TPCO Holding Corp. and Gold Flora have entered into a definitive business combination agreement to combine the companies in an all-stock merger. Under the terms of the Merger Agreement, The Parent Company shareholders will own approximately 49%, and Gold Flora holders will own approximately 51% of the outstanding common equity of the combined company on a pro forma basis upon consummation of the Business Combination.
Key transaction benefits and strategic rationale
- Increased size and scale to become a leading operator in the world's largest cannabis market. The combined company is expected to operate a footprint of 20 retail stores, 12 house brands, 3 distribution centers, 1 manufacturing facility, and 6 cultivation facilities, providing the size and scale to position the combined company as a leader in California.
- Establishing a strongly positioned vertically-integrated platform to achieve financial and operational efficiency as one of the largest indoor cultivators and retail operators in California. The combined company will have an indoor cultivation canopy of approximately 72,000 square feet, with the opportunity to expand to a further approximately 240,000 square feet, critical to controlling its supply chain and inventory levels while providing consistent, high-quality flower, as well as flower-driven products that leverage an exceptional proprietary genetics library to deliver exclusive offerings that align with consumer demands.
- Significant synergies are expected to drive margin improvement and enhance profitability across all verticals. Through the streamlining of retail operations, utilizing scale to access bulk purchasing power, and eliminating third-party contracts, the combined company is expected to achieve annualized cost savings of between $20 and $25 million to further improve gross margin and profitability while delivering value for shareholders.
- Reduction in third-party costs through supply-chain optimization. The combined company will reduce third-party contracts when strategically and cost effectively appropriate by utilizing the capabilities of Gold Flora and controlling its value chain.
- Combined entity will be well-positioned as a top-10 brand portfolio by revenue. As two of the premier operators in the state, the Business Combination will result in a diversified and highly complementary customer product offering with a variety of form factors and brands for differentiated consumer profiles. Additionally, with only a 13% overlap in current company retail store footprints, there is a significant opportunity for cross-selling brands into diverse customer bases to drive organic growth.
- Enhanced financial profile with a strong balance sheet. The combined company would have pro forma revenue of $116.4 million for the nine-month period ended September 30, 2022, with a gross margin of 33%. Providing a robust foundation to accelerate growth, the combined company will be well-positioned to capitalize on the market opportunities ahead as a leading public cannabis company in California.
"This merger of equals with the Gold Flora Corporation represents the next stage in our evolution, leveraging our complementary assets and core capabilities to deliver the most value for our customers and shareholders," said Troy Datcher, Chief Executive Officer and Chairman of The Parent Company. "Together, we will have the strategic platform comprised of scale, cultivation capabilities, and brand portfolio to execute on our mission to create unique and culturally relevant products. This vertical integration will fuel both the development of more consumer brands and broader consumer reach while enabling us to improve our gross margin and profitability to establish our business as a true leader in California to take advantage of the incredible growth opportunities ahead of us."
Mr. Datcher concluded, "This is a monumental moment, and I want to sincerely thank the team at The Parent Company that has executed on the significant improvements we have made over the last year to prepare our company for today and the potential strategic partnership opportunities. I'd also like to take a moment to share how excited we are to begin our work with the team at Gold Flora. We can't wait to get started on all we will achieve together."
"We are thrilled to embark on this groundbreaking effort to create a true vertical leader in the most exciting cannabis market in the world," said Laurie Holcomb, Chief Executive Officer of Gold Flora. "By combining our proven approach to lean, effective infrastructure and vertically integrated operations from cultivation through distribution and The Parent Company's brand-building expertise and retail and delivery footprint, we expect to achieve market-defining performance at every level of the business. Our team has done a phenomenal job of optimizing our indoor cultivation capabilities, building our portfolio of proprietary genetics, and advancing our high-quality manufacturing and distribution operations, and we look forward to leveraging these strengths as we begin our work to combine our two companies."
Ms. Holcomb added, "The team at The Parent Company shares many of our values for authentic customer connections and delivering superior product experiences. We are aligned on the mission to become a profitable, world-class brand builder and are ready for this next phase of growth."
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The Parent Company