New York City-based multi-state cannabis firm Acreage Holdings has announced plans to raise $60 million, the majority of which will come via the sale of class A subordinate voting shares to an unnamed institutional investor.

In a press release, the vertically integrated Acreage said it had entered into a “standby equity distribution agreement” in which it will “periodically sell” up to $50 million in stock to the unidentified investor.

The company also issued $10 million of secured convertible debt via a private placement. The debt holder, also unnamed, may convert all or part of the debt to class A subordinate voting shares after September 30, 2020. Those shares will carry a value of $1.68 and the debt bears an annual interest rate of 15%, according to the release. It is secured by Acreage’s medical marijuana dispensaries in Connecticut.

Acreage said it would use proceeds from the raise for “working capital and general corporate purposes.”

The announcement comes about two weeks after the firm said it would sell non-core assets in South Dakota and Massachusetts in a bid to achieve profitability. That move will force the company to incur upwards of $100 million in pre-tax, non-tax charges.

In April, Acreage furloughed 122 employees, cancelled a $120 million deal to acquire Nevada’s Deep Roots Medical, LLC., and terminated an agreement to purchase a medical marijuana dispensary in Rhode Island.

At the time, Acreage CEO Kevin Murphy said the moves were intended to help the company mitigate the economic impact of the coronavirus pandemic.

“These bold measures will help to ensure that we emerge from this very challenging situation stronger than ever before,” he said.

Recall that in 2019, Acreage struck a $3.4 billion deal with Canopy Growth Corporation that gives the Canadian cannabis firm the right to acquire 100% of the New York-based company whenever marijuana becomes federally legal in the U.S.

A press release with additional information about the company’s recent fundraising effort is included below.

Acreage Enters Into Two Definitive Funding Agreements for up to $60 Million Gross Proceeds

NEW YORK, June 01, 2020 (GLOBE NEWSWIRE) — Acreage Holdings, Inc. (“Acreage” or the “Company”) (CSE: ACRG.U) (OTCQX: ACRGF) (FSE: 0VZ) today announced it has entered into two definitive funding agreements for a total of up to $60,000,000 in gross proceeds. The two funding agreements include:

A Standby Equity Distribution Agreement (the “SEDA”) with an institutional investor (the “Investor”), under which the Company may, at its discretion, periodically sell to Investor, and pursuant to which the Investor may, at its discretion, require the Company to sell to it, up to $50,000,000 of the Company’s Class A Subordinate Voting Shares, no par value (the “Subordinate Voting Shares”), and

Completion of a private placement offering, in which it issued $11,000,000 in principal amount under a secured convertible debenture, with gross proceeds to the Company of $10,000,000 before transaction fees (the “Convertible Debentures”). 

FINANCING TERMS AND DETAILS

Standby Equity Distribution Agreement

For each Subordinate Voting Share purchased under the SEDA (the “Shares”), the Investor will pay the Company the greater of (i) 95% of the lowest daily volume weighted average price of the Subordinate Voting Shares on the Canadian Securities Exchange or other principal market on which the Subordinate Voting Shares are traded (the “Principal Market”) for the five consecutive trading days immediately following the date the Company or the Investor delivers notice requiring the Investor to purchase or the Company to sell the Shares under the SEDA; or (ii) the lowest price allowable under the rules of the Principal Market.

The Investor’s obligation to purchase, and the Company’s obligation to sell, the Shares under the SEDA is subject to certain conditions, including obtaining requisite relief from applicable Canadian securities regulators in respect of transactions of this nature, the Company filing and maintaining the effectiveness of a registration statement, and a supplement to the Company’s Canadian shelf prospectus, qualifying the issue and resale of the Shares and the 200,000 Subordinate Voting Shares to be issued to the Investor as consideration under the SEDA, and is limited to $500,000 per advance, and no more than $5,000,000 in the 30 days following May 29, 2020.

Acreage expects to use the proceeds for working capital and general corporate purposes.

The offer and sale of the securities in the above transaction have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws and may not be offered or sold in the United States absent registration under the Securities Act and any applicable state securities laws or an applicable exemption from such registration.

This press release shall not constitute an offer to sell or a solicitation of an offer to buy any common shares, nor shall there be any sale of common shares in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or other jurisdiction.

Secured Convertible Indenture

The Convertible Debentures will bear interest at 15% per annum and are secured by the Company’s medical cannabis dispensaries in Connecticut. The Convertible Debenture is convertible by the holder in whole or in part after September30, 2020.  Prior to September30, 2020, the holder may convert only $550,000 of principal amount. The Convertible Debenture is convertible into Class A Subordinate Voting Shares of the Company at $1.68 per share, subject to the conversion limitations described above. The Company has the right to redeem up to 95% of the principal amount on or prior to September 29, 2020 without penalty.

A.G.P. / Alliance Global Partners acted as sole placement agent for this private placement transaction.

ABOUT ACREAGE

Headquartered in New York City, Acreage is a vertically integrated, multi-state operator of cannabis licenses and assets in the U.S. Acreage is dedicated to building and scaling operations to create a seamless, consumer-focused branded cannabis experience. Acreage debuted its national retail store brand, The Botanist in 2018 and its award-winning consumer brands, The Botanist and Live Resin Project in 2019.

