Cannabis companies Red White & Bloom Brands Inc (CSE:RWB, OTCQX:RWBYF) and Aleafia Health Inc have announced plans to merge.
The proposed acquisition would result in the creation of a combined company expected to generate C$138 million in trailing distribution and retail revenue from the cannabis markets in Canada, the United States, and Europe.
The combined company is anticipated to have approximately 3,000 retail locations in North America.
Red White & Bloom is a leading multi-state cannabis operator in the U.S., specializing in premium brands, and strategically investing in key markets such as Arizona, California, Florida, Massachusetts, Missouri, and Michigan.
Aleafia’s footprint extends from Canada to Australia and Germany.
The proposed deal comes less than two weeks after Aleafia announced it had begun a strategic review after breaching the terms of a secured loan, which Red White & Bloom will assume following the closing of the deal.
As per the agreement, each Aleafia common share will be exchanged for 0.35 common shares of RWB, subject to customary adjustment, the two companies said in a statement. After the completion of the transaction, Red White & Bloom shareholders are expected to hold approximately 76% of the combined company, while Aleafia shareholders will hold approximately 24%.
The deal aims to achieve annualized synergies of approximately C$10 million in cost of goods sold and selling, general, and administrative expenses through optimization and economies of scale, as well as debt service obligation elimination. Both companies will enter into a definitive arrangement agreement at a later date.
The deal also includes Red White & Bloom providing a $17.5 million credit facility to Aleafia. If the agreement is terminated, or if the proposed transaction fails to meet necessary approvals, the due date of the Red White & Bloom credit facility will be accelerated.
Additionally, Red White & Bloom intends to secure a $30 million new credit facility for various purposes, including settling outstanding debentures and funding working capital requirements. Concurrently, Red White & Bloom has received a $14 million advance from Royal Group Resources Ltd, which will be retired upon the closing of the new credit facility.
Sean Hocking
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