RIV Capital Announces US$150 Million Strategic Investment by The Hawthorne Collective, a Subsidiary of The Scotts Miracle-Gro Company

Published: August 11, 2021

RIV Capital Announces US$150 Million Strategic Investment by The Hawthorne Collective, a Subsidiary of The Scotts Miracle-Gro Company

RIV Capital Inc., an acquisition and investment company specializing in cannabis, has entered into definitive agreements with The Hawthorne Collective, a newly-formed cannabis-focused subsidiary of The Scotts Miracle-Gro Company  for the purchase of a US$150 million unsecured convertible note from RIV Capital (the “Investment”). The Investment establishes RIV Capital as The Hawthorne Collective’s preferred vehicle for investments not currently under the purview of The Hawthorne Gardening Company. RIV Capital’s strategy remains the same as its previously disclosed plans to acquire, invest in, launch, and/or develop U.S. assets to build a multistate cannabis operating and brand platform.

“As we approach the launch of our U.S. platform, we are excited to announce the strategic investment from The Hawthorne Collective, a subsidiary of one of the largest and most successful companies serving both the CPG and cannabis sectors,” said Narbé Alexandrian, President and CEO, RIV Capital. “The Investment opens opportunities for considerable value creation and growth for RIV Capital, including potential access to additional capital that will accelerate our platform’s growth. With ScottsMiracle-Gro’s strong track record, reputation, and brand awareness, we can build upon lessons learned in both the Canadian and U.S. cannabis markets, and leverage their insights to optimize our acquisition and investment strategy.”

With over six years of experience as a key ancillary provider in the U.S. cannabis industry via its subsidiary, The Hawthorne Gardening Company, North America’s leader in indoor and hydroponic growing supplies, ScottsMiracle-Gro has significant knowledge and expertise in the U.S. cannabis sector. Since its inception, The Hawthorne Gardening Company has grown into one of the largest cannabis-focused companies in the world on a revenue basis, and has cultivated relationships with operators, brands, and ancillary providers. Now, through the Investment, the newly-formed The Hawthorne Collective is injecting significant capital into the Company, to be used for general corporate and lawful purposes, that will unlock potential access to capital which will accelerate the launch and expansion of its U.S. cannabis operating and brand platform.

“While the Investment adds further capital to our balance sheet, our strategy remains the same,” added Alexandrian. “We have an extensive deal pipeline with some near-term prospects, and we will continue to focus our efforts on those prospects that we believe will contribute to building a leading multistate operator and brand platform in the U.S. market.”

“The addition of The Hawthorne Collective into our portfolio allows us to explore and pursue new opportunities in an industry that is poised for significant growth in the years ahead,” said Jim Hagedorn, Chairman and CEO, ScottsMiracle-Gro. “We are confident in our partners at RIV Capital and that our long-term approach ultimately will drive meaningful value for our shareholders.”

RIV Capital’s Go-Forward Strategy
With approximately CA$400 million in available capital1, and taking into account certain restrictions relating to the funds contributed pursuant to the Investment, RIV Capital plans to acquire, invest in, launch, and/or develop U.S. operators and brands across financially and strategically attractive states to create a multistate platform. The Company has potential near-term prospects and is engaged in discussions regarding one or more transactions that would kickstart its U.S. strategy. The Company then plans to continue building out its platform, with a focus on acquisitions of and investments in brands, other companies along the value chain, and operators in limited license states and other states of particular strategic interest. The Company anticipates that the Investment will provide additional resources and flexibility to accelerate its go-forward strategy by pursuing parallel opportunities or acquisition targets.

On closing of the Investment, RIV Capital will also expand its Board of Directors (the “Board”) to seven seats and add three ScottsMiracle-Gro nominees alongside the existing RIV Capital directors. These nominees are:

  • Chris Hagedorn, Executive Vice President, ScottsMiracle-Gro, and Division President, The Hawthorne Gardening Company. Mr. Hagedorn has led The Hawthorne Gardening Company for seven years and has been instrumental to its success since joining in October 2014, building Hawthorne into one of the most valuable cannabis companies by revenue in the world.
  • Mark Sims, Senior Vice President, Strategy and M&A, ScottsMiracle-Gro. Mr. Sims leads ScottsMiracle-Gro’s corporate strategy department, which provides comprehensive support for strategic intelligence, mergers and acquisitions, strategic planning, and internal consulting.
  • Gary Vaynerchuk, Chairman of VaynerX, and CEO, VaynerMedia. Mr. Vaynerchuk is an established and successful entrepreneur. In his current roles, he assists Fortune 1000 brands leverage emerging platforms to attain and retain consumer attention. Mr. Vaynerchuk is also an accomplished investor with a track record of guiding businesses to successful exits, including Resy and Empathy Wines, which were sold to American Express and Constellation Brands respectively.

“We look forward to welcoming the appointed nominees to the Board,” said Asha Daniere, Chair of the Board. “Expanding the Board will introduce new insights and experience to RIV Capital, and bolster our governance as we launch into a rapidly evolving market. Moving forward, we believe that the breadth of expertise brought by Mr. Hagedorn, Mr. Sims, and Mr. Vaynerchuk will be integral to progressing the Company’s strategy.”

