Trichome Financial Corp. provides update on proposed qualifying transaction with 22 Capital Corp. and subscription receipt financing

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TORONTO, April 24, 2019 /CNW/ - 22 Capital Corp. (TSXV: LFC.P) ("22 Capital") and Trichome Financial Corp. ("Trichome") are pleased to provide updates regarding their announced amalgamation under the provisions of the Business Corporations Act (Ontario) that will result in a reverse take-over of 22 Capital by the shareholders of Trichome (the "Transaction"). The Transaction is being undertaken pursuant to the terms and conditions of the Amalgamation Agreement between 22 Capital and Trichome dated November 13, 2018, as amended January 30, 2019 and April 5, 2019.  The Transaction was negotiated at arm's length by independent members of the management of Trichome and independent members of the board of directors of 22 Capital. The Transaction, if completed, will constitute 22 Capital's "Qualifying Transaction" as such term is defined  in Policy 2.4 of the TSX Venture Exchange ("TSXV"), and it is anticipated that the resulting issuer will be listed as a Tier 1 Investment issuer on the TSXV. Currently a subsidiary of CannaRoyalty Corp. d/b/a Origin House ("Origin House") (CSE: OH; OTCQX: ORHOF), Trichome is a private corporation.  Each of Trichome and Origin House exists under the laws of the Province of Ontario.

Terms of the Transaction

Prior to the completion of the Transaction, Trichome intends to complete a non-brokered private placement (the "Offering") of subscription receipts ("Subscription Receipts") at a price of $2.10 per Subscription Receipt (the "Offering Price") for gross proceeds of a minimum of approximately $15,000,000 and a maximum of approximately $30,000,000.  Each Subscription Receipt will be automatically converted into one common share of Trichome ("Trichome Share") immediately prior to completion of the Transaction.  Under the minimum Offering of approximately $15,000,000, Trichome would issue 7,142,858 subscription receipts, convertible into the same number of common shares upon completion of the Transaction, and under the maximum Offering of approximately $30,000,000, Trichome would issue 14,285,714 subscription receipts, convertible into the same number of common shares upon completion of the Transaction.  The net proceeds from the Offering will be used to fund specialty finance solutions to Trichome's growing pipeline of opportunities in the cannabis sector. 

In connection with the Transaction, Trichome intends to complete a stock split of its outstanding Trichome Shares and preferred shares in each case on the basis of 1 share for 3 post-split shares.  22 Capital will effect a consolidation (the "Consolidation") of its common shares (the "Pre-Consolidation Shares") into such number of common shares ("Post-Consolidation Shares") as is equal to the quotient obtained by dividing 1,495,000 by the Offering Price, such that the consolidation ratio of 22 Capital is one share for every 14.24347 shares.  22 Capital will then acquire all of the issued and outstanding Trichome Shares on the basis of one Post-Consolidation Share for each Trichome Share outstanding.  Without giving effect to the Offering, 22 Capital would acquire all of the issued and outstanding Trichome Shares in exchange for 16,473,903 Post-Consolidation Shares.

About Trichome Financial Corp.

Trichome was incorporated on September 18, 2017 and is a specialty finance company focused on providing flexible and creative capital solutions to the global legal cannabis market. It was created to address the lack of credit availability in the large, growing and increasingly complex cannabis market. Founded by industry leaders Origin House, Stoic Advisory, and Sprott Inc. (TSX: SII), Trichome's experienced management team has a unique edge to capitalize on proprietary deal flow and insight while developing a first mover advantage as a global cannabis focused specialty finance company. Trichome provides customized financing solutions across the industry value chain to support growth, capital expenditures, M&A, working capital and other needs.  Transactions are typically structured to earn attractive rates of contractual cash flows, retain optionality on value creation and ensure return of capital. Leveraging the combined resources and knowledge of its founders and management, it is able to offer significant value-added financial, product, market and operational support to its partner companies. Trichome's current assets are all based in Canada and it has no operations or assets in the United States. To date, Trichome has made the following material investments:

