Table Of Content
Founded in 2006, Harborside was awarded one of the first six medical cannabis licenses granted in the United States. Today, the Company operates 14 dispensaries covering Northern and Southern California and one in Oregon, distribution facilities in San Jose and Los Angeles, California and integrated cultivation/production facilities in Salinas and Greenfield, California. Harborside is a publicly listed company, currently trading on the Canadian Securities Exchange ("CSE") under the ticker symbol "HBOR" and the OTCQX under the ticker symbol "HBORF". The Company continues to play an instrumental role in making cannabis safe and accessible to a broad and diverse community of California and Oregon consumers. There are no comparable IFRS financial measures presented in Harborside’s financial statements. Reconciliations of the supplemental non-IFRS measures are presented in the Company’s management’s discussion and analysis for the period ended September 30, 2021.
Business Technology
The Company's new CUSIP number for its Common Shares will be 85754G301 and its new ISIN number will be CA85754G3017 upon completion of the Name Change and the Reclassification. Contributing original content and curating quality news on only the most promising cannabis companies and the most influential investors. A decade of hard work paid off on January 1, 2018, when DeAngelo, sold the first gram of legal cannabis to an adult in California. This historic event marked the end of prohibition and the birth of the modern cannabis industry. Founded in 2006 by industry Veterans and activists Steve Deangelo and Dress Wedding, Harborside is a vertically integrated California Cannabis Business with retail locations in Oakland, San Jose, San Leandro, San Francisco, and Desert Hot Springs. Ducera Partners LLC and Beacon Securities Limited acted as financial advisor and Feuerstein Kulick LLP acted as United States legal counsel to Loudpack.
Terms and Conditions
The Board will continue to monitor market conditions carefully and could proceed with the Consolidation at a later date if it determines that such a decision is in the best interests of shareholders. Depending on the timing of the implementation of such Consolidation, shareholder approval may be required in order to effect the Consolidation. The cannabis industry in California has reached an important tipping point, and with the collective strengths of these three companies and the benefits of integration, we have the right combination of assets and skills to set a new standard, offering consumers the widest variety of products with best-in-class customer service. The Transactions are expected to close in the first half of 2022, subject to approval by Harborside shareholders, the CSE, regulatory approval and customary closing conditions.
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The first tranche is intended to be funded in three separate loans, with one loan each to Urbn Leaf, Loudpack and the Company. The Roll Up Financing also will contain terms so that, in the event that the first tranche is funded, and the Company does not close on the acquisitions of Urbn Leaf and/or Loudpack, the Company is no longer obligated to guarantee the specific portion of the first tranche that is related to the acquisition transaction that will not close. The Company intends to enter into a definitive agreement with Pelorus prior to the end of 2021. Pursuant to the terms of the definitive agreement with respect to Urbn Leaf (the "Urbn Leaf Agreement"), Harborside will acquire all of the equity interests of Urbn Leaf through the issuance of approximately 60,000,000 SVS, subject to adjustment, and the restructuring and assumption of debt.
The Warrants will be exercisable to purchase SVS at a price of US$2.50 per SVS, anytime within 5 years of the closing date. Harborside will have the option to accelerate the expiration date of the Warrants in the event that the volume weighted average trading price of the SVS is equal to or greater than US$5.00. Neither the CSE nor its Market Regulator (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this release. SHARE RECLASSIFICATIONThe Company's SVS will be reclassified as Common Shares, effective July 25, 2022. The Reclassification is attributable to the mandatory conversion of Harborside multiple voting shares into SVS (the "Mandatory Conversion"), which was completed on March 31, 2022. Due to the Mandatory Conversion, there is now just a single class of StateHouse shares and no need for a designation other than Common Shares to describe such shares outstanding.
The Warrants will be exercisable to purchase SVS at a price of US$2.50 per SVS, anytime within 5 years of the closing date. Harborside will have the option to accelerate the expiration date of the Warrants in the event that the volume weighted average trading price of the SVS is equal to or greater than US$5.00. As one of the oldest, largest, and most respected cannabis retailers in the world, Harborside has played an instrumental role in making cannabis safe and accessible to a broad and diverse community of California consumers.
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In addition, concurrent with the closing of the Urbn Leaf Transaction, the Company will enter into a lock-up agreement with certain shareholders of Urbn Leaf (the “Urbn Leaf Locked-Up Shareholders”) in respect of the Harborside SVS to be received by such shareholders pursuant to the Urbn Leaf Transaction (the “Urbn Leaf Lock-Up Agreement”). All of the voting members of the sole stockholder of Loudpack have entered into a voting and support agreement to vote in favour of the Loudpack Transaction. In addition, concurrent with the closing of the Loudpack Transaction, the Company will enter into a lock-up agreement with the sole stockholder of Loudpack in respect of the Harborside SVS to be received pursuant to the Loudpack Transaction (the "Loudpack Lock-Up Agreement"). Pursuant to the Loudpack Lock-Up Agreement, Loudpack's sole stockholder will agree not to sell, assign or otherwise transfer the Harborside SVS received, except to its members, who will be required to enter into equivalent lock-up agreements. The restrictions lapse in three installments with each one-third of the shares released from the restrictions on the 6-month, 12-month and 18-month anniversaries from the closing of the Loudpack Transaction. In addition, concurrent with the closing of the Loudpack Transaction, the Company will enter into a lock-up agreement with the sole stockholder of Loudpack in respect of the Harborside SVS to be received pursuant to the Loudpack Transaction (the “Loudpack Lock-Up Agreement”).
