Auxly Announces $123 Million Investment and R&D Partnership with Imperial Brands

Driving future growth in derivative cannabis products
 

• Imperial Brands to invest approximately $123 million by way of a debenture convertible into 19.9% ownership of Auxly at a conversion price of $0.81 per share
• Auxly granted global licences to Imperial Brands’ vaping technology and intellectual property and access to its vapor innovation business, Nerudia
• Auxly to become Imperial Brands’ exclusive partner for cannabis-related initiatives
• Jointly establish a Commercial Cooperation Group to foster collaboration between the parties
• Ideally timed to benefit from the legalization of cannabis derivative products in Canada later this year

VANCOUVER, British Columbia, July 25, 2019 (GLOBE NEWSWIRE) — Auxly Cannabis Group Inc. (TSX.V: XLY) (OTCQX: CBWTF) (“Auxly”), an international cannabis company, today announced that Imperial Brands PLC (“Imperial Brands”) will invest approximately $123 million in Auxly by way of a convertible debenture and grant Auxly global licences to Imperial Brands’ vaping technology and access to its vapor innovation business, Nerudia (the “Transaction”).

“This investment from Imperial Brands will enhance Auxly’s ability to continue to deliver on our business plans and accelerate our growth initiatives to expand our portfolio of branded derivative products,” said Hugo Alves, President of Auxly. “The timing is ideal as we prepare to bring our portfolio of innovative cannabis products to the Canadian market following the legalization of edibles, extracts and topicals later this year.”

Chuck Rifici, Chairman and CEO of Auxly, added: “Following its extensive evaluation of the Canadian cannabis market, we’re thrilled that Imperial Brands selected Auxly as its partner of choice due to the high calibre of our assets, people and capabilities. We are particularly excited to partner with Imperial Brands on current and future intellectual property and product development, starting with immediate access to its portfolio of vaping technologies and research and development capabilities.”

Imperial Brands is an international fast-moving consumer goods company that continually evolves to embrace changing market dynamics and develop new consumer experiences. Its Next Generation Products prioritizes the fast-growing vapor segment with innovative products and proprietary technologies, including its pioneering brand, blu.

Strategic Rationale

This collaborative partnership accelerates the delivery of Auxly’s business plan ahead of significant regulatory change to the Canadian cannabis market, as Auxly continues to focus on the development of science-backed, innovative, branded derivative products. As part of the Transaction, Imperial Brands will grant Auxly global licences to its vaping technology for cannabis use and access to its vapor innovation business, Nerudia. The shared ability to rapidly innovate as the Canadian market evolves is key to future growth and Auxly will work closely with a small dedicated team from Nerudia in developing a portfolio of new and enhanced vapor products and brands.

Upon completion of the Transaction, Auxly will:
 

• Receive an immediate capital injection of approximately $123 million to continue to execute on its strategic objectives and capitalize on emerging growth opportunities;
• Obtain rights to Imperial Brands’ industry-leading vaping technology and intellectual property for cannabis use globally;
• Be granted access to Imperial Brands’ vapor innovation business, Nerudia, which has a growing team dedicated to cannabis research and a facility that is already licensed for research and development activities with cannabis;
• Become Imperial Brands’ exclusive partner for the future development, manufacture, commercialization, sale and distribution of cannabis products of any kind anywhere in the world; and
• Further strengthen its governance through the addition of one director nominee and one non-voting observer to Auxly’s Board of Directors, each to be designated by Imperial Brands.

Transaction Structure

Imperial Brands and Auxly have entered into a subscription agreement pursuant to which Imperial Brands has agreed to invest approximately $123 million by way of a debenture convertible into 19.9% ownership of Auxly at a conversion price of $0.81 per share, representing an 11% premium to Auxly’s closing share price on July 24, 2019 and a 12% premium to the trailing 10-day volume-weighted average price on the TSX Venture Exchange. The convertible debenture has a three-year term and a fixed interest rate of 4.00% per annum, payable on the last day of December. Imperial Brands will have the right to convert the debenture into Auxly shares at any time during the three-year term and has certain top-up and pre-emptive rights to maintain its pro rata ownership in Auxly and certain governance rights. If at the end of the term Imperial Brands has not converted, the debenture will be repayable in full.

As part of the Transaction, Auxly agrees to nominate for election to its Board of Directors one out of five director nominees and one non-voting observer, each to be designated by Imperial Brands. In addition, the Chair of Imperial Brands’ Product Stewardship and Health Group will sit on Auxly’s new Safety Board, which will have oversight of the controls in place to ensure the safety, efficacy and quality of Auxly’s products.