• A commitment of $1,250,000, of which $425,000 was contributed, under a second lien secured, one year term loan with a 10% interest rate (payable in kind), to 2360149 Ontario Inc. (dba 180 Smoke). 858,951 warrants were issued by 180 Smoke to Trichome, exercisable for three years from the date of issuance at an exercise price of $0.3871. On February 20, 2019, Origin House closed the acquisition of 100% of 180 Smoke for total consideration of $25 million in cash and shares of Origin House, plus $15 million in earn out payments in shares of Origin House. Concurrent with the closing of this transaction, Trichome's warrants were terminated, the full loan amount was repaid, the interest was forgiven, and the loan agreement terminated. In respect of the termination of the warrants, Trichome realized a gain of $165,000 representing an internal rate of return on its loan of approximately 64%. This transaction was completed after the audited financial year ending December 31, 2018 and the financial information is prepared by management and not audited.
• On March 1, 2019, Trichome provided credit financing to James E. Wagner Cultivation Corporation ("JWC"), a licensed producer of cannabis whose common shares are listed on the TSX Venture Exchange. Trichome entered into a loan agreement with JWC to provide $3.5 million in the form of a senior-secured term facility. Trichome has advanced $3.33 million, being $3.5 million minus an original issue discount of 5%. The loan bears interest at 9.25% per annum paid monthly with principal payable in a bullet payment at maturity. In addition, Trichome was issued 291,667 warrants to purchase shares of JWC at a price per share of $0.80. JWC is deploying the proceeds of the loan to purchase certain equipment and fund improvements for Phase 1 and 2 of the construction of its second licensed cannabis cultivation facility.
• On March 15, 2019, Trichome closed a lending arrangement with C.G.S. Foods Inc. ("CGS" or "Ganjika House"), a private retail cannabis license holder in Ontario, Canada. The lending arrangement consists of a revolving credit facility ("Facility A") of up to $1,000,000 million at an interest rate of 1.8% per month and with a term ending March 15, 2021 and a term loan for up to $1,000,000 million ("Facility B") at an interest rate of either 8.50% per annum if CGS pays interest monthly or 12% per annum if CGS elects to accrue interest payments until maturity, with a term ending March 15, 2021. The initial investment consisted of a $750,000 draw under Facility A and $500,000 draw under Facility B for a total investment of $1,250,000. The revolving credit facility or Facility A is for the purchase of inventory, and bears interest payable monthly. Facility A terminates at the option of the borrower after the six-month anniversary of the close date and Trichome may cancel the facility if certain lending limits are not reached. Repayments over the course of the term of Facility A are based on a margining calculation against CGS' inventory. In connection with the loans, Trichome was issued warrants to acquire a minimum of 10.3% and a maximum of 13.3% of the common shares of CGS should the loan be fully drawn.

Trichome's audited financial statements and management's discussion thereof for the year ended December 31, 2018 will be disclosed in the joint management information circular in connection with the Transaction.  A summary of certain key financial information of Trichome for the year ended December 31, 2018 is set out below:

About Origin House

Origin House is a North American cannabis consumer product company currently focused on building a leading distribution business in California, the world's largest regulated cannabis market. By building a world-class logistics platform and supporting contract manufacturing assets, Origin House intends to support the growth of new and established cannabis brands. Origin House believes California, home to some of the world's most discerning consumers and a nexus of information and trends, will be the point of inception for the global cannabis brands of the future. Origin House has developed a diversified portfolio of assets within the cannabis sector, including research, infrastructure and intellectual property to support our existing brands, partner products and distribution networks. The company's leadership and staff combines passion and a hands-on understanding of the cannabis industry, with proven financial and legal expertise. Origin House's shares trade on the Canadian Stock Exchange (CSE) under the symbol OH and in the US on the OTCQX under the symbol CNNRF. Origin House currently owns 1,600,000 Trichome Common Shares and 323,044 Trichome Class A Preferred Shares, Series 1 representing approximately 68.9% of the Trichome Common Shares and 10.2% of the Trichome Class A Preferred Shares, Series 1 and 30.8% of Trichome's shares on a fully-diluted basis. Origin House is expected to be an insider of the resulting issuer upon consummation of the Transaction.  Upon consummation of the Transaction, Origin House is expected to own 5,769,132 common shares of the resulting issuer. If Trichome completes the minimum Offering, Origin House is expected to own 21.60% of the common shares of the resulting issuer on a fully diluted basis, and if Trichome completes the maximum Offering, Origin House is expected to own 17.04% of the common shares of the resulting issuer on a fully diluted basis. On April 1, 2019, Origin House announced an agreement pursuant to which, subject to the approval of the shareholders of Origin House and other conditions to closing, it will be acquired by Cresco Labs Inc. (CSE: CL).

