High Tide to Combine with Meta Growth, Creating the Largest Cannabis Retailer in Canada

Published: August 24, 2020

High Tide to Combine with Meta Growth, Creating the Largest Cannabis Retailer in Canada

High Tide Inc. and Meta Growth Corp. have entered into a definitive arrangement agreement dated August 20, 2020 pursuant to which High Tide will acquire all of the issued and outstanding shares of Meta Growth.

Key Transaction Highlights:

  • Pro forma company is currently the single largest Canadian cannabis retailer by revenue with approximately $133 million in annualized revenue.2
  • Creates Canada’s largest cannabis retail network with 63 stores across OntarioAlbertaManitoba and Saskatchewan
  • The combined entity will rank #1 in Ontario based on corporate owned store count3 and will have high-graded its Alberta portfolio to hit the maximum stores allowed.
  • The combined entity is expected to be adjusted EBITDA positive on a post-synergies basis with additional upside from cross-selling opportunities.
  • Annual cost and operational synergies of approx. $8 million to $9 million expected within 12 months of closing of the Transaction.
  • Growth plans include nearly doubling current footprint to approximately 115 locations by the end of 2021 with a focus on Ontario, Canada’s largest cannabis market.
  • The combined entity’s anticipated $21 million4 in cash provides a balance sheet to execute on future growth initiatives.
  • Holders of over 66 2/3% of META’s $21.2 million principal amount convertible debentures have agreed to extend the maturity date by 12 months to November 2022 and have consented to the Transaction, in consideration for reducing the conversion price from $1.08 to $0.22 per High Tide share.

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1 Represents pro forma store count post store optimizations / closures and is inclusive of locations related to transactions that have yet to close including META’s acquisition of its Kitchener and Waterloo locations and HITI’s divestiture of its KushBar locations.

2 Estimate is based on most recent interim financial statements.

3 Estimated ranking is based on corporate owned locations and comparisons to public peers’ publicly disclosed information. The combined entity will have 8 fully-owned corporate retail locations in Ontario, which is inclusive of locations related to transactions that have yet to close including META’s acquisition of its Kitchener and Waterloo locations.

4 Cash and cash equivalent balance as of August 17, 2020 before transaction costs.

The Transaction combines High Tide, a Canadian cannabis retailer with industry leading margins and the first publicly traded cannabis retailer in its peer group to deliver positive adjusted EBITDA, with Meta Growth, a first-mover in Canadian cannabis retail with 33 stores in its network who is well capitalized to support future growth. The combined entity will become the largest Canadian cannabis retailer with 63 locations and approximately $133 million in last quarter annualized revenue.

Under the terms of the Arrangement Agreement, shareholders of META will receive 0.824 of a common share of High Tide for each META Share held (the “Exchange Ratio”).

The Exchange Ratio implies a price per META Share of $0.133, representing a premium of 14%, based on the 10-day volume-weighted average price (“VWAP”) of the META Shares on the TSX Venture Exchange (“TSXV”) and High Tide Shares on the Canadian Securities Exchange (“CSE”) as of August 20, 2020.

“The combination with META is a watershed moment in High Tide’s evolution as we become Canada’s largest and strongest cannabis retailer. Over the last decade High Tide has built a strong foundation for sustainable growth, and this transaction is another example of our ability to execute on strategy with our customers and shareholders in mind,” said Raj Grover, President and Chief Executive Officer of High Tide Inc.

“The determination to succeed has always been key to our success, and as the first publicly-traded Canadian cannabis retailer in our peer group to generate positive adjusted EBITDA, we are excited to demonstrate the tremendous strength of this combined entity. Under Mark’s leadership META has established itself as a formidable player, and we are honoured to welcome its customers, employees and stakeholders into the High Tide family. I want to thank and congratulate both teams for this historic achievement,” added Mr. Grover.

“This merger is an exciting strategic endeavor intended to lead to enhanced shareholder value” said Mark Goliger, CEO of Meta Growth. “Both companies have complementary retail footprints and similar proven operational efficiency models. We can immediately leverage synergies, increase margins and have double the scale for the combined company’s owned IP and private label initiatives. The new company is now bigger, better and stronger with positive momentum to help break through to new levels and profitability. With ten years of retail experience, I am confident that Raj Grover, as CEO, will be able to steward this company to the next stage of its growth.”

Terms of the Transaction

The Transaction will be affected by way of a plan of arrangement under the Business Corporations Act (Alberta). Under the terms of the Arrangement Agreement, High Tide will acquire all of the issued and outstanding META Shares, with each META Shareholder receiving 0.824 of a High Tide Share for each META Share, which implies a price per META Share of $0.133 based on the 10-day volume-weighted average price (“VWAP”) of the META Shares on the TSX Venture Exchange (“TSXV”) and High Tide Shares on the Canadian Securities Exchange (“CSE”) as of August 20, 2020. After giving effect to the Transaction, META Shareholders will hold approximately 45.625% ownership in the pro forma entity (on a pro forma fully-diluted in-the-money and as converted basis).

Upon completion of the Transaction, two (2) independent directors of Meta will be appointed to serve on the board of directors of High Tide and will replace two (2) directors of High Tide.

Raj Grover, CEO of High Tide and his team will lead the combined entity going forward. Mark Goliger, CEO and Mike Cosic, CFO of META Growth will ensure that there is an orderly transition.

Following the Transaction, High Tide intends to apply to list the High Tide Shares on the TSXV, and High Tide and Meta Growth intend to apply to delist the High Tide Shares and the Meta Shares from, respectively, the CSE and the TSXV.

The Transaction has been unanimously approved by the board of directors of each of High Tide and META Growth. Certain META Growth directors, officers and other significant shareholders representing 14.1% of the outstanding META Shares have entered into voting and support agreements to vote in favour of the Transaction.

The Transaction is an arm’s length transaction pursuant to applicable regulatory policies.

The Arrangement Agreement contains customary representations, warranties and covenants for transactions of this type, including a termination fee and reverse termination fee of $2 million in the event that the Transaction is terminated as a result of a breach of the non-solicitation covenants and $1 million in the event of breach of representations and warranties. The Arrangement Agreement also provides for a non-solicitation covenant and a provision for the right for each party to match any superior proposal for a period of five business days.

It is expected that holders of META options and warrants will receive, upon exercise, the same consideration they would have received as if they were META Shareholders at the closing of the Transaction.

The Transaction is subject to, among other things, the approval of META Shareholders at a special meeting (the “Special Meeting”) expected to be convened by META Growth, receipt of required regulatory and court approvals, High Tide Shares listing on the TSXV and other customary conditions of closing. Approval of High Tide shareholders is not required. Additional details of the Transaction will be provided to META Shareholders in an information circular to be mailed in connection with the Special Meeting. It is currently anticipated that, subject to receipt of all regulatory, court, shareholder and other approvals, the Transaction will be completed in the fourth quarter of 2020.

The board of directors of META unanimously recommends that META Shareholders vote in favour of the resolution to approve the Transaction at the Special Meeting and has determined that the consideration offered to the holders of META Shares is fair, from a financial point of view, to the META Shareholders. The board of directors of META Growth has obtained a fairness opinion from Echelon Wealth Partners Inc. that states that the consideration to be received by holders of META shares pursuant to the plan of arrangement is fair, from a financial point of view, to the holders of META Shares.