Alcanna Inc. and YSS Corp. announced the completion of their business combination previously announced on January 18, 2021, which resulted in a reverse take-over of YSS pursuant to the policies of the TSX Venture Exchange and a name change of YSS to “Nova Cannabis Inc.” The common shares of Nova (“Nova Shares”) are expected to begin trading on the TSXV under the ticker symbol “NOVC” on or about March 24, 2021.
Pursuant to the terms of the business combination agreement dated January 18, 2021 (the “Agreement”), Alcanna sold all of the equity securities of its wholly-owned subsidiaries, Alcanna Cannabis Stores GP Inc. (“ACS GP”) and Alcanna Cannabis Stores Limited Partnership (“ACS LP” and together with ACS GP, the “ACS Entities”), which carry on Alcanna’s cannabis retail business, to YSS. Pursuant to the Agreement, the common shares of YSS (“YSS Shares”) were consolidated (the “Consolidation”) on the basis of a ratio of approximately 0.05449-to-one, such that, after completion of the Consolidation, the holders of YSS Shares (“YSS Shareholders”) held an aggregate of 7,583,353 post-Consolidation YSS Shares. In consideration for the purchase of the equity securities of the ACS Entities, YSS issued an aggregate of 35,750,000 post-Consolidation YSS Shares to Alcanna (the “Consideration Shares”) at a deemed price of $3.00 per YSS Share.
As previously announced on February 11, 2021, Alcanna Cannabis Stores Finance Ltd. (“ACS FinCo”), a wholly owned subsidiary of ACS LP, closed the sale of an aggregate of 13,334,000 subscription receipts (the “Subscription Receipts”) at a price of $3.00 per Subscription Receipt, for aggregate gross proceeds $40,002,000 (the “Concurrent Financing”). Each Subscription Receipt converted into one common share of ACS FinCo (each, a “FinCo Share”) and was subsequently exchanged for a Nova Common Share pursuant to an amalgamation of ACS FinCo with a wholly-owned subsidiary of YSS (the “Amalgamation”). Following completion of the Transaction and the Amalgamation, Alcanna holds approximately 63%, former YSS Shareholders and former holders of Subscription Receipts hold approximately 13% and 24%, respectively, of the Nova Shares (calculated on a basic basis).
The net proceeds of the Concurrent Financing are expected to be used for Nova’s go-forward business plan, including the development, construction and acquisition of additional cannabis retail locations and conversion of existing cannabis retail locations to the “Value Buds” banner, including capital expenditures, inventory, and other general corporate and working capital purposes.
Exchange Matters and Trading Halt
The TSXV has provided conditional approval for the Transaction and listing of the Nova Shares. In accordance with TSXV policies, the Nova Shares will remain halted for trading until the TSXV issues the final bulletin in respect of the Transaction. Nova will continue as a Tier 1 Life Sciences issuer on the TSXV and the Nova Shares are expected to commence trading on or about March 24, 2021. The total number of Nova Shares issued and outstanding at listing will be 56,685,666.
In connection with the graduation to a Tier 1 listing, all securities of YSS which were subject to a Tier 2 escrow release schedule pursuant to the value security escrow agreement dated January 2, 2019 will be subject to a Tier 1 release schedule, resulting in the immediate release from escrow of all such securities.
Governance and Management
Alcanna and Nova have entered into an investor rights agreement (the “Investor Rights Agreement”) providing for customary rights based on Alcanna’s equity interest in Nova. Alcanna has agreed to a two-year lockup period in respect of the Consideration Shares, subject to certain conditions. Pursuant to the Investor Rights Agreement, Alcanna appointed four nominees to the board of directors of Nova: James Burns, Darren Karasiuk, Ross Sinclair, and Thomas Bitove. Ron Hozjan, an independent director of YSS, will continue as a director of Nova.
The board of directors of Nova is expected to make the following appointments: James Burns as Chair; Thomas Bitove as Lead Director; Darren Karasiuk as President and Chief Executive Officer; David Gordey as Chief Financial Officer; Marcie Kiziak as Chief Operating Officer; and Matthew Hewson as Corporate Secretary. Other than Ron Hozjan, the existing directors and executive officers of YSS resigned. Brief biographies of each of the directors and executive officers of Nova are below. Darren Karasiuk has resigned from the Alcanna board of directors, effective March 20, 2021.