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1 Based on exchange rates as of August 9, 2021.

Investment Summary and Details

Upon the completion of the Investment, RIV Capital will:

  • Receive a capital injection of US$150 million, to be used for general corporate and lawful purposes, that will unlock potential access to capital which will accelerate the launch and expansion of its U.S. cannabis operating and brand platform.
  • Become The Hawthorne Collective’s preferred vehicle for investments that are not currently under the purview of The Hawthorne Gardening Company.
  • Leverage its cannabis domain knowledge with ScottsMiracle-Gro’s expertise in operations, R&D, sales, and distribution.
  • Enhance the range of skills and experience on its Board through the addition of three ScottsMiracle-Gro nominees.

There are a number of terms and conditions relating to the Investment, including, but not limited to, the following:

  • The convertible note evidencing the Investment (the “Note”) will have a six-year term with an effective rate of interest over its term of 0.7% per annum.2 The Note will bear interest on the principal amount at a rate of approximately 2.0% for the first two years that the Note is outstanding, following which no interest (0%) will accrue on the Note for the remainder of the term. Accrued interest will be payable at maturity or wil be included in the conversion value of the Note at the time of conversion. The Note will be an unsecured obligation of the Company.
  • The Note is convertible into common shares of the Company at a conversion price of $1.90 per share, representing an approximate 7% premium to the five-day volume-weighted average price of the Company’s shares on the Toronto Stock Exchange as of August 9, 2021. Assuming full conversion of the Note, including the full amount of the anticipated accrued interest over the life of the Note, The Hawthorne Collective would be entitled to receive approximately 103.1 million common shares of the Company, representing approximately 42% of the Company’s outstanding shares on a partially diluted basis based on today’s basic shares outstanding.
  • Subject to obtaining all applicable regulatory approvals, the Note may be converted into common shares of the Company at the election of The Hawthorne Collective on a discretionary basis, or at RIV Capital’s discretion upon the later of (i) two years following closing and (ii) the date on which federal laws in the United States are amended to allow for the general cultivation, distribution, and possession of cannabis.
  • The Hawthorne Collective has a “top-up” option to purchase additional promissory notes to increase its pro rata ownership of the Company, to a maximum of 49% of the Company’s outstanding common shares, on substantially the same terms of the Note and at a conversion price equal to the market price of the common shares of the Company at the close of trading on the day immediately prior to The Hawthorne Collective providing notice of its election.
  • The proceeds from the Investment will be reserved for permissible uses, and cannot presently be used to invest directly in cannabis or cannabis-related operations in the U.S. unless and until such operations comply with all applicable laws of the United States. The Company anticipates that, despite these restrictions, there are still a significant number of permissible uses for this capital that will help further the Company’s go-forward strategy. The Company also believes that the bolstering of its balance sheet will open doors to new sources of capital that can be used to continue to make acquisitions and/or investments in the U.S. cannabis sector.
  • In connection with the Investment, the Company will enter into an investor rights agreement with The Hawthorne Collective providing for, among other things, customary registration rights, participation rights, certain standstill and transfer restrictions, and the right to nominate up to three directors to the Board. The Hawthorne Collective and its affiliates (including ScottsMiracle-Gro and The Hawthorne Gardening Company) will agree to present certain business opportunities in the cannabis sector to RIV Capital and to pursue such opportunities with the Company in accordance with the terms of the investor rights agreement.
  • Closing of the Investment is subject to the satisfaction of customary closing conditions and execution of definitive documentation. Conversion of the Note is subject to the receipt of any required regulatory (including under the Competition Act (Canada) and/or the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976) and stock exchange approvals and other conditions set out in the terms of the Note.
  • The Company expects that the Investment will close on or around August 24, 2021.

The Investment has not been and will not be registered under the U.S. Securities Act of 1933, as amended or qualified by a prospectus in Canada. This news release is neither an offer to sell nor the solicitation of an offer to buy the note or any other securities and shall not constitute an offer to sell or solicitation of an offer to buy, or a sale of, the note or any other securities in any jurisdiction in which such offer, solicitation or sale is unlawful.

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2 Assumes the Note does not convert prior to the maturity date.

About RIV Capital
RIV Capital is an investment and acquisition company specializing in cannabis with a portfolio of 13 companies across various segments of the cannabis value chain. We believe that bringing together people, capital, and ideas raises the potential of the entire cannabis industry. By leveraging our industry insights, in-house expertise, and thesis-driven approach to investing, we aim to provide shareholders with exposure to specialized and disruptive cannabis companies.

About The Scotts Miracle-Gro Company
With approximately $4.1 billion in sales, the Company is one of the world’s largest marketers of branded consumer products for lawn and garden care. The Company’s brands are among the most recognized in the industry. The Company’s Scotts®, Miracle-Gro® and Ortho® brands are market-leading in their categories. The Company’s wholly-owned subsidiary, The Hawthorne Gardening Company, is a leading provider of nutrients, lighting and other materials used in the indoor and hydroponic growing segment. Another wholly-owned subsidiary, The Hawthorne Collective, has been established to invest in emerging areas of the cannabis industry. For additional information, visit us at www.scottsmiraclegro.com.

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