issued on the Initial Closing, is equal to 80.0% of the issued and outstanding common shares ("Common Shares") of the Company.
The percentages of Common Shares noted above will be subject to anti-dilution adjustments in favour of the vendors of the MTL Cannabis shares wherein additional Common Shares will be issued up to 49.99% of the Common Shares prior to the Subsequent Closing and up to 80.0% following the Subsequent Closing in the event of the issuance of Common Shares upon the conversion of the principal and accrued interest of the Company's $6.5 million convertible debenture (the "Archerwill Debenture") issued to Archerwill Investments Inc. ("Archerwill") on August 5, 2020 and any other convertible debentures of the Company outstanding prior to the Initial Closing.
The parties have agreed to restructure the Transaction in this manner as MTL Cannabis has to date not been able to deliver the required audited annual and unaudited interim financial statements and related management's discussion and analysis in order for the Company to proceed to a shareholder meeting to approve the Transaction, as is required by the rules and policies of the Canadian Securities Exchange (the "CSE"). To reflect the parties' commitment to the Transaction and in light of the ongoing integration of the business of the Company with the business of MTL Cannabis, the parties have determined to proceed with the Initial Closing and the further integration of the two businesses while the necessary audited annual, unaudited interim financial statements and pro forma financial statements together with the related management's discussion and analysis are prepared to allow the Company to call and hold a special meeting of Shareholders to approve the Subsequent Closing.
The Restated Agreement also provides for amendments to the criteria for the cash earnout payment of $5 million (the "Earnout") that may be payable under the Restated Agreement. Originally, the Earnout was conditional upon MTL Cannabis and IsoCanMed Inc. (now employing the genetics and grow methodologies of MTL Cannabis) achieving stand-alone revenue of $20M and production of 10,000 kilograms of merchantable dried flower in each of the first twelve months and the second twelve months following the closing of the Transaction. The Restated SEA provides for the Earnout to be achieved upon gross revenue from the production facilities of MTL Cannabis and of IsoCanMed Inc. net of excise tax being at least $30,000,000 for each of the first twelve months and the second twelve months following the Subsequent Closing.
"We are very pleased with the outcome of the past 12 months of work to integrate Canada House's business with that of MTL Cannabis, including the recent completion of phase 1 of the retrofit and conversion of our ICM production facility in Louiseville, Quebec to deploy MTL Cannabis' grow methodoligies," commented Chris Churchill-Smith, CEO of Canada House. "We have achieved record revenues on both the recreational and medical segments of our business and expect this growth to continue. We look forward to welcoming Rich and Mitch Clement as major shareholders of CHV and continuing to work closely together to complete one of the industries most high impact transactions."
"I want to reiterate our unwavering commitment to this Transaction," added Rich Clement, CEO of MTL Cannabis. "We continue to strongly believe bringing Canada House and MTL Cannabis together will result in a combined business that will change the way Canadian Cannabis companies are perceived both operationally and on the bottom line. I want to thank Chris and his team again for their continued support as we optimize our respective businesses."
"On behalf of the Canada House and IsoCanMed teams, I would like to thank MTL Cannabis for making this a successful project," added Erik Bertacchini, President of IsoCanMed and member of the board of directors of Canada House. "The phase 1 retrofit will allow IsoCanMed to produce up to 5,000 kg of high-quality dried cannabis flower annually. After completion of phase 2, IsoCanMed should produce up to 10,000kg annually. At present, more than half of IsoCanMed's production area has been retrofit and the mother room has been populated with carefully selected genetics. Our first harvest under MTL's grow methodology is expected early October 2022."