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Citation Growth firms up acquisition of ACC Group
2019-06-17 09:39 CT - News Release
Mr. Rahim Mohamed reports
CITATION GROWTH CORP. (FORMERLY, LIHT CANNABIS CORP.) ANNOUNCES DEFINITIVE AGREEMENT TO ACQUIRE PREMIUM CANNABIS CULTIVATOR, ACC GROUP OF COMPANIES, TO ESTABLISH NEVADA CANNABIS CULTIVATION AND BRAND POWERHOUSE
Further to the company's press release dated May 24, 2019, Citation Growth Corp. has executed a definitive agreement to acquire all of the equity interests of the ACC Group of Companies, a Nevada-based group of companies licensed for cannabis cultivation and well known for its award-winning cannabis cultivars. Following the completion of the transaction contemplated in the Definitive Agreement (the "Proposed Transaction"), the Company believes the integration of ACC will reaffirm Citation's continuing corporate growth strategy: to become a leading multi-state operator (MSO) of cannabis cultivation and production assets across the United States and Canada, as legislation and regulations may permit.
Rahim Mohamed, Chief Executive Officer of Citation, reiterated his earlier comments, stating: "Citation believes the accretive benefits derived from the acquisition of ACC, which includes the group's advanced cannabis cultivars program, will provide Citation with an experienced and operationally diverse cannabis industry partner with which to progress our triple-organic-certified cultivation program - to set new industry standards for quality, cost, and margin in every jurisdiction in which we operate." Mr. Mohamed continued, "Citation anticipates the superior quality, capacity, and reputation afforded by the acquisition of ACC will transform our Nevada program and position the company to become the pre-eminent cannabis cultivator and producer in the state."
Following the closing of the Proposed Transaction (the "Closing"), Citation believes that it will have completed a key strategic alignment in the State of Nevada, providing the launchpad to become a dominant cultivator and distributor of premium cannabis products to the State's vibrant medical and recreational markets. The Company further anticipates that the integration of ACC's innovative agronomic ability and cannabis marketing infrastructure will help bolster Citation's considerable triple-organic-certified cannabis cultivation and production experience.
Following the Closing of the Proposed Transaction, Citation anticipates that the acquisition of ACC will:create one of the largest license holders for cultivation in the State of Nevada, with an estimated, consolidated licensed footprint for the combined entity of up to 569,600 ft2, including up to 16,000 ft2 in processing space for cannabis concentrates and edibles, assuming the successful completion of all proposed site phases, with an estimated capital expenditure requirement for the combined entity of approximately US$90MM, which the Company anticipates will be made available through a combination of equity and non-dilutive debt financings, as well as from the reinvestment of profits generated from the Company's operations; significantly enhance Citation's Nevada operations by combining the Company's comprehensive experience in organic cultivation techniques with ACC's award-winning seed genetics program, fostering a new, premium cannabis powerhouse in the State of Nevada, and any such other jurisdictions it may enter, as regulations and legislation may permit;provide the opportunity to build upon ACC's successful CY2018 management estimated unaudited financial performance, where it achieved revenue of approximately US$7.9MM, gross margin of approximately 57%, and adjusted EBITDA of approximately US$1.0MM; provide Citation with an approximate ACC management-estimated, annualized US$114MM in additional forward-looking revenue, at an ACC management-estimated, annualized EBITDA margin of approximately 25%, assuming the completion of all proposed phases and maximum operational efficiencies being realized, with an estimated capital expenditure requirement of approximately US$50MM; and enhance the Company's suite of portfolio products with the addition of three (3) new, established brands within the State of Nevada, including BluntBox, Garden of Weeden, and Superior, to complement Citation's established FIORE cannabis flower brand.
Howard Misle, who will be joining Citation as the Company's Chief Executive Officer upon the Closing of the Proposed Transaction, restated his earlier comments: "ACC has been pleased to observe the significant traction and rapid growth achieved by the Citation team since its entrance into the Nevada cannabis market, while also noting Citation's reputation is quickly becoming synonymous with success, innovation, and high-quality production." Mr. Misle added, "In electing to partner with Citation and its experienced management team, ACC believes it will gain the expanded platform and capital markets support network necessary to leverage our collective success, allowing for an eye toward future growth outside of the State of Nevada." Following the appointment of Howard Misle as Chief Executive Officer, Rahim Mohamed will serve as President of the Company.
Terms of the Proposed Transaction
Upon the Closing of the Proposed Transaction, it is intended that the Company will issue an aggregate 35,000,000 common shares (the "Consideration Shares") to the former securityholders of the parent ACC entity, which amount shall be inclusive of the approximately 11,500,000 in Company common shares ("Common Shares") issuable upon the conversion of the ACC Amended Notes (as defined below).
