Cannex - CSE: CNNX OTCQX: CNXXF. A Perfect Match.

Transcription

1 Cannex - CSE: CNNX OTCQX: CNXXF & A Perfect Match.

2 DISCLAIMER Cautionary Note Regarding Forward-Looking Information This investor presentation dated November 28, 2018 contains certain forward-looking information or forward-looking statements as defined under applicable securities laws (collectively, forward-looking information ) that involve a number of risks and uncertainties. Forward-looking information includes all statements that are predictive in nature or depend on future events or conditions. Forward-looking information can often be identified by forward-looking words such as will, could, should, may, anticipates, believes, expects, plans, intends, estimates, potential, and similar expressions. Statements regarding the operations, business, financial condition, priorities, ongoing objectives and outlook of Cannex Capital Holdings Inc. ( Cannex ), 4Front Holdings LLC ( 4Front ) and the combined company, other than statements of historical fact, constitute forward-looking information. Forward-looking information is not a guarantee of future performance and should not be unduly relied upon. Forward-looking information reflects the analysis of the management of the parties only as of the date hereof, and which by its nature involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions and various future events will not occur. The parties do not undertake any obligation to release publicly the results of any revision to the forward-looking information unless otherwise required by applicable law. This presentation also includes forward-looking information relating to: the interim agreement between the parties dated November 25, 2018 (the Interim Agreement ) and the timing for completing the definitive agreement; the proposed acquisition of the 4Front common shares by Cannex and the business, operation and financial performance and condition of the combined company (the Transaction ); synergies and financial impact of the Transaction; and the growth in the combined company s market share, and such is based on current expectations and beliefs concerning future developments and their potential effects on Cannex, 4Front and the combined company. Assumptions, including among other things, that the shareholders of Cannex will approve the business combination, that all regulatory approvals will be obtained, and that all of the conditions to the completion of the business combination will be satisfied or waived, have been made. Although it is believed that the expectations and assumptions are reasonable, there can be no assurance that the forward-looking information included herein will prove to be accurate. Forward-looking information is subject to a number of known and unknown risks and uncertainties (some of which are beyond the control of the parties) and other factors that could cause actual results or performance to be materially different from those expressed or implied by such forward-looking information. Factors that could cause actual results to differ materially from any forward-looking information include, but are not limited to: 2

3 DISCLAIMER cont'd Cont'd the ability of each party to satisfy all of the conditions to complete the Transaction; the possibility that the Cannex shareholders do not approve the Arrangement; that all regulatory approvals will not be obtained and all other conditions to completion of the Transaction will not be satisfied or waived; the business of Cannex and 4Front not being integrated successfully or such integration proving more difficult, time consuming or costly than expected; capital requirements; delays in obtaining or inability to obtain additional financing, if required, on commercially suitable terms; and changes in national, state and local government legislation in the United States. Cautionary Note Regarding Forward-Looking Information These factors are not intended to represent a complete list of the general or specific factors that could affect the parties and the combined company after giving effect to the transactions contemplated by the business combination. Further details on key risks in respect of Cannex can be found in Cannex s disclosure documents filed with securities regulators and available at Market and Industry Data This presentation includes market and industry data that has been obtained from third party sources, including industry publications. The parties believe that the industry data is accurate and that the estimates and assumptions are reasonable, but there is no assurance as to the accuracy or completeness of the data. Third party sources generally state that the information contained therein has been obtained from sources believed to be reliable, but there is no assurance as to the accuracy or completeness of included information. Although the data is believed to be reliable, the parties have not independently verified any of the data from third party sources referred to in this presentation or ascertained the underlying economic assumptions relied upon by such sources. Securities Laws This presentation is for informational purposes and does not constitute an offer or a solicitation of an offer to purchase the securities referred to herein. The shares of Cannex and 4Front have not been and will not be registered under the United States Securities Act of 1933, as amended. 3

4 Contents CULTIVATION & PRODUCTION ASSETS & M&A PIPELINE DEAL TERMS I II III IV V VI A PERFECT MATCH RETAIL & REGULATORY TEAM & EXPERIENCE 4