Darren Karasiuk, Director, President and Chief Executive Officer (Toronto, Ontario)
Mr. Karasiuk served as Chief Commercial Officer of Aurora Cannabis Inc. (“Aurora”) where he had oversight of key customer facing and revenue driving functions, including sales, marketing, consumer insights and analytics. During his tenure, he helped Aurora achieve leadership in the Canadian recreational and medical cannabis markets, as well as Europe. Mr. Karasiuk joined Aurora through the acquisition of MedReleaf Corp., where he served first as Vice-President, Strategy and later as Senior Vice-President and General Manager of the Recreational business. Prior to joining MedReleaf, Mr. Karasiuk was Vice-President, Insights and Advisory at Deloitte. Mr. Karasiuk has served on Alcanna’s board since 2019 and holds an MA from Western University as well as an MBA from Kellogg-Schulich. Mr. Karasiuk resigned from the Alcanna board on closing of the Transaction.
James Burns, Chair (Edmonton, Alberta)
Mr. Burns has been Vice-Chair and Chief Executive Officer of Alcanna since December 2017 after joining the board in June 2017 and being named lead director and placed in charge of developing Alcanna’s cannabis strategy. Throughout a 45-year career, he has been: a partner at Gordon Capital Corporation and Gordon Investment Corporation in their private equity business; co-owner, director and CFO at Scott’s Restaurants and priszm brandz; Managing Director at CIBC Capital Markets; and Chief of Staff to the Deputy Prime Minister of Canada and Chair of the Chiefs of Staff Committee. Mr. Burns holds a B. Comm. (Honours) from Queen’s University School of Business and a Master of Science (Mark of Distinction) in Politics of the World Economy from the London School of Economics.
Thomas Bitove, Director (Toronto, Ontario)
Mr. Bitove has worked in many aspects of multi-unit operations for his entire career. Just a few of the businesses he has owned and operated include: Hard Rock Café; a 32 store Big Boy chain; 35 separate restaurants and concessions at Toronto Pearson airport; and 17 Travel Centres along the 401 and 400 in Ontario. Mr. Bitove is the exclusive distributor of Red Bull Energy Drink in Ontario and British Columbia and owner of ColdHaus Direct Inc, a major distributor of beer and wine in Ontario. Mr. Bitove served 12 years on the board of Intrinsyc Technologies, a TSX-listed public company. Mr. Bitove was invested into the Order of Ontario, Ontario’s highest honour for a citizen. The award recognizes his charitable contributions to the people of Ontario and Canada as well as his business successes.
Ross Sinclair, Director (Toronto, Ontario)
Mr. Sinclair was a partner with PricewaterhouseCoopers LLP (“PwC”) and has more than 25 years of experience as a partner. Mr. Sinclair retired from PwC on June 30, 2020. He has had extensive experience with clients across several industries including consumer products, retail, real estate, health care and private equity. Mr. Sinclair has served many clients advising on critical business issues, transactions and restructurings in addition to his experience as a lead audit partner on both public and private enterprises. Mr. Sinclair’s experience includes PwC Canada leadership roles as Income Trust and IPO Services Group Leader, as well as Retail & Consumer Products National and GTA Industry Leader. Mr. Sinclair has significant experience working with clients on their capital markets projects and needs, including numerous equity, debt and initial public offering and RTOs. Mr. Sinclair has also served as the overall audit engagement leader on several Canadian retailers and other public companies including both US GAAP, SEC, OSC and IFRS reporting responsibilities. Mr. Sinclair was a designated Trustees on the Continuum REIT IPO in the fall of 2019 and is an Advisory Board member and investor in Arch Corporation.
Ron Hozjan, Director (Calgary, Alberta)
Mr. Hozjan has served as a director of YSS since June 2018 and is currently a member of YSS’ audit committee and corporate governance and compensation committee. Since January 2020, Mr. Hozjan has held the role of Vice President, Finance and Chief Financial Officer of Aureus Energy Services Inc. Prior thereto, he served as Vice President, Finance and Chief Financial Officer of Tamarack Valley Energy Ltd. (TSX: TVE) from June 2010 until January 2020. Mr. Hozjan has also served as a director of Aloha Brands Inc. since April 2019.
Marcie Kiziak, Chief Operating Officer (Edmonton, Alberta)
Ms. Kiziak, currently President of Alcanna’s cannabis division, has led the retail cannabis business since she took over in July 2018. Ms. Kiziak was Alcanna’s lead executive in designing and executing the strategy to launch the Nova brand, starting with 5 stores at legalization day. Ms. Kiziak has led the growth in the business to Nova’s current 34 stores. Ms. Kiziak joined Alcanna in February 2018 as Senior Vice President, Human Resources and continues in that role concurrently with running Nova. Prior to joining Alcanna, Ms. Kiziak was the Vice President of Human Resources and Safety for Corrosion and Abrasion Solutions Ltd. from 2013 until 2017 which included a secondment into operations to lead a business transformation. Ms. Kiziak also spent 15 years in the oil and gas and construction sectors focused on senior HR Leadership, M&A and Integration. Ms. Kiziak holds a Bachelor of Management Degree with a Major in Human Resources and is a Chartered Professional in Human Resources.
