Schwazze Announces $95 Million Private Financing To Support M&A Initiatives, Enters New Mexico

Vertically integrated cannabis company Schwazze SHWZ confirmed Friday that it has signed a securities purchase agreement with institutional investors and individuals under which the company will issue and sell $95 million of principal amount and $93 million of funding amount (reflecting a 2% original issue discount) of convertible notes. 

Schwazze anticipates using the proceeds from the notes to fund the cash consideration of recently announced acquisitions and other growth and expansion initiatives.

The notes will accrue 13% interest per year (9% payable in cash and 4% accreting to the principal amount), have a 5-year term and will be secured by a first lien on the unencumbered assets and a second lien on the encumbered assets of the company and its subsidiaries. 

New Mexico

The Denver, Colorado-based company also announced it will acquire substantially all the operating assets of Reynold Greenleaf & Associates, LLC, and the equity of Elemental Kitchen & Laboratories, LLC.

Under the deal, Schwazze will have a right to purchase or acquire cannabis licenses held by Medzen Services, Inc. and R. Greenleaf Organics, Inc. not-for-profit organizations that hold medical cannabis licenses in New Mexico.

Total consideration for the acquisition will be $42 million with a potential performance-based earnout. The consideration will consist of $25 million in cash payable at closing and $17 million in a 3-year seller note at 5% interest.

The acquisition is targeted to close within the next quarter, subject to closing conditions and covenants customary for this type of transaction.

"We appreciate the strong support from our group of institutional investors that believe in our differentiated strategy and in our ability to execute,” Justin Dye, Schwazze CEO & chairman stated. “We believe this capital will support Schwazze in meeting its growth target to double pro-forma revenue by the end of Q1 2022. The Company will continue to aggressively pursue expansion and operating plans in Colorado going forward exemplified by the recently announced acquisitions of Emerald Fields and Smoking Gun dispensaries.”

Corporate Update

Since April 2020, Schwazze has announced and/or acquired a total of 32 cannabis dispensaries, including the ten Greenleaf New Mexico dispensaries. The company has also announced and/or acquired in 2021 a total of seven cultivation facilities, three in Colorado - SCG Holding LLC, Brow 2 LLC and Star Buds - and four licensed by Medzen and RGO in New Mexico. 

In May 2021, Schwazze announced its BioSciences division and in August 2021 it commenced home delivery services in Colorado.

Price Action

Schwazze’s shares traded 2.09% higher at $1.95 per share at the time of writing Friday morning.

Photo; Courtesy of Chris Lillie on Unsplash