5 I A perfect match We are a Complete Complement of Assets & Talent Demonstrated excellence in every aspect of the value chain. Validated yields of over 400g / sq.ft. at scale Cultivation Production Produce and package 16 brands and more than 300 SKUs Operate dispensaries across 4 states Retail & Regulatory Proven track record of winning licenses in competitive markets M&A Expertise Closed 6 acquisitions across 4 states with an active pipeline Thought Leadership Credible leadership with strong history and advocacy roots 5

6 I A PERFECT MATCH We share a belief that operations matter and capital markets are beginning to recognize that. 6

7 II CULTIVATION Operational Integrity At Scale Cannex s strategic operating tenant, Northwest Cannabis Solutions (NWCS), was developed by Cannex COO Leo Gontmahker, and is one of Washington State s largest cannabis cultivators and producers. It currently employs more than 190 people and is at an annual sales run rate of approximately $50 million. NWCS grows and sells the top-selling flower brand in Washington Two large-scale facilities in Tumwater and Elma, each with 30,000 sq. ft. of canopy Total capacity of 19,000kg/year 2017 production of 8,000kg 2018 estimated production of 16,000kg Yields in original Tumwater facility of >300g/sq. ft. Demonstrated yields in new Elma facility of >400g/sq. ft. 7

8 PRODUCTION Infused Product Breadth & Efficiency PROCESSING Expertise at scale with multiple extraction and infusion methodologies II SCALE Cannex management has driven market share approaching 8% in a very competitive market NWCS produces and sells 7 of the top 10 infused-products brands in Washington. PRODUCT BREADTH Developed 16 brands and >300 SKUs, as well as the logistics to support distribution to >250 retailers in Washington 8

9 OPERATIONAL INTEGRITY II Cannex leadership has executed at scale in a highly competitive environment. NWCS Quarterly SALES $14,000,000 $12,000,000 $10,000,000 NWCS is currently at a roughly $50 million run rate $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 CASH-FLOW GENERATION Management believes that if NWCS were reporting financial statements as a stand-alone business, it would have sustained substantial cash-based EBITDA generation even as the wholesale price in Washington plummeted the past three years. *Superior Gardens LLC (d/b/a Northwest Cannabis Solutions) is not a subsidiary of Cannex and Cannex does not hold an ownership interest in such company 9

10 III RETAIL Customer-Centric Scalable Retail Model Built to scale the experience, not just the footprint. 11 Dispensaries 4Front management believes it has invested more time and money in developing retail capabilities and a scalable model than any other U.S. competitor. 4 States 4Front operates dispensaries under the Mission brand. 10

11 III Culture & Training underpin retail 4Front Prioritizes People and Community Building Built to scale the experience, not just the footprint. Allentown, PA Chicago, IL Silver Spring, MD 4Front has developed a scalable retail model that includes industry-leading best practices and operations manuals, which are fully digitized for training and continuing education purposes. Mission employees are valued members of the 4Front family and are provided with the resources and training necessary to create a true sense of purpose. Mission dispensaries boast open, transparent, inviting settings where guests feel comfortable seeking information, connection, and community. Mission dispensaries support multiple sales channels, including both online and in-person, to fulfill customer orders and needs. 11

12 III regulatory 4Front s regulatory team has won more than 60 licenses on behalf of 4Front and its consulting clients across the United States, Canada, and South America. Besides our ability to win licenses, we know how to run operations in compliance with all local and state laws. Our experience offers great visibility into new market opportunities as regulatory environments evolve. 12

13 IV M&A success & pipeline ACQUISITIONS 4Front has successfully closed 6 acquisitions: o Illinois - Acquired a cultivation/processing facility and a dispensary o Maryland Secured three licensing agreements o Massachusetts - Acquired a vertically integrated medical operator with a cultivation facility and two dispensaries M&A PIPELINE 4Front and Cannex management teams are in active M&A conversations in: o California o Arizona o Nevada o Michigan o Pennsylvania 13

14 Footprint & pipeline IV Existing assets Washington Illinois Massachusetts Maryland Cultivation & Processing Retail Pennsylvania 0 3 Total Existing Operations M&A Pipeline Awaiting Licensing Decisions 14

