Auxly Bolsters Cultivation Capacities Via Acquisition Of Sunens Farms

Auxly Cannabis Group Inc. (TSX-XLY) CBWTF, a cannabis-focused consumer packaged goods company, said Monday that it has acquired 100% ownership of Sunens Farms Inc.

Acquisition Details

Under the terms of a share purchase agreement between the Toronto-based company and Peter Quiring, the company acquired all the issued and outstanding securities of Sunens not already owned by Auxly.

Auxly's consideration for the acquisition included $1.6 million, comprised of $500,000 in cash and $1.1 million in its common shares, a $3.4 million unsecured promissory note payable over 30 months in equal monthly installments with the first payment due 12 months after the date of closing, and the transfer of certain non-core assets of Sunens.

Amended & Restated Credit Facility

Simultaneously, Sunens and Auxly amended and restated Sunens' secured credit facility that was entered into in September 2019, underwritten by a syndicate of lenders led by the Bank of Montreal, bringing the total principal indebtedness thereunder to $62.5 million.

In addition, Sunens has entered into an amended and restated credit facility with the following terms:

An immediate cash payment by Auxly of $15 million applied to the outstanding principal balance of the revolving credit facility.
Extension of the maturity date by a year to September 30, 2023, with an option for Sunens to extend for an additional year by making a further principal repayment of $5 million by December 31, 2022.
The obligations of Sunens under the amended and restated credit facility continue to be supported by an unsecured $33 million limited recourse guarantee by Auxly and a pledge by the company of all of its securities of Sunens with new revenue and EBITDA covenants.

What It Means For Auxly

Hugo Alves, CEO of Auxly, said that the acquisition of Sunens boosts the company's cultivation capabilities and strengthens its position as a leader in the Canadian cannabis market.

Moreover, the deal is expected to improve Auxly's blended gross margins, adjusted EBITDA, and net income as Sunens continues to increase production while eliminating the reliance on Auxly's third-party cannabis purchases.

Sunens' greenhouse facility provides Auxly with operational flexibility as well as considerable additional cultivation, storage, processing, and manufacturing capacity, including complete control over large-scale cultivation with a proprietary genetic library consisting of more than 150 cannabis strains.

In addition, the deal supports the company's growing portfolio in both the 1.0 and 2.0 cannabis product categories.

Mike Lickver, president of Auxly, called the move a "defining moment" for the company.

What's Next?

Auxly said it would immediately begin integrating Sunens' proven cultivation capabilities, giving Auxly the competitive advantage of scale, lower costs and surety of supply as it continues to build to leadership in 1.0 cannabis product formats.

"We are working hard to meet the fast-growing consumer demand for our entire suite of products, and having a library of unique genetics and a consistent supply of high-quality cannabis will help us ensure that all of our products get to and stay on shelves across the country," Lickver added.

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