Assets of $19 million1 purchased free and clear of legacy liabilities for $16 million
Estimated 2021 EBITDA of $7 million to $9 million
Estimated run rate EBITDA of $12 million to $14 million at full capacity
TORONTO, ON / ACCESSWIRE / August 31, 2020 / Trichome Financial Corp. (the "Company" or "Trichome Financial") (CSE:TFC) is pleased to announce that its wholly-owned subsidiary, Trichome JWC Acquisition Corp. ("TJAC") d/b/a JWC ("JWC"), received licensure from Health Canada and closed the acquisition of substantially all of the assets (the "Assets") of James E. Wagner Cultivation Corporation on August 28, 2020 (the "Acquisition"), free and clear of legacy liabilities. The Acquisition was made in connection with James E. Wagner Cultivation Corporation's consensual restructuring proposal with Trichome Financial under the Companies' Creditors Arrangement Act (the "CCAA") that was previously authorized by the Ontario Superior Court of Justice (Commercial List) on June 2, 2020. The Assets were purchased for total consideration of $16 million by way of set-off of Trichome Financial's pre-filing debt and assumption of its debtor-in-possession ("DIP") financing, and will be used by TJAC to continue to produce premium cannabis offerings under the JWC brand.
"The closing of the Acquisition is a transformational opportunity for Trichome Financial. It comes at what we believe to be an inflection point for the Canadian cannabis industry, with increasing monthly recreational sales due to greater retail store openings intersecting with rationalizing cannabis supply, particularly of premium quality, given industry-wide capital constraints. The financial and operational restructuring of the business over the last five months positions JWC to be amongst a select group of Canadian cannabis businesses that will thrive in the coming years. We estimate that the processes we have implemented will generate between $12 million to $14 million of EBITDA once the business is operating at full capacity," said Michael Ruscetta, CEO of Trichome Financial. "This has been an incredible team effort by many talented individuals working for a common purpose. There are many people to thank for their hard work and commitment to success, but none more so than the dedicated employees of JWC. While there is much more to do, I am confident that our team possesses the right mix of skills, expertise and passion to succeed."
Summary of Assets Acquired
TJAC is fully licensed to operate the acquired Assets. Based in Kitchener, Ontario, the Assets include 114,000 square feet of licensed space in two facilities capable of producing approximately 7,000 kilograms per year of premium cannabis. TJAC, operating the JWC business, is one of a small percentage of licensed producers holding a complete set of Health Canada licenses, enabling it to produce and sell both dried flower products as well as extract products. The Assets are fully built out, require nominal capital expenditures for growth, and have operated without interruption during the CCAA proceedings. Finally, TJAC extended employment agreements to 107 people, the vast majority of whom were previously employed by James E. Wagner Cultivation Corporation. The Assets are estimated to be valued at approximately $19 million on a preliminary basis, subject to audit confirmation.
Preliminary, subject to audit confirmation
Summary of Restructuring
Since April 9, 2020, Trichome Financial has overseen an exhaustive financial and operational restructuring of the JWC business. Howard Steinberg, Chief Restructuring Officer and a director of Trichome Financial, led a team of internal and external resources that has systematically rebuilt every functional aspect of the business in a unified approach with an overriding objective to position JWC for commercial success in the Canadian cannabis industry. The following is a summary of the accomplishments to date:
Management: The senior management team has been replaced and augmented in order to align functional roles with specific expertise. Howard Steinberg has led the organizational design and ushered in a collaborative, analytically driven approach to managing the business. Howard has been appointed the CEO of TJAC.
Balance Sheet: Approximately $19 million of James E. Wagner Cultivation Corporation's third-party liabilities were extinguished as a result of the CCAA proceedings and acquisition by TJAC, resulting in substantial cash interest savings.
Cost Structure: Full-time equivalent staffing has been reduced by approximately 40%, from 185 at its peak to 107 upon closing, resulting in annual cost savings of approximately $3 million. Excess vacant space in the building is currently being offered for sublet, which we expect would result in an additional $1 million per year of expense control if completed. Finally, management is anticipating additional material savings from enhanced expense oversight and efficient purchasing of consumable and capital supplies.