Directors and Executive Officers

Subject to applicable shareholder and TSXV approval, it is anticipated that the directors and officers of the resulting issuer will be:

Marc Lustig, Chairman of the Resulting Issuer
Mr. Lustig is the Founder and CEO of Origin House and is the Chairman of Trichome and a director of 22 Capital.  He holds MSc and MBA degrees from McGill University. He began his professional career in the pharmaceutical industry at Merck & Co. In 2000, he started his capital markets career in institutional equity research in the Life Sciences sector at Orion Securities. For the next 14 years, Mr. Lustig worked as an executive at GMP Securities L.P. and as Head of Capital Markets at Dundee Capital Markets before becoming Principal at KES 7 Capital. Mr. Lustig founded Cannabis Royalties & Holdings Corp. in early 2015.

Michael Ruscetta, Chief Executive Officer and Director of the Resulting Issuer
Mr. Ruscetta is the Chief Executive Officer of Trichome, joining in May, 2018 after previously managing the RCM Special Situations Fund, a Canadian focused value-oriented equity fund. Previously, Mr. Ruscetta served as Co-Head of Goldman Sachs' Canada Special Situations Group, a multi-asset principal investing platform, and as Managing Director of Amaranth Advisors (Canada) ULC, a multi-strategy investment fund that was headquartered in Connecticut. Mr. Ruscetta also has held numerous roles at CIBC, including many years in its merchant banking division working exclusively on a wide array of customized principal investments.

Kevin Jarrett, Vice President of Investments of the Resulting Issuer
Mr. Jarrett joined Trichome in December 2017 after working as a VP, Investments at Grenville Strategic Royalty Corp. (now Flow Capital Corp), a publicly-traded royalty investor making investments in North American late stage venture and early stage growth companies. Mr. Jarrett spent six years and co-led due diligence and transactional execution efforts on over $60 million in royalty investments at Grenville. Mr. Jarrett initially joined Origin House to lead the launch of Trichome while assisting Origin House's business development team with transactions related to their US portfolio. Prior to Grenville, Mr. Jarrett served as an analyst at Quantum Leap Asset Management, where he helped to lead the underwriting, execution and monitoring of the Quantum Leap Mortgage Investments portfolio of residential real estate assets within the Greater Toronto Area.

Timothy Diamond, Director of the Resulting Issuer
Mr. Diamond brings to Trichome over 25 years of entrepreneurial and managerial experience across asset management, merchant banking, and venture investing including founding, building and successfully exiting several companies. He has particular experience in guiding rapidly expanding businesses in the financial services sector. From 2009-2013, he led, grew and sold Nova Potash Corporation, a mining company with property in Ethiopia, and Basis Medical Technologies, Inc., an international medical device business. In 2007, he seeded and assisted Street Capital Financial Corporation, a Canadian mortgage origination company that was sold in 2011 to Council Corporation, a public company based in Toronto. From 1995-2004, he co-founded and led the sale of Triax Capital Corp., Skylon Capital Corp. and Venture Link Capital Corp., all Canadian-based mutual fund wholesalers. Mr. Diamond holds a B.A. from the University of Western Ontario.

Marissa Lauder, Director of the Resulting Issuer
Marissa Lauder is the Executive Vice President, Chief Financial Officer and Corporate Secretary of Street Capital Group Inc. (TSX: SCB) and Street Capital Bank of Canada. She is a seasoned financial executive with more than 18 years of experience in the financial services sector in Canada. Ms. Lauder was an executive at Home Trust Company for 6 years where she held executive positions in both Finance and Risk Management. Ms. Lauder also spent over 5 years at the Office of the Superintendent of Financial Institutions of Canada as a senior advisor in the regulation sector contributing to the development of local and international regulatory policy for accounting, capital and disclosure. She earned her CPA, CA designation while working in Ernst and Young's Toronto Financial Services office and holds a Bachelor of Commerce degree from the University of Toronto.