Upon the closing of the Transaction, Auxly and Imperial Brands will establish a Commercial Cooperation Group (the “CCG”), which will foster collaboration between the parties to enable them to leverage their respective capabilities and expertise for the benefit of growing Auxly’s business. Each company will appoint four representatives to the eight-member CCG.

The Transaction is expected to close in the third quarter of 2019, subject to receipt of certain closing conditions and approval by the TSX Venture Exchange.

BMO Capital Markets is acting as Auxly’s financial advisor in connection with the Transaction.

ON BEHALF OF THE BOARD
“Chuck Rifici” Chairman & CEO

About Auxly Cannabis Group Inc. (TSX.V: XLY)

Auxly is an international cannabis company dedicated to bringing innovative, effective, and high-quality cannabis products to the medical, wellness and adult-use markets. Auxly’s experienced team of industry first-movers and enterprising visionaries has secured a diversified supply of raw cannabis, strong clinical, scientific and operating capabilities, and leading product research and development infrastructure in order to create trusted products and brands in an expanding global market.

Learn more at www.auxly.com and stay up to date at Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.

Investor Relations:

For further information, please contact our Investor Relations Team: 
Email: IR@auxly.com 
Phone: 1.833.695.2414

Media Enquiries (only): 

For media enquiries or to set up an interview, please contact:
Sarah Bain, VP External Affairs 
Email: sarah@auxly.com  
Phone: 613.230.5869

Forward-Looking Statements

This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words, or information that certain events or conditions “may” or “will” occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes, but is not limited to: the timing and completion of the proposed Transaction, obtaining the necessary regulatory approval of the proposed Transaction, anticipated use of proceeds, the impact of the Transaction on Auxly’s market position, Auxly’s execution of its innovative product development, commercialization strategy and expansion plans, the anticipated benefits of the Transaction and the strategic relationship with Imperial Brands including without limitation, Auxly’s ability to develop and commercialize high-margin and value-added cannabis products and brands in Canada and globally, future legislative and regulatory developments involving cannabis and cannabis products, political change in Canada and globally, competition and other risks affecting Auxly in particular and the cannabis industry generally.

A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information in this release including, but not limited to: whether Auxly and Imperial Brands can complete the Transaction on the anticipated terms and timeline; the ability to satisfy various conditions to the closing of the Transaction contemplated by the subscription agreement; the ability to obtain regulatory approval of the Transaction on the proposed terms and timeline; any conditions imposed on the parties in connection with consummation of the Transaction; the risk that synergies and expected collaboration from the Transaction may not be fully realized or may take longer to realize than expected; future revenue expectations; consumer demand for cannabis products in Canada and globally; the expected benefits of the Transaction may not materialize in the manner or timeframe expected, or at all; Auxly’s subsidiaries and partners are able to obtain and maintain the necessary regulatory authorizations to conduct business; and general economic, financial market, legislative, regulatory, competitive and political conditions in which Auxly and its subsidiaries and partners operate will remain the same. Additional risk factors are disclosed in the revised annual information form of Auxly for the financial year ended December 31, 2017 dated May 24, 2018.

New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on Auxly’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. In addition, this release may contain forward-looking information attributed to third party industry sources, the accuracy of which has not been verified by Auxly. Readers should not place undue reliance on forward-looking information contained in this release.

The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, Auxly does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.

Required Early Warning Report Disclosure

Auxly’s head office is located at 1055 West Hastings Street, Suite 2200, Vancouver, BC V6E 2E9.  Imperial Brand’s head office is located at 121 Winterstoke Road, Bristol, UK BS3 2LL.

An affiliate of Imperial Brands will acquire the convertible debenture and assuming the convertible debenture is exercised in full on the closing of the Transaction, it is expected that Imperial Brands and its affiliates would have beneficial ownership of 151,668,018 common shares of Auxly (approximately 19.99% of the issued and outstanding common shares calculated on a non-diluted basis).

Imperial Brands entered into the subscription agreement as part of a strategic investment in Auxly. Imperial Brands intends to review its investment in the Corporation on a continuing basis and may, subject to the terms of the Transaction agreements, purchase or sell common shares, either on the open market or in private transactions, or exercise the convertible debenture in the future, in each case, depending on a number of factors, including general market and economic conditions and other factors and conditions Imperial Brands deems appropriate.

An early warning report will be filed by Imperial Brands with applicable Canadian securities regulatory authorities. To obtain a copy of the early warning report, please contact Daniel Glavin at 416-869-5500.

Neither 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.