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Red White & Bloom transitions to international company through closing of Aleafia transaction

Red White & Bloom announced that, in connection with the proceedings of Aleafia Health and certain of its subsidiaries under the Companies’ Creditors Arrangement Act (CCAA), the parties have successfully closed the previously announced sale transaction.

“We are excited to announce the successful closing of our acquisition of the Aleafia group of companies," stated Colby De Zen, President of RWB, adding, “This pivotal moment signifies a transformative phase for RWB's future, strengthening our presence in legal markets across North America and positioning us for global expansion. The integration of Aleafia’s brand portfolio and assets, combined with our acclaimed Platinum Vape brand, generates a robust footprint across recreational, medical, and international sales channels. Furthermore, we anticipate achieving annual synergies exceeding C$12 million between RWB and the Aleafia Purchased Entities while promoting revenue growth, margin contribution, and value for all shareholders.”

“The Aleafia acquisition aligns seamlessly with RWB’s goals of expanding its global footprint and fortifying its position in global cannabis markets,” stated Eddie Mattei, CFO of RWB. “The accretive nature of the Transaction has been evident to RWB management since the inception of the relationship with the Aleafia group of companies. With the financial support and ongoing commitment provided by RWB through the CCAA proceedings, Aleafia has already realized the benefit of multiple cost and cash improvements that will contribute to the combined company’s prospective financial performance. With the closing behind us, the combined, dedicated RWB and Aleafia teams are focused on delivering accessible synergies focused within sales, production, procurement, and marketing."

The Aleafia acquisition provides several strategic benefits to RWB shareholders through the ability to leverage capabilities garnered from:

- Three core sales channels including: (1) recreational (distributed to five provinces: Ontario, Alberta, British Columbia, Saskatchewan, and Manitoba); (2) medical (distributed across Canada direct to patient subscribers); and (3) international (exported to Australia, Germany, and the United Kingdom to date).

- One of Canada’s largest virtual medical cannabis clinics that provides quality cannabis products to patient subscribers in a convenient and low-cost setting. Solutions for valued patients are tailored by experienced staffed physicians and nurse practitioners who strive to provide the highest quality health and wellness services.

- An 86 acre, low-cost, outdoor cultivation site located in Port Perry, Ontario, which is one of Canada’s largest outdoor cannabis cultivation facilities. The Port Perry Facility features 35,000 square feet of federally licensed indoor drying and storage facilities – a critical function in the cannabis supply chain. The facility produces cannabis for use in various finished good formats that can be sold under the Aleafia Group’s recreational and medical (direct to patient) sales channels. Proven cultivation capacity to date is in excess 30,000 kilograms annually.

- A 65,000 square foot, federally licensed, EU-GMP specified cultivation, processing, and packaging facility strategically located in rapidly developing Southwestern Ontario industrial hub Paris, Ontario. The Paris Facility currently cultivates approximately 1,200 kilograms of high-quality indoor flower and can extract and manufacture approximately 50,000 kilograms of cannabis derivatives; including, edibles, oil, capsule, sublingual, vape cartridge, topicals and other formats. The Paris Facility also houses Aleafia’s GMP-certified innovation and product development laboratory.

- An established portfolio of loyal cannabis brands in both adult use (recreational) and medical channels. Specifically, cannabis products are sold through Aleafia’s leading profile brands, Emblem and Divvy.

As part of the Transaction, RWB also acquired a 9.4% ownership interest in One Plant (Retail) Corp., which operates a network of over 40 corporately owned and franchised cannabis retail locations in Ontario.

RWB expects that the Transaction will be accretive on an EBITDA basis in fiscal 2024. Material operational cost improvements that have already been realized in concert with the CCAA Proceedings include:

- Cash contributions of approximately $3.5 million realized through material reductions in debt service obligations.
- A $3.0 million reduction to recurring operating costs realized primarily through the rationalization of operations including $1.0 million in fixed overhead costs related to the exit of the Basaltic head office and warehouse facility formerly occupied by Aleafia Health Inc. and the sale of the dormant Grimsby greenhouse facility.
- Corporate cost savings of approximately $1 million associated with Aleafia’s public company infrastructure.

Pursuant to the Transaction, RWB (PV) Canada Inc., a wholly-subsidiary of RWB, acquired the intellectual property assets of Aleafia Health and subscribed for shares in the capital of each of Emblem Cannabis Corporation (ECC), Canabo Medical Corporation and Aleafia Retail Inc. As a result of the Transaction and Approval and Vesting Order, the Purchaser is now the sole shareholder of the Companies and their respective subsidiaries (the foregoing entities, except for Emblem Realty Ltd., which is a non-acquired subsidiary of ECC, being the Aleafia Purchased Entities).

Pursuant to the Approval and Vesting Order, certain excluded assets and liabilities of the Aleafia Purchased Entities were transferred to a subsidiary of Aleafia Health that is not included among the Aleafia Purchased Entities, and all previously issued and outstanding securities of the Companies (other than the Purchased Shares) were canceled without consideration.

Total consideration for the Transaction was $31,667,700, consisting of (1) a release of all amounts outstanding and obligations payable by the Aleafia Group under the Aleafia Senior Secured Loan Agreement and the debtor-in-possession financing ($24,897,493) and (2) cash consideration of up to $6,770,207, funded through a combination of cash on hand and a drawdown under RWB’s existing secured note, to be utilized by Aleafia Health to extinguish outstanding obligations under an existing credit agreement and to fund closing costs and expenses of the Monitor and its legal counsel after the closing date.

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