David Gordey, Chief Financial Officer (Edmonton, Alberta)
Mr. Gordey will act as Chief Financial Officer of Nova and will also continue in his position of Executive Vice President, Corporate Services and Chief Financial Officer of Alcanna. Mr. Gordey assumed the role of Executive Vice President, Corporate Services and Chief Financial Officer of Alcanna in April 2018. Mr. Gordey served as Chief Operating Officer, Liquor from July 2016 to April 2018, and Senior Vice President and Chief Financial Officer from May 2014 to July 2016, after joining Liquor Stores N.A. Ltd. in March 2012 as Vice President, Finance. Mr. Gordey is a Chartered Professional Accountant, formerly of KPMG LLP (Edmonton).
Matthew Hewson, Corporate Secretary (Edmonton, Alberta)
Mr. Hewson is Alcanna’s General Counsel, Senior Vice President, Regulatory Affairs & HR and Corporate Secretary. Mr. Hewson joined Alcanna in 2013 and assumed the role of General Counsel in 2016. Prior to joining Alcanna, Mr. Hewson worked as a corporate/commercial lawyer at a national law firm.
Additional Information for YSS Shareholders
Registered holders of pre-Consolidation YSS Shares will receive a letter of transmittal by mail, from the transfer agent of Nova, Odyssey Trust Company, advising of the completion of the Consolidation, the Name Change and the Transaction, and providing instructions to exchange share certificates or DRS statements representing pre-Consolidation YSS Shares for their entitlement to Nova Shares. Non-registered shareholders holding YSS Shares through an intermediary (a securities broker, dealer, bank or financial institution) should be aware that the intermediary may have different procedures for processing the Consolidation and the Name Change than those that will be put in place for registered shareholders. If shareholders hold their YSS Shares through intermediaries and have questions in this regard, they are encouraged to contact their intermediaries. Further details regarding the Concurrent Financing, the Transaction, the Name Change, the Consolidation, and the Amalgamation are set out in the management information circular of YSS dated February 12, 2021, which is available on SEDAR (www.sedar.com) under Nova’s issuer profile.
Immediately upon completion of the Transaction, Nova will have 53 cannabis retail locations in Alberta, Saskatchewan and Ontario. These cannabis retail locations range in size from 1,200 to 5,600 square feet and are operated under the “Nova Cannabis”, “Deep Discount Cannabis”, “Value Buds”, “YSS”, and “Sweet Tree” brands. Nova has more than 20 additional cannabis retail locations in development for 2021. The majority of Nova’s cannabis retail locations (including locations previously operated by YSS) are expected to be re-branded as “Value Buds” and will target the value-conscious consumer, an under-served segment of the market that is estimated to account for approximately 70% of total recreational cannabis market in Canada (both legal and illicit).
Alcanna will provide management and administrative services to Nova, at a cost that is anticipated to be far less than a stand-alone company could achieve, until Nova reaches the critical size to bring those services in-house. Alcanna and Nova expect to enter into a management and administrative services agreement for an initial two-year term. Alcanna will also provide lease guarantees for Nova and make available to Nova an operating line of credit without standby fees for up to $10 million at prime plus 2.75% for growth, including new store builds, acquisitions and general corporate and working capital purposes. The operating line of credit will be drawable at Nova’s sole discretion and will be secured by a charge on all of the personal property of Nova. A copy of the Investor Rights Agreement will be available on Nova’s SEDAR profile at www.sedar.com.
In connection with the Transaction, PricewaterhouseCoopers LLP is anticipated to be appointed as the auditors of Nova following the release of the audited financial statements of YSS for the year ended December 31, 2020.
Alcanna is one of the largest private sector retailers of alcohol in North America and the largest in Canada by number of stores – operating 196 locations in Alberta and British Columbia. Alcanna is incorporated under the laws of Canada, and its common shares and convertible subordinated debentures trade on the Toronto Stock Exchange under the symbols “CLIQ” and “CLIQ.DB”, respectively. Additional information about Alcanna is available at www.sedar.com and www.alcanna.com.
Prior to the Transaction, Alcanna did not hold any securities of YSS. An early warning report will be filed by Alcanna in respect of Nova in accordance with applicable Canadian securities laws. As of the date of this news release, neither Nova nor Alcanna are aware of any plans nor have any future intentions which would relate to or result in any of the matters contemplated by Item 5 of Form 62-103F1 Required Disclosure Under the Early Warning Requirements. To obtain a copy of the early warning report, see the contact information below for Darren Karasiuk.
Eight Capital acted as exclusive financial advisor to Alcanna with respect to the Transaction. Cormark acted as financial advisor to YSS with respect the Concurrent Financing. Bennett Jones LLP acted as legal advisor to Alcanna and the ACS Entities. Stikeman Elliott LLP acted as legal advisor to YSS.