Dr. Jonathan Page, Director of the Resulting Issuer
Dr. Page is Chief Scentific Officer of Aurora Cannabis and the Co-Founder of Anandia Labs, which provides industry-leading analytical testing services including potency, pesticides, microbes and terpenes to Licensed Producers and patients. Anandia Labs was recently acquired by Aurora Cannabis. Mr. Page received his PhD from the University of British Columbia (1998) then undertook postdoctoral training in Munich and Halle, Germany (1998-2003). Mr. Page followed his time at UBC by directing a lab at the National Research Council's Plant Biotechnology Institute from 2003-2013.

Onekanew Christian Sinclair, Director of the Resulting Issuer
Onekanew Sinclair is a well-regarded member of the Opaskwayak Cree Nation ("OCN") and co-chair of Manitoba's Northern Economic Development Strategy. He currently serves on the board of National Access Cannabis (TSX-V: META), in which OCN is both a significant shareholder and lender. Since 2002, he has worked with Indigenous groups across Canada and the United States, focused on corporate development for major natural resource projects related to hydro, mining, oil and gas. Onekanew Sinclair is well-connected and highly regarded by the First Nations communities throughout Manitoba and Canada, linking together development and partnerships with Indigenous and non-Indigenous communities.

Howard Steinberg, Director of the Resulting Issuer
Howard Steinberg brings more than 25 years of experience in private credit, private equity and real estate investing, having served as a Managing Director of Fortress Investment Group, President of The Rose Corporation, Senior Vice President at GE Capital, and Managing Director with RBC Capital Partners. Currently, Mr. Steinberg serves as the CEO and Executive Vice Chairman of the Board of MYM Nutraceuticals.

As at the date hereof, the proposed directors of the resulting issuer beneficially own, in the aggregate, directly or indirectly, approximately 12.63% of the Trichome Shares and preferred shares of Trichome, in the aggregate, on a fully-diluted basis.

Mr. Marc Lustig, the Chairman of the board of directors of Trichome beneficially owns approximately 2,000,000 of the issued and outstanding Pre-Consolidation Shares and 500,000 options of 22 Capital  (representing 19.7%  on a basic basis and 21.3% on a fully-diluted basis). Mr. Lustig beneficially owns approximately 100,000 of the Trichome Shares (representing 4.3% of the common shares and 1.6% on a fully-diluted basis). Each of Jay Goldman (a director of 22 Capital) and Steven Mintz (a director and officer of 22 Capital) beneficially own 1,000,000 of the issued and outstanding Pre-Consolidation Shares and 250,000 options of 22 Capital (representing 9.9% on a basic basis and 10.7% on a fully-diluted basis). Additionally, Mr. Goldman and Mr. Mintz beneficially own, direct or control 10,600 and 21,200, respectively, non-voting preferred shares of Trichome which represents 0.33% and 0.67%, respectively, of the issued and outstanding preferred shares. Mr. Lustig recused himself from all negotiations, deliberations and approvals of the Transaction in respect of both 22 Capital and Trichome. Based on the foregoing and the fact that Mr. Lustig is not a "control person" (within the meaning of the policies of the TSXV) of either 22 Capital or Trichome, the Transaction is not expected to constitute a Non-Arm's Length Qualifying Transaction, within the meaning of the applicable policies of the TSXV.

Conditions to Transaction

Prior to completion of the Transaction (and as conditions of closing):

• 22 Capital shall convene a meeting of its shareholders for the purpose of approving, among other matters: (i) the Consolidation; (ii) the election of the directors; and (iii) the approval of the Transaction, if required by the TSXV.
• 22 Capital and Trichome will prepare a joint management information circular in accordance with the rules of the TSXV, outlining the terms of the Transaction. Trichome will provide assistance and details as to the business, assets, properties and operations of Trichome and will be responsible for any and all audited annual financial statements, interim financial statements and pro forma financial statements related to its business and operations.
• Trichome will obtain the requisite shareholder approvals for the Transaction and the ancillary matters contemplated in the Definitive Agreement. On April 12, 2019, Origin House signed a voting and support agreement pursuant to which it has agreed to vote its Trichome Shares in favour of the Transaction.
• All requisite regulatory approvals relating to the Transaction, including, without limitation, TSXV approval, will have been obtained, as well as all third party approvals including any lenders, financial institutions, licensors or strategic partners.

In addition, prior to completion of the Transaction, Trichome will effect a split of the Trichome Shares and its preferred shares each on the basis of 3 post-split shares per share.

