The transformative deal is expected to connect Flora Growth’s (NASDAQ: FLGC) Colombian-grown cannabis directly with German-based pharmaceutical and medical cannabis distribution by creating a leading international, vertically integrated, seed-to-sale cannabis company.
- The transaction values FGH at approximately CA$42.0 million. Expected annualized cost savings of at least US$3.0 million in general and administrative expenses realized through synergies and optimization for the combined entity.
- The deal would establish a foothold in Germany for medical cannabis sales across 1,200 pharmacies and the distribution of pharmaceutical products across 28 countries. This deal would provide additional upside should Germany proceed with the legalization of adult-use recreational cannabis.
- Franchise Global Health reported revenue of CA$30.1 million (US$23.4 million) for the six months ended June 30, 2022. Total aggregated reported revenues of Flora Growth and Franchise Global Health Inc. for the six months ended June 30, 2022 were CA$49.8 million (US$38.6 million).
- The proposed all-stock acquisition by Flora Growth of Franchise Global Health will result in the indirect acquisition of its subsidiaries, including the Hilzingen-based Phatebo GmbH, a leading distributor of export pharmaceuticals and medical cannabis products to the European Union and ACA Müller ADAG Pharma Vertriebs GmbH (“ACA Müller”), which holds the first German medical cannabis import and distribution license, which was granted in 2017.
VANCOUVER, BRITISH COLUMBIA – October 24, 2022 – Franchise Global Health Inc. (TSXV: FGH; FRA: WV4A) (“FGH” or the “Company”), a multi-national operator in the medical cannabis and pharmaceutical industry, with principal operations in Germany, announced today that it has signed a definitive agreement with respect to the acquisition of the Company by Flora Growth Corp. (NASDAQ: FLGC) (“Flora''), a leading all-outdoor cultivator, manufacturer and distributor of global cannabis products and brands. The transaction values FGH at approximately CA$40.0 million.
“I would like to thank our shareholders for their patience over the past four years. This is an opportune time to invest in the cannabis sector with significant upside ahead. We plan to work hard to gain market share in the growing German cannabis market as global policy turns the corner”, said Clifford Starke, CEO and Executive Chairman of FGH. “This acquisition represents an accretive transaction for FGH by combining a strong pro-forma revenue profile with an attractive opportunity to execute on our core strategy of providing patients with highly sought-after medicinal cannabis”.
“Through this proposed acquisition, we are connecting our commercial infrastructure and medical cannabis product portfolio to the German and EU medical markets, while gaining direct access to European pharmaceutical distributions,” said Luis Merchan, Chairman and CEO of Flora Growth. “We believe Franchise will significantly increase our commercial international revenue and provide essential distribution to German pharmacies and a growing wholesale market.”
FGH's German reportable segment achieved revenues of CA$30.1 million, gross profit of CA$2.1 million and net income of CA$0.4 million in the first half of 2022. FGH’s German businesses operate primarily in the export pharmaceutical and medical cannabis import and distribution
markets, servicing 1,200 pharmacies in Germany and providing non-cannabis medical products to 28 additional countries.
This acquisition is expected to accelerate Flora’s expansion into the European cannabis and pharmaceutical markets with prescription medicines and would provide Flora with immediate access to a wealth of knowledge and intellectual property that FGH has developed, including 41 registered cannabis strains in Colombia and the first registered cannabis seed bank in Copenhagen, Denmark housing 286 strains. The proposed acquisition would further allow Flora to expand its CBD business in Europe by utilizing FGH’s distribution and logistics capabilities.
The combination of Flora and FGH is expected to deliver at least US$3.0 million of annualized cost synergies within the first year following the completion of the acquisition, primarily in the areas of reduced corporate administrative expenses.
“Luis and I share the same vision of establishing a leading and sustainable cannabis business. Flora has the right platform to execute on this strategy through M&A and organic growth. We are excited to join forces,” says Clifford Starke. “Together we have a solid revenue base, a proven consumer packaged goods business that can be replicated in Europe, and a successful distribution network. Over the past few months, we have worked tirelessly to identify synergies, reduce costs, and build an industry-leading team.”