Closing
PI Financial Corp. has provided fairness opinions to the board of directors of Harborside that, subject to the assumptions, limitations and qualifications set out in each such fairness opinion, the consideration to be paid by Harborside shareholders pursuant to the Transactions is fair from a financial point of view to Harborside's shareholders. "The cannabis industry in California has reached an important tipping point, and with the collective strengths of these three companies and the benefits of integration, we have the right combination of assets and skills to set a new standard, offering consumers the widest variety of products with best-in-class customer service," said Mr. Schmults. In connection with the Transactions, management has entered into a letter of intent with Pelorus Equity Group to complete the Real Estate Financing (as defined below) of US$77.3 million of non-dilutive real estate debt financing, which unlocks significant value from the StateHouse real estate portfolio and provides significant growth capital for the business. SHARE CONSOLIDATIONAfter careful consideration, the Board has elected not to proceed with the consolidation of its issued and outstanding SVS (the "Consolidation") on a six-for-one basis at this time.
Persons (as defined in Regulation S under the 1933 Act) unless registered under the 1933 Act and applicable state securities laws, or an exemption from such registration requirements is available. The Company, through several of its subsidiaries, is indirectly involved in the manufacture, possession, use, sale, and distribution of cannabis in the recreational and medicinal cannabis marketplace in the United States. Local state laws where the Company operates permit such activities but investors should note that there are significant legal restrictions and regulations which govern the cannabis industry in the United States. Cannabis remains a Schedule I drug under the US Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable US federal money laundering legislation.
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. "Since reconstituting the Company's board of directors last year, our team embarked upon an ambitious mission to create a unique platform capable of consolidating California and driving significant growth through added scale. With these transactions, we are working to create a west coast cannabis powerhouse," said Mr. Hawkins. The Company sells its Fuzzies, Sublime, KEY and Harborside Farms branded consumer products through third party retailers and delivery outlets across the state of California, as well as in its own stores. Harborside has played an instrumental role in making cannabis safe and accessible to a broad and diverse community of California consumers since 2006, when it was awarded one of the first six cannabis licenses granted in the United States. Today, the Company holds cannabis licenses for in-store retail, delivery, distribution, cultivation, nursery and manufacturing.
PI Financial Corp. has provided fairness opinions to the board of directors of Harborside that, subject to the assumptions, limitations and qualifications set out in each such fairness opinion, the consideration to be paid by Harborside shareholders pursuant to the Transactions is fair from a financial point of view to Harborside’s shareholders. “The cannabis industry in California has reached an important tipping point, and with the collective strengths of these three companies and the benefits of integration, we have the right combination of assets and skills to set a new standard, offering consumers the widest variety of products with best-in-class customer service,” said Mr. Schmults. In connection with the Transactions, management has entered into a letter of intent with Pelorus Equity Group to complete the Real Estate Financing (as defined below) of US$77.3 million of non-dilutive real estate debt financing, which unlocks significant value from the StateHouse real estate portfolio and provides significant growth capital for the business. EBITDA and Adjusted EBITDA are measures of the Company's overall financial performance and are used as an alternative to earnings or net income in some circumstances.
Reconciliations of the supplemental non-IFRS measures are presented in the Company's management's discussion and analysis for the period ended September 30, 2021. These non-IFRS financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believes that the non-IFRS financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. The Company believes that these supplemental measures provide information which is useful to shareholders and investors in understanding our performance and may assist in the evaluation of the Company's business relative to that of its peers. The Loudpack Agreement provides for, among other things, customary representations and warranties and covenants, including mutual non-solicitation provisions and a US$5.0 million termination fee payable by either the Company or Loudpack in certain circumstances. About Harborside (to be renamed StateHouse)Harborside, a vertically integrated enterprise with cannabis licenses covering retail, major brands, distribution, cultivation, nursery and manufacturing, is one of the oldest and most respected cannabis companies in California.
Harborside's board of directors has unanimously approved the Transactions and has unanimously resolved to recommend that the shareholders of Harborside vote in favour of the Transactions. In addition, all directors and executive officers, as well as certain shareholders of Harborside, collectively holding approximately 27% of the Harborside voting interest, have indicated their intention to vote in favor of both the Loudpack Transaction and the Urbn Leaf Transaction. "We are very pleased with the changes to the Company's equity capitalization that have now resulted in a 'one share - one vote' structure," added Mr. Schmults. "This streamlined structure is part of a broader strategy designed to create a company that treats all shareholders equally, attracts institutional investors, and reflects our goal of being the premier investment vehicle in the California cannabis industry."
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