Operations & cultivation: With key hires in operations and cultivation, significant progress has been made scheduling production, reducing cycle times and improving plant health. All of these improvements will result in enhanced labour and facility productivity while ensuring production levels and end market demand are in balance.
Sales & marketing: Putting the customer at the apex of the JWC organization is a key priority under Trichome Financial's ownership. To that end, key investments are being made in internal sales and marketing capabilities, brand rejuvenation, and data analytics to ensure that we are constantly meeting the needs and desires of an ever-shifting marketplace.
Product strategy: As part of TJAC's licensure, JWC's genetics bank has been materially upgraded and will offer customers a wider selection of highly coveted strains. It is expected that some of these new strains will be available on shelves by the end of Q1 2021. Finally, product development that meets the needs of customers is central to the strategy going forward. Many new products are being assessed and tested, including hash, which we anticipate will hit the shelves before the end of 2020.
Financial Outlook
As production continues to ramp through the balance of 2020, Trichome Financial is providing the following financial guidance for TJAC:
FY 2021
Capacity Run Rate
Flower Production
5,700 kgs per year
7,000 kgs per year
Net Revenue
$22 million to $24 million
$30 million to $32 million
EBITDA
$7 million to $9 million
$12 million to $14 million
TJAC Capitalization
Upon closing of the Acquisition, Trichome Financial's pre-filing obligations of $7.6 million were converted into equity of TJAC at $1.00 per share. As of closing, amounts outstanding under the DIP were $8.4 million. Of this amount, $7.0 million is being assumed in the form of a secured note, convertible into shares of TJAC at $1.00 per share. The balance, plus future funding requirements, will be funded by way of a non-participating secured grid promissory note ("Grid Note"). As of August 28, 2020 amounts outstanding under the Grid Note were approximately $2.6 million, while cash on hand at TJAC was approximately $1 million. An option plan for management, employees and directors, representing 30% of the fully diluted equity of TJAC was implemented upon closing. All options have an exercise price of $1.00 per share.
Information regarding the CCAA proceedings
Further details of the CCAA proceedings are available under James E Wagner Cultivation Corporation's profile on the System for Electronic Document Analysis and Retrieval (www.sedar.ca) and are also available, along with additional information respecting the CCAA proceedings, on the website of KSV Kofman Inc., the Court-appointed CCAA monitor (the "Monitor") (https://www.ksvadvisory.com/insolvency-cases/case/james-e-wagner-cultivation-corporation) Readers are urged to consult the full text of all documents available on SEDAR and the Monitor's website for further, more detailed, information.
About Trichome Financial Corp.
Trichome Financial is a specialty finance company focused on providing flexible and creative credit solutions to the global legal cannabis market. Trichome was created to address the lack of credit availability in the large, growing and increasingly complex cannabis market. Trichome Financial's experienced founders and management team has a unique edge to capitalize on proprietary deal flow and industry insight while developing a first mover advantage as a global cannabis focused specialty finance company. Trichome Financial provides customized financing solutions across the industry value chain to support growth, capital expenditures, mergers, acquisitions, working capital and other needs. Leveraging the combined resources and knowledge of its founders, it is able to offer significant value-added financial, product, market and operational support to its partner companies.
For further information about Trichome Financial please visit us at www.trichomefinancial.com or @trichomefinance on Twitter and refer to the Company's SEDAR profile at www.sedar.com.
READER ADVISORY
Neither the CSE nor its Regulation Services Provider (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this press release.
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 to, among other things: the Company's 2021 an run rate capacity flower production, revenue and EBITDA estimates, trends in Canadian recreational cannabis sales and future cash requirements by JWC, estimated cost savings following the restructuring of the JWC business, the commercial launch of JWC products based on new genetics and the timing thereof, and JWC sales and marketing initiatives. 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, Trichome Financial assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change.
This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold within the United States or to United States Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
Contact Information
Michael Ruscetta, CEO
Telephone: (416) 467-5229
info@trichomefinancial.com
Marc Charbin, Investor Relations
Telephone: (416) 467-5229
Email: marc.charbin@loderockadvisors.com
SOURCE: Trichome Financial Corp
ReleaseID: 603984