The parent ACC entity currently has approximately US$15,000,000 in convertible notes (the "Notes") outstanding. As a condition of the Proposed Transaction, the holders of the Notes have agreed to restructure the Notes such that all principal and interest outstanding at the time of Closing will convert into Company units comprised of one (1) Consideration Share and one (1) Common Share purchase warrant (the "Amended Warrants"), with each full Amended Warrant exercisable at C$2.50 per Common Share for a period of twenty-four (24) months following the Closing (the "ACC Amended Notes"). The Amended Warrants will contain an acceleration provision such that in the event the volume-weighted average trading price of the Common Shares on the Canadian Securities Exchange ("CSE") is greater than C$3.50 for a period of ten (10) consecutive trading days, the Company may, upon providing notice to the holders of the Amended Warrants, accelerate the expiry of the Amended Warrants to a period that is thirty (30) days from the date such notice is given.
All Consideration Shares (including Common Shares issuable upon the exercise of the Amended Warrants) issued to management of ACC pursuant to the Proposed Transaction will be subject to three (3) year escrow provisions ("Escrow") substantially similar of those that are required for an emerging issuer under National Policy 46-201 Escrow for Initial Public Offerings. All other Consideration Shares, including any Consideration Shares issued in exchange for outstanding convertible securities in the parent ACC entity, shall be subject to resale restrictions which will not allow for any resale or transfer until the date that is four (4) months and one (1) day following completion of the Proposed Transaction.
Further, subject to the policies of the CSE and applicable securities legislation, the Company and ACC will negotiate in good faith to implement a management incentive plan allowing for the issuance of up to US$10,000,000 in Common Shares, based upon the achievement of certain performance milestones for each its Canadian and United States ("U.S.") operations.
Equity and Debt Financing
As announced in the Company's press release dated May 24, 2019, the Company intends to undertake an equity financing of up to US$10MM. The net proceeds of the proposed equity financing are intended to be directed toward: (a) further development of the Company's Celista, British Columbia property, which will include planned construction of up to 20,000 ft2 of indoor cultivation space and the securing of a temporary cannabis cultivation license under the Access to Cannabis for Medical Purposes Regulations (ACMPR) and the Cannabis Act (Canada), which management of the Company estimates will require approximately US$2.45MM in initial capital expenditures for the collective activities; and (b) following the Closing, the expansion of ACC's current cultivation and production footprint in Pahrump, Nevada by an additional 31,600 ft2, which management of ACC estimates will require approximately US$4.05MM in initial capital expenditures. Any net proceeds from the proposed equity financing that remain uncommitted will be directed toward the exploration of additional growth opportunities, working capital, and general corporate purposes. To complement the equity financing, and as previously announced, the Company will also pursue a potential debt financing of up to US$17MM, secured against the Company's North Las Vegas assets, to further the development of the Company's three-story "Phase 2" North Las Vegas cultivation and production infrastructure, estimated to total up to 65,000 ft2 upon completion. Further, the Company and ACC may elect to jointly pursue an additional, unsecured non-dilutive debt financing of up to US$7MM to further development of ACC's Pahrump, Nevada licensed assets.
Closing of Private Placement of Debentures
Additionally, further to the press release dated May 13, 2019, the Company is pleased to announce the closing of the second tranche of a non-brokered private placement (the "Offering") of secured Convertible Debentures (the "Debentures") for gross proceeds of C$250,000. The Debentures mature eighteen (18) months after the date of issuance (the "Maturity Date") and bear interest at a rate of 10% per annum, payable on the earlier of the Maturity Date or upon conversion of the Debenture. The Debentures (including any accrued and unpaid interests) are convertible at the option of the holder into units of the Company (each, a "Unit") at a conversion price of C$0.80 per Unit. Each Unit consists of one (1) common share and one (1) Common Share purchase warrant, entitling the holder thereof to purchase one (1) Common Share at an exercise price of C$1.40 per share for a period of eighteen (18) months (a "Warrant"). The Company will use the net proceeds of the Offering to finalize the build-out of the first phase of Citation's Nevada operations, including the purchase of lab equipment, a distribution vehicle, and for general and working capital purposes.
The Debentures and the underlying Common Shares and Warrants (and any Common Shares issuable upon conversion thereof), are subject to a statutory four (4) month and one (1) day hold period. The securities being offered have not been, nor will they be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful
About Citation Growth Corp.
Citation Growth Corp. (formerly Liht Cannabis Corp.) is a publicly traded company that has been investing in the medical and recreational cannabis space since 2014. Citation has rapidly expanded its operating portfolio to include cultivation, production, and dispensary locations in key North American state-legal jurisdictions and is seeking expansion opportunities worldwide.
About the ACC Group of Companies
ACC Group of Companies is a group of privately held companies that have held indoor cannabis cultivation licenses in the State of Nevada since 2014. Primarily located in Pahrump, Nevada, ACC prides itself on its expansive collection of premium cannabis cultivars and its innovative seed genetics program.
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