Harborside Inc. a California-focused, vertically integrated cannabis enterprise, today announced the completion of its previously announced acquisition of Sublimation Inc. (“Sublime”), an award-winning cannabis manufacturing company located in Oakland, CA, for a total consideration of US$43.8 million (the “Acquisition”).
“We are thrilled to complete this Acquisition and add Sublime’s talent and its iconic, award-winning California brand, with an exceptional product offering and consumer following, to our growing brand portfolio,” said Peter Bilodeau, Interim CEO of Harborside. “With a strong balance sheet and deep cultivation and brand building expertise, our unified company is well-positioned to support the continued growth of the Sublime brands while expanding the reach of Harborside’s existing branded product portfolio in both the retail and wholesale markets.”
Ahmer Iqbal, CEO of Sublime, added, “We are thrilled to officially join forces with Harborside and create a leading California house of brands. Together, we can leverage our vast production and retail capabilities to further expand the distribution of our suite of branded products. On behalf of my team, we look forward to commencing the integration process and working together to scale Harborside’s reach.”
Founded in 2016, Sublime is best known for its expansive line of high-potency, high-quality and affordable, Fuzzies branded pre-rolls, a leading brand of pre-rolls in the state of California, as well as vapes and roll-your-own flower kits. Since 2019, Sublime has delivered a revenue CAGR of approximately 70%, and ended 2020 with 7.9% California pre-roll market share.(4) Sublime is strategically positioned for continued growth as pre-rolls are the fastest growing cannabis sub-segment within the California market since the beginning of 2020.(4)
Harborside expects to realize significant synergies by bringing together Sublime’s brands, production capabilities and robust distribution system with the high-quality cannabis grown at the Company’s Salinas, California cultivation facility which is anticipated to result in additional gross profit and EBITDA by extending the reach of Sublime, Harborside and Key branded products throughout the state of California.(1)(2)(3) Harborside also expects to bolster Sublime’s marketing capabilities, which is expected to drive higher retail margins for the Company as an owned brand within its portfolio.(2)(3) Finally, Harborside will seek to license the Fuzzies California lifestyle brand in additional legal recreational markets across the country, particularly those that do not currently have high potency infused products.(2)
Harborside has acquired 100% of the issued and outstanding shares of Sublime (the “Sublime Shares”) in exchange for a total consideration of US$43.8 million (the “Purchase Price”). The Purchase Price comprises of approximately US$38.4 million payable in multiple voting shares of the Company, representing 207,579.66 multiple voting shares (“MVS”) of the Company based on volume-weighted average price of the subordinate voting shares of the Company (the “SVS”) on the Canadian Securities Exchange (the “CSE”) for the 30-days immediately preceding the date of the initial agreement and approximately US$5.4 million in cash (of which approximately US$3.4 million was used to repay indebtedness of Sublime). The Purchase Price represents a multiple of approximately 1.78x to the estimated $24.6 million of standalone 2021 revenues for Sublime.
Concurrent with the closing of the Acquisition, the Company entered into a lock-up agreement with certain shareholders of Sublime (the “Locked-Up Shareholders”) in respect of the MVS to be received by such shareholders pursuant to the Acquisition (the “Lock-Up Agreement”). Pursuant to the Lock-Up Agreement, the Locked-Up Shareholders agreed not to sell, assign or otherwise transfer the multiple voting shares received. The restrictions lapse in three installments with 50% of the shares released from the restrictions on the 12-month anniversary and 25% of the shares released from the restrictions on each the 15-month and 18-month anniversaries from the closing of the Acquisition, respectively.
In addition, concurrent with the closing of the Acquisition, the Company granted options (each, an “Option”) to purchase an aggregate of 536,875 SVS to certain employees of Sublime, who are now employees of the Company. Each Option is exercisable into one SVS in the capital of the Company at an exercise price of $1.78. The Options will expire five years from the date of grant and are subject to vesting conditions. All Options were granted in accordance with Harborside’s equity incentive plan adopted by the Board of Directors of Harborside on June 30, 2020, and approved by shareholders on November 24, 2020 (the “Plan”). A copy of the Plan is available under the Company’s SEDAR profile at www.sedar.com.
Financial and Legal Advisors
ATB Capital Markets Inc. acted as financial advisor, and Duane Morris LLP and Cassels Brock & Blackwell LLP acted as legal counsel to Harborside. PI Financial Corp. provided a fairness opinion to the Board of Directors of Harborside. VIII Eight Capital acted as financial advisor, and CGL LLP and Gowling WLG (Canada) LLP acted as legal counsel to Sublime.
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Harborside Inc. is one of the oldest and most respected cannabis retailers in California, operating three of the major dispensaries in the San Francisco Bay Area, a dispensary in the Palm Springs area outfitted with Southern California’s only cannabis drive-thru window, a dispensary in Oregon and a cultivation/production facility in Salinas, California. Harborside has played an instrumental role in making cannabis safe and accessible to a broad and diverse community of California consumers since 2006, when it was awarded one of the first six medical cannabis licenses granted in the United States. Today, the Company holds cannabis licenses for retail, distribution, cultivation, nursery, and manufacturing. Harborside is a publicly listed company on the Canadian Securities Exchange (“CSE”) trading under the ticker symbol “HBOR” and on the OTCQX Best Market under the ticker symbol “HBORF”. Additional information regarding Harborside is available under Harborside’s SEDAR profile at www.sedar.com.
Sublimation Inc. is one of the most innovative cannabis manufacturers in California and is well known for its great tasting, high potency Fuzzies branded products. The Oakland-based company designs, manufactures and distributes pre-rolls, vape cartridges, pre-ground flower, batteries and gummies under the Sublime brand and for other branded customers. Founded in 2016, Sublime has won numerous awards for its Fuzzies infused pre-rolls and Gold vape cartridges and holds Medical and Adult-Use cannabis licenses for manufacturing and distribution. Additional information regarding Sublime can be found at www.sublimecanna.com.