After the close of markets on October 21, 2022, Flora and FGH entered into an Arrangement Agreement (the “Arrangement Agreement”) pursuant to which Flora intends to acquire all the issued and outstanding common shares of FGH by way of a statutory plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia).
As consideration for the acquisition of 100% of the issued and outstanding FGH common shares, at the completion of the Arrangement, Flora will issue between 36,515,060 and 43,525,951 of its common shares in exchange for the issued and outstanding shares of FGH, as calculated in accordance with the Arrangement, which is based on a minimum exchange ratio of approximately 0.2441 Flora shares for each FGH share and a maximum exchange ratio of approximately 0.3235 Flora shares for each FGH share, depending on the number of FGH shares outstanding and the closing price of the Flora shares on the closing date, in each case as determined in accordance with the Arrangement. The Arrangement represents a total transaction value of approximately CA$40.0 million, based on Flora’s 20-day VWAP as of market close on October 21, 2022 and based on the exchange ratio set out in the Arrangement Agreement, which is subject to adjustment in accordance with the terms of the Arrangement Agreement.
In accordance with the terms set forth in the Arrangement Agreement, upon the completion of the Arrangement, all Flora common shares to be delivered to the former shareholders of FGH shall be restricted from being sold for a period of ninety (90) days following the completion of the Arrangement.
Upon closing the Arrangement, the former shareholders of FGH are expected to own between 32.06% and 36.00% of Flora’s issued and outstanding shares, subject to dilution that may occur pursuant to permitted share issuances by Flora as provided for in the Arrangement Agreement. Flora does not own, directly or indirectly, any securities of FGH.
Completion of the Arrangement is subject to certain closing conditions customary for transactions of this nature including, among other things, approval of the Arrangement by the Supreme Court of British Columbia and the approval of at least 66 2/3% of the votes cast by shareholders of FGH
(as well as a majority of the minority” shareholders of FGH) at a meeting of FGH shareholders to be called for the purpose of considering the Arrangement (the “FGH Meeting”).
The board of directors of FGH (the “FGH Board”) unanimously recommends that FGH shareholders vote in favour of the resolution to approve the Arrangement at the FGH Meeting, which is expected to be held in December, 2022. The FGH Board has obtained a fairness opinion from Haywood Securities Inc. that, as of October 21, 2022, and subject to the assumptions, limitations and qualifications on which such opinion is based, the consideration to be received by the FGH shareholders in connection with the Arrangement is fair, from a financial point of view, to such shareholders.
The Arrangement Agreement provides for, among other things, a non-solicitation covenant on the part of FGH, as well as a provision that entitles FGH to consider a superior proposal in certain circumstances, and a right in favour of Flora to match any superior proposal. If the Arrangement Agreement is terminated in certain circumstances, including if FGH enters into a definitive agreement with respect to a superior proposal, Flora is entitled to a break fee payment of $1 million. Subject to the satisfaction or waiver, as applicable, of the conditions to closing, the Arrangement is currently expected to close in late December, 2022.
In addition, Clifford Starke, the Chairman and Chief Executive Officer of FGH, along with certain of his affiliated entities, have entered into a voting, support and indemnity agreement, pursuant to which, in addition to agreeing to vote their FGH common shares in favor of the Arrangement, they have agreed to indemnify Flora for certain potential liabilities of FGH and its subsidiaries for up to US$5.0 million. All of the other directors and officers of FGH have entered into voting support agreements pursuant to which they have committed, among other things, to support the Arrangement and vote in favour of it at the FGH Meeting.
Mr. Starke shall also have the right to name two designees to serve on Flora’s board of directors immediately following the closing of the Arrangement and Mr. Stake is currently expected to be one of such designees.
None of the securities to be issued pursuant to the Arrangement have been or will be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), or any state securities laws, and any securities issuable pursuant to the Arrangement are anticipated to be issued in reliance upon available exemptions from such registration requirements pursuant to Section 3(a)(10) of the U.S. Securities Act and applicable exemptions under state securities laws. This press release does not constitute an offer to sell, or the solicitation of an offer to buy, any securities.