Pre-Closing Capitalization of 22 Capital and Trichome

As of the date hereof, 22 Capital has 10,140,000 Pre-Consolidation Shares issued and outstanding, options (the "Options") to acquire an aggregate of 1,010,000 Pre-Consolidation Shares at an exercise price of C$0.10 per Pre-Consolidation Share, and broker warrants (the "Broker Warrants") to acquire 560,000 Pre-Consolidation Shares at an exercise price of C$0.10 per Pre-Consolidation Share. As a condition of the Transaction, the expiry date of the Options will be amended to expire on the date which is six months following the closing of the Transaction. Assuming completion of the Transaction, 22 Capital shareholders will own 711,905 common shares of the resulting issuer.  The Options will become options to acquire an aggregate of 70,909 common shares of the resulting issuer at a price of $1.42 per share and the Broker Warrants will become warrants to acquire 39,316 common shares of the resulting issuer at a price of $1.42 per share.

As of the date hereof, Trichome has 2,320,000 Trichome Shares and 3,171,301 Class A preference series 1 shares of Trichome issued and outstanding (all of which will convert into Trichome Shares prior to closing), and convertible securities to acquire an aggregate of 756,768 Trichome Shares, including 541,768 restricted share units, 210,000 performance share units, and options to acquire 5,000 Trichome Shares at an exercise price of C$4.73 per share. Assuming completion of the share splits and the Transaction, Trichome shareholders will own 16,473,903 common shares of the resulting issuer and convertible securities to acquire an aggregate of 2,270,304 common shares of the resulting issuer, including 1,625,304 restricted share units of the resulting issuer, 630,000 performance share units of the resulting issuer, and options to acquire 15,000 common shares of the resulting issuer at an exercise price of C$1.58 per share. Assuming Trichome completes the minimum Offering, purchasers of subscription receipts will own 7,142,858 common shares of the resulting issuer upon completion of the Transaction.  Assuming Trichome completes the maximum Offering, purchasers of subscription receipts will own 14,285,714 common shares of the resulting issuer upon completion of the Transaction.

Additional Information Regarding the Transaction

The Transaction is subject to requisite regulatory approval, including the approval of the TSXV and standard closing conditions, as well as the conditions described above.

22 Capital was incorporated under the provisions of the Business Corporations Act (Ontario) with its registered and head office in Toronto, Ontario. It is a capital pool company and intends for the Transaction to constitute its "Qualifying Transaction" as such term is defined in the policies of the TSXV. 22 Capital is a "reporting issuer" within the meaning of the Securities Act (Ontario), Securities Act (British Columbia) and Securities Act (Alberta).

Trading in the Pre-Consolidation Shares of 22 Capital is halted at present. It is unlikely that the Pre-Consolidation Shares of 22 Capital will resume trading until the Transaction is completed and approved by the TSXV.

Sponsorship

Cormark Securities Inc., subject to completion of satisfactory due diligence, has agreed to act as sponsor in connection with the Transaction. An agreement to sponsor should not be construed as any assurance with respect to the merits of the Transaction or the likelihood of completion.

Further Information

All information contained in this news release with respect to 22 Capital and Trichome was supplied by the parties respectively, for inclusion herein, and each party and its directors and officers have relied on the other party for any information concerning the other party.

Completion of the Transaction is subject to a number of conditions, including but not limited to, TSXV acceptance and if applicable pursuant to the requirements of the TSXV, majority of the minority shareholder approval. Where applicable, the Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

The TSXV has in no way passed upon the merits of the proposed Transaction and has neither approved nor disapproved the contents of this press release.

NEITHER THE TSXV NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSXV) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION:

This news release contains "forward-looking information" and "forward-looking statements" (collectively, "forward-looking statements") within the meaning of the applicable Canadian securities legislation. All statements, other than statements of historical fact, are forward-looking statements and are based on expectations, estimates and projections as at the date of this news release. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts", "estimates", "believes" or "intends" or variations of such words and phrases or stating that certain actions, events or results "may" or "could", "would", "might" or "will" be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements. In this news release, forward-looking statements relate, among other things, to: the terms and conditions of the proposed Transaction and the terms and conditions of the proposed Offering. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general business, economic, competitive, political and social uncertainties; and the delay or failure to receive board, shareholder or regulatory approvals. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release. Except as required by law, 22 Capital and Trichome assume no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change.

SOURCE Trichome Financial Corp.

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