On June 27, 2019 Acreage implemented an arrangement under section 288 of the Business Corporations Act (British Columbia) (the “Arrangement”) with Canopy Growth Corporation (“Canopy Growth”). Pursuant to the Arrangement, the Acreage articles were amended to provide Canopy Growth with an option to acquire all of the issued and outstanding shares in the capital of Acreage, with a requirement to do so, upon a change in federal laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”), subject to the satisfaction of the conditions set out in the arrangement agreement entered into between Acreage and Canopy Growth on April 18, 2019, as amended on May 15, 2019 (the “Arrangement Agreement”). Acreage will continue to operate as a stand-alone entity and to conduct its business independently, subject to compliance with certain covenants contained in the Arrangement Agreement. Upon the occurrence or waiver of the Triggering Event, Canopy Growth will exercise the option and, subject to the satisfaction or waiver of certain conditions to closing set out in the Arrangement Agreement, acquire (the “Acquisition”) each of the Subordinate Voting Shares (following the automatic conversion of the Class B proportionate voting shares and Class C multiple voting shares of Acreage into Subordinate Voting Shares) in exchange for the payment of 0.5818 of a common share of Canopy Growth per Subordinate Voting Share (subject to adjustment in accordance with the terms of the Arrangement Agreement). If the Acquisition is completed, Canopy Growth will acquire all of the Acreage Shares, Acreage will become a wholly owned subsidiary of Canopy Growth and Canopy Growth will continue the operations of Canopy Growth and Acreage on a combined basis. For more information about the Arrangement and the Acquisition please see the respective information circulars of each of Acreage and Canopy Growth dated May 17, 2019, which are available on Canopy Growth’s and Acreage’s respective profiles on SEDAR at www.sedar.com. For additional information regarding Canopy Growth, please see Canopy Growth’s profile on SEDAR at www.sedar.com.

FORWARD LOOKING STATEMENTS

This news release and each of the documents referred to herein contains “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of applicable United States securities legislation. All statements, other than statements of historical fact, included herein are forward-looking information, including, for greater certainty, statements regarding the implications of the strategic decisions by Acreage, the temporary nature of the operational changes referred to, the timing and implications of deferring the Company’s 2020 financial targets, the on-going implications of COVID-19 and the proposed transaction with Canopy Growth, including the anticipated benefits and likelihood of completion thereof.

Generally, forward-looking information may be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “proposed”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases, or by the use of words or phrases which state that certain actions, events or results may, could, would, or might occur or be achieved. There can be no assurance that such forward-looking information will prove to be accurate, and actual results and future events could differ materially from those anticipated in such forward-looking information. This forward-looking information reflects Acreage’s current beliefs and is based on information currently available to Acreage and on assumptions Acreage believes are reasonable. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Acreage to be materially different from those expressed or implied by such forward-looking information. Such risks and other factors may include, but are not limited to: the future implications to the business, financial results and performance of the Company arising, directly or indirectly, from COVID-19, the ability of Acreage and Canopy Growth to satisfy, in a timely manner, the conditions to the completion of the Acquisition; the likelihood of completion of the Acquisition; other expectations and assumptions concerning the transactions contemplated between Acreage and Canopy Growth; legal and regulatory risks inherent in the cannabis industry; risks associated with economic conditions, dependence on management and currency risk; risks relating to U.S. regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti-money laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to contracts with third-party service providers; risks related to the enforceability of contracts and  lack of access to U.S. bankruptcy protections; reliance on the expertise and judgment of senior management of Acreage; risks related to proprietary intellectual property and potential infringement by third parties; the concentrated voting control of Acreage’s founder and the unpredictability caused by Acreage’s capital structure; risks relating to the management of growth; increasing competition in the industry; risks inherent in an agricultural business; risks relating to energy costs; risks associated to cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; cybersecurity risks; ability and constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax and insurance related risks; risks related to the economy generally; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the difficulty of enforcement judgments and effecting service outside of Canada; risks related to future acquisitions or dispositions; sales by existing shareholders; and limited research and data relating to cannabis. A description of additional assumptions used to develop such forward-looking information and a description of additional risk factors that may cause actual results to differ materially from forward-looking information can be found in Acreage’s disclosure documents, including the Acreage’s management information circular dated May 17, 2019 filed on May 23, 2019 and Acreage’s Annual Information Form for the year ended December 31, 2018 filed on April 29, 2019, on the SEDAR website at www.sedar.com. Although Acreage has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. Readers are cautioned that the foregoing list of factors is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking information as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Forward-looking information contained in this news release is expressly qualified by this cautionary statement. The forward-looking information contained in this news release represents the expectations of Acreage as of the date of this news release and, accordingly, is subject to change after such date. However, Acreage expressly disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.

Neither the Canadian Securities Exchange nor its Regulation Service Provider has reviewed and does not accept responsibility for the adequacy or accuracy of the content of this news release.