Full details of the Arrangement are set out in the Arrangement Agreement, which will be filed by FGH under its profile on SEDAR at www.sedar.com. In addition, further information regarding the Arrangement will be contained in a management information circular of the Company to be prepared in connection with the FGH Meeting. All shareholders of the Company are urged to read the Company’s management information circular once it becomes available as it will contain additional important information concerning the Arrangement.
Financial and Legal Advisors
Haywood Securities Inc. acted as financial advisors to FGH, and has provided a fairness opinion to the Board of Directors of FGH. Gowling WLG (Canada) LLP acted as legal counsel to FGH.
Wildeboer Dellelce LLP acted as legal counsel to Flora.
About Flora Growth Corp.
Flora is building a connected, design-led collective of plant-based wellness and lifestyle brands, designed to deliver the most compelling customer experiences in the world, one community at a time. As the operator of one of the largest outdoor cannabis cultivation facilities, Flora leverages natural, cost-effective cultivation practices to supply cannabis derivatives to its commercial, house of brands, and life sciences divisions. Visit www.floragrowth.com or follow @floragrowthcorp on social media for more information.
About Franchise Global Health Inc.
Franchise Global Health Inc., through its subsidiaries, is a multi-national operator in the medical cannabis and pharmaceutical industries, with principal operations in Germany and with operations, assets, strategic partnerships and investments internationally. The Company’s business objective is to develop a fully-integrated, leading European medical cannabis business, with the goal of providing high-quality pharmaceutical grade medical cannabis to distribution partners and, ultimately, to patients, at competitive prices. For more information, please visit www.franchiseglobalhealth.com or visit the Company’s SEDAR profile at www.sedar.com.
Contact Franchise Global Health Inc.
Clifford Starke, CEO and Executive Chairman
Cautionary Statement Concerning Forward-Looking Information
This press release contains ‘‘forward-looking information,’’ as defined by Canadian securities laws. Forward-looking information reflect the Company’s current expectations and projections about future events at the time, and thus involve uncertainty and risk. The words “believe,” “expect,” “anticipate,” “will,” “could,” “would,” “should,” “may,” “plan,” “estimate,” “intend,” “predict,” “potential,” “continue,” and the negatives of these words and other similar expressions generally identify forward looking information. Statements containing forward-looking information in this press release include, but are not limited to, statements with respect to the expected benefits and synergies resulting from the completion of the Arrangement (including anticipated savings in general and administrative expenses resulting therefrom), the strategy of the combined company going forward, the timing for the holding of the FGH Meeting and the completion of the Arrangement, and the consideration expected to be received by FGH shareholders, which may fluctuate in accordance with the Arrangement. Statements containing forward-looking information are subject to various known and unknown risks and uncertainties, including without limitation risks that the closing conditions to the Arrangement may not be satisfied, the Arrangement Agreement may be terminated and the Company may be required to pay termination fees and expenses due thereunder depending on the circumstances of such termination, if completed, the expected benefits from the Arrangement may not materialize, the combined entity will be subject to the general business risks and uncertainties affecting each of Flora (including those described under the section entitled “Risk Factors” in Flora’s annual report on Form 20-F filed with the SEC on May 9, 2022, as such factors may be updated from time to time in Flora’s periodic filings with the SEC) and FGH, general risks applicable to each of Flora and FGH in the operation of their
respective businesses in the normal course until closing of the Arrangement, risks of non-compliance by the parties with various covenants contained in the Arrangement Agreement, and risks relating to general economic conditions.
Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in statements containing forward-looking information. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in the Company’s public filings available on its SEDAR profile at www.sedar.com. While statements containing forward-looking information reflect management of the Company’s good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking information contained herein to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes after the date of this press release, except as required by applicable law. You should not place undue reliance on any forward-looking information contained herein, which are based only on information currently available to the Company.
NEITHER THE TSX VENTURE EXCHANGE, NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.