The Green Organic Dutchman Signs A Definitive Agreement To Merge With BZAM Cannabis

The Green Organic Dutchman Holdings Ltd. TGODF TGOD and BZAM Holdings, have entered into a binding and definitive share exchange agreement dated October 18, 2022 with BZAM's sole shareholder, pursuant to which TGOD will acquire all of the issued and outstanding common shares of BZAM from the BZAM shareholder, in exchange for common shares of TGOD.

The combination of BZAM and TGOD is expected to deliver at least CA$10 million ($7,25 million) of annualized cost synergies within the first three quarters following completion of the transaction, aiding in the achievement of positive adjusted EBITDA by mid 2023. The combined entity expects to achieve cost synergies in the key areas of cultivation and production, cannabis and product purchasing, sales, marketing and corporate expenses. BZAM's Pitt Meadows, British Columbia facility will also provide TGOD with low-cost THC distillate and extraction capabilities, which is expected to improve cannabis 2.0 product margins. The combined entity expects to share a unified sales force leading to improvements of geographical coverage and increased retail distribution. The transaction is expected to result in a stronger balance sheet and provide the combined entity with access to lower cost capital.

Upon completion of the transaction, BZAM's current CEO, Matt Milich, and chief commercial officer, Jordan Winnett, will lead the combined entity as CEO, CCO, along with TGOD's current CEO and Interim CFO, Sean Bovingdon, who will take the role of CFO, in order to assist with the integration of BZAM and TGOD and the transitionary period of the combined entity. The board of directors of the combined entity will consist of seven members including five members from TGOD's existing board of directors, and two members nominated by BZAM.

Transaction Details

In consideration for all the issued and outstanding common shares of BZAM, upon closing, TGOD will issue combined entity shares to the BZAM shareholder in two tranches, totaling an approximate 49.5% ownership stake of the combined entity.

In addition, the BZAM shareholder is also entitled to earn up to CA$33 million in combined entity shares, subject to achievement of certain milestones. The milestones include payouts of milestone shares tied to annual net revenue targets and positive adjusted EBITDA targets for 2023. The transaction is scheduled to close on or about November 3, 2022, subject to a number of customary conditions being satisfied or waived. Each milestone share shall be issued at a deemed price of the greater of CA$0.0596, that being the 15-day volume weighted average price of the common shares of TGOD immediately prior to the date the agreement was signed, and the minimum price permitted under the policies of the Canadian Securities Exchange.

In accordance with the terms of the agreement, the BZAM shareholder will enter into a contractual lock-up agreement, whereby the combined entity shares received as part of closing, and excluding the milestone shares, shall be subject to escrow with 1/3 of such escrowed shares being released on the 4-month, 8-month, and 12-month anniversaries of the date such escrowed shares are issued.

Consolidation

In conjunction with the transaction, the combined entity plans to file articles of amendment following closing to effect a consolidation of all of the issued and outstanding combined entity shares.

Pursuant to the consolidation, shareholders are expected to receive one post-consolidation share for every ten pre-consolidation shares, subject to the combined entity continuing to meet minimum listing requirements of the CSE. Accordingly, following the consolidation, shareholders currently holding ten pre-consolidation combined entity shares will instead own one post-consolidation combined entity share. In the event that the consolidation would result in the issuance of fractional combined entity shares, each fractional post-consolidation combined entity share will be rounded down to the nearest whole, with any fractional combined entity shares deemed to have been tendered for cancellation for no consideration. The trading price of the combined entity shares is expected to reflect the consolidation ratio immediately upon the resumption of trading following the consolidation.

The consolidation is expected to be completed on or about November 8, 2022. The consolidation was approved by the shareholders of TGOD on June 29, 2022.

Photo: Benzinga; Sources: courtesy of geralt, lindsayfox via Pixabay

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