15 IMMEDIATE BENEFITS IV This proposed business combination provides an immediate opportunity to apply Cannex s cultivation and production capabilities in two nascent multi-billion-dollar markets Illinois and Massachusetts where 4Front has existing cultivation facilities with significant expansion capacity. TUMWATER & ELMA, WA o Combined 60,000 o o sq. ft. of canopy 40,000 sq. ft. of processing space in Tumwater Yields of >400g/ sq. ft. at Elma Chicago, IL o o 94,000 sq. ft. building 4,300 sq. ft. canopy with opportunity to expand to 50,000 sq. ft. Worcester, MA o o 21,000 sq. ft. building 5,700 sq. ft. canopy with opportunity to expand to 7,700 sq. ft. GEORGETOWN, MA o o 109,000 sq. ft. building 11,000 sq. ft. canopy with opportunity to expand to 49,000 sq. ft. 15

16 TEAM & EXPERIENCE V Josh Rosen, CEO of 4Front, will become CEO of the combined company and be supported by the deep bench of talent among both companies executives. Josh Rosen CEO, 4Front Former Credit Suisse equity analyst and private equity investor. Leo Gontmahker COO, Cannex Experienced cannabis operations professional; cofounder of Northwest Cannabis Solutions. Andrew Thut CFO, 4Front Former BlackRock Managing Director and portfolio manager. David Croom CFO, Cannex Former CEO of Open Ocean Ventures, previously held senior accounting positions at Microsoft, Amazon and Chevron. 16

17 TEAM & EXPERIENCE V Leise Rosman COO, 4Front Regulatory and licensing expert who s been with 4Front since As managing partner of 4Front Advisors, Leise has helped win more than 60 operating licenses on behalf of clients. Don Schaefer EVP Retail, 4Front Former VP of Operations for Sweetgreen as the restaurant scaled from one to 25 locations in the Northeast. Richard Degnan CMO, 4Front Former SVP and Creative Director at Williams- Sonoma and VP Marketing at The Body Shop. Kris Krane President, 4Front 20+ years in drug policy reform, including associate director of NORML. 17

18 V ALIGNMENT Solid Shareholder Base with Large Insider Ownership Management / insiders would own approximately 46% of combined company We boast some of the most wellrespected investors in the cannabis space Gotham Green Partners Navy Capital Merida Capital Bengal Capital Artemis Growth Partners 18

19 V Well capitalized Recent Funding Provides Strong Base to Support Growth Both companies recently closed financing deals that provide a strong runway to support the immediate growth needs of the merged company. Cannex recently received a US$32 million committment from Gotham Green Partners 4Front recently closed a US$31 million equity private placement 19

20 Deal Terms & VI Proposed Transaction Timeline to Approvals & Conditions Deal Protection o Letter of Intent (LOI) signed that will result in the combination of 4Front and Cannex o Combined entity to be publicly traded on the CSE initially under the name Cannex (CSE: CNNX OTCQX: CNXXF) o Combination will result in the holders of 4Front shares being issued 1.75x the number of Cannex shares o Subject to completion of definitive agreements o Special meeting of Cannex shareholders expected to take place in early 2019 o Closing expected by February 2019 o Both parties subject to non-solicitation provisions o A termination fee of US$10 million payable to either party if an alternative transaction is completed 20

21 recap Who Else has this Complement of Capabilities & Platform? Demonstrated cultivation yields at scale Cannex management driving yields of 400g/sq. ft. at its Elma facility Infused product breadth and efficiency NWCS sells Washington's top-selling flower brand and 7 of the top 10 infused-products brands Approaching 8% market share in one of the world's most competitive cannabis markets Customer-centric, scalable retail 4Front has invested heavily in developing its team and operational foundation to successfully scale Currently operates 5 dispensaries across 4 states Assets and M&A pipeline in attractive markets Combined, the company would own, operate or manage 5 cultivation and production facilities and 11 retail facilities 04 M&A pipeline consists of ongoing talks in CA, NV, AZ, MI, and PA Thought leadership and OG credibility 4Front and Cannex management together have decades of experience in the cannabis industry and maintain reputations for avoiding hype and focusing on operations 05 21

22 CONTACT Josh Rosen CEO, 4Front Andrew Thut CFO, 4Front Anthony Dutton CEO, Cannex

23 Cannex - CSE: CNNX OTCQX: CNXXF & A Perfect Match.