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OAKLAND,
Calif., June 1, 2021 – PRESS RELEASE – Harborside Inc., a California-focused, vertically
integrated cannabis enterprise, announced it has signed a definitive agreement to
acquire 100% of the issued and outstanding equity of Sublimation Inc. ("Sublime"),
an award-winning cannabis manufacturing company located in Oakland, Calif., for
a total consideration of U.S. $43.8 million. The acquisition is expected to
close, subject to customary closing conditions, in July 2021.
Founded
in 2016, Sublime is best known for its expansive line of high-potency,
high-quality and affordable, Fuzzies branded pre-rolls, a leading brand of
pre-rolls in the state of California, as well as vapes and roll-your-own flower
kits. Since 2019 Sublime has delivered a revenue compound annual growth
rate (CAGR) of approximately 70%, and ended 2020 with 7.9% California pre-roll
market share, according to BDS Analytics.
Sublime is strategically positioned for continued growth as pre-rolls are the
fastest growing cannabis sub-segment within the California market since the
beginning of 2020.
Upon
completion of the acquisition, Harborside expects to realize significant
synergies by bringing together Sublime’s brands, production capabilities and
robust distribution system with the high-quality cannabis grown at the company’s
Salinas, Calif. cultivation facility, which is anticipated to result in
additional gross profit and earnings
before interest, taxes, depreciation and amortization (EBITDA) by
extending the reach of Sublime, Harborside and Key branded products throughout
the state. Harborside also expects to bolster Sublime’s marketing capabilities,
which is expected to drive higher retail margins for the company as an owned
brand within its portfolio. Finally, Harborside will seek to license the
Fuzzies California lifestyle brand in additional legal adult-use markets across
the country, particularly those that do not currently have high potency infused
products.
“This
acquisition adds an iconic, award-winning California brand, with an exceptional
product offering and consumer following, to our growing brand portfolio,” Harborside
Interim CEO Peter Bilodeau said. “Harborside has been a customer of Sublime for
many years, and we know the quality of their products. With the existing
production capacity and soon to be completed upgrades at our Salinas
cultivation facility, we are well-positioned to support the continued growth of
the Sublime brands while expanding the reach of Harborside’s existing branded
product portfolio in both the retail and wholesale markets, which we expect to
ultimately drive increased profitability across our entire business. We’re very
excited to continue to provide consumers with innovative, high-quality products
while delivering strong value for our shareholders. The company will issue
new guidance in due course.”
Sublime
CEO Ahmer Iqbal said, “Harborside is known for being an innovative pioneer
within the California cannabis market and has garnered a long-term reputation
across the state for being a leading retailer and producing high-quality
products. As a leader among California brands, we are thrilled that Sublime
will join the Harborside owned-brand portfolio, leveraging their production and
retail capabilities to further expand the distribution of Sublime products
throughout California.”
Transaction
Details
Upon
closing, Harborside will acquire 100% of the issued and outstanding shares of
Sublime (the “Sublime Shares”) in exchange for a total consideration of U.S. $43.8
million (the “Purchase Price”). The Purchase Price comprises of approximately $38.4
million payable in multiple voting shares of Harborside, representing
approximately 207,579.66 multiple voting shares of the company based on
volume-weighted average price of the subordinate voting shares of the company
on the Canadian Securities Exchange (CSE) for the 30-days immediately preceding
the date of the agreement and approximately $5.4 million in cash (of which
approximately $3.4 million will be used to repay existing indebtedness of
Sublime). The Purchase Price represents a multiple of approximately 1.78
times to the estimated $24.6 million of standalone 2021 revenues for Sublime.
The
Agreement provides for, among other things, customary representations and
warranties and covenants, including mutual non-solicitation provisions and a $1.5
million termination fee payable by either the Harborside or Sublime in certain
circumstances. The acquisition is subject to the approval of the shareholders
of Sublime, and the receipt of certain regulatory approvals and other customary
closing conditions for a transaction of this nature.
The
directors and officers and certain shareholders of Sublime, collectively
holding approximately 86.5% of the outstanding Sublime Shares, have entered
into voting and support agreements and have agreed to approve the acquisition.
In addition, concurrent with the closing of the acquisition, Harborside will
enter into a lock-up agreement with certain shareholders of Sublime (the
"Locked-Up Shareholders") in respect of the multiple voting shares of
Harborside to be received by such shareholders pursuant to the acquisition (the
"Lock-Up Agreement"). Pursuant to the Lock-Up Agreement, the
Locked-Up Shareholders will agree not to sell, assign or otherwise transfer the
multiple voting shares received. The restrictions lapse in three installments
with 50% of the shares released from the restrictions on the 12-month
anniversary and 25% of the shares released from the restrictions on each the
15-month and 18-month anniversaries from the closing of the acquisition,
respectively.
Harborside’s
board of directors has approved the acquisition. As well, Sublime’s board of directors
has approved the acquisition and has resolved to recommend that Sublime
shareholders vote in favor of the acquisition.
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