Tobacco Giant Imperial Brands to Take 20% Stake in Canadian Cannabis Company Auxly for C$123 Million

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

• 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.”

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.

Chuck Rifici, Chairman and CEO of Auxly

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.

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/.

Original press release

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