Bottom Line
It seems clear to us Moxie walked away from this deal, not the other way around.
Under the terms of the deal, Moxie agreed to accept shares at a minimum valuation of C$2.70 back when GGB stock was trading for C$3.18.
With GGB stock now trading for less than C$0.80/sh, it makes perfect sense why Moxie would have soured on the deal.
The $310 million in shares they were going to receive has turned into only $97 million, a 70% decrease.
We warned investors about GGB’s cash issues in October and the stock is down another 50% since we published our report.
GGB is currently in debt negotiations with a lender owed $30 million which is more than the $27 million we estimate the company has on hand today.
If GGB can muddle through the current debt maturity another $50 million comes due in May.
Details of the Deal Failure
Cannabis retailer Green Growth Brands (CSE: GGB) announced today that is has terminated its offer to purchase cannabis concentrate producer MXY Holdings (Moxie).
Back in July the company touted plans for a business combination with Moxie that would create the first “360 degree” cannabis company offering CBD and THC products with the potential to achieve valuable revenue and cost synergies.
The all-stock deal valued Moxie at US$310 million which would have been funded through the issuance of Green Growth common shares or exchangeable limited partnership (LP) units.
The termination of the deal will not result in a breakup fee as no agreement breaches occurred. However, Green Growth will have to repay a $5 million loan it received from Moxie by the end of January and reimburse Moxie for $4 million in deal fees by July 1st.
Green Growth Cites Organic Growth Prospects
Green Growth said that it has instead opted to focus on organic growth opportunities and perhaps understandably so.
Its high growth CBD and multistate operator (MSO) businesses appear to have plenty of room to run. The company has invested aggressively to build out its MSO capabilities having rolled out 47 dispensaries across the key markets of Nevada, Massachusetts, and Florida, with plans to launch an additional 45 dispensaries.
It also has a growing presence in shopping malls nationwide and an increasing digital presence tied to its popular Seventh Sense brand.
Expansion of the CBD business has included securing additional distribution through Designer Brands, the parent company of shoe retailer DSW and clothing outlet Abercrombie & Fitch.
Green Growth CEO Peter Horvath said, “While we continue to be open to collaborating with other industry leaders, we need to ensure we are focused on building our operational strengths, maximize our returns, and most importantly, avoiding excessive dilution to our shareholder base.”
Moxie Walked Away, Not the Other Way Around
While Green Growth offered its compelling internal growth prospects as the main factor in the decision much speculation remains around why the deal fell through.
It’s certainly conceivable that Moxie was the party that stepped away from the table when the economics of the transaction are considered.
Under the terms of the agreement, the number of Green Growth securities issuable as payment was to be calculated by diving the $310 million purchase price by the 30-day volume weighted average price (VWAP) of Green Growth shares as of the third day prior to the closing date subject to a range limitation of USD$2.07 to USD$3.45.
At the time that the deal was initially announced, the effective exchange ratio was around $2.45 per share.
Since then, near-term industry challenges have mounted and with shares of Green Growth now trading around C$0.75 or USD$0.58, if Moxie were to go through with the union, it would essentially be taking a significant loss even given the floor set in the deal terms.
Moxie CEO Jordan Lams added, “As the market evolves, the attractiveness of our know-how, genetics and premium quality products in multiple states presents many opportunities as we actively grow our business and strengthen our relationships with cannabis industry leaders.”
Green Growth stock was down 7% on the CSE today and is down a staggering 84% year to date.
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