WeedMD Announces Strategic Combination with Starseed Holdings Inc. and Secures $25 Million Cornerstone Investment

WeedMD’s leading cultivation and processing capabilities to provide consistent, high-quality supply for Starseed’s unique sales platform of captive cannabis-insured medical patients

Starseed’s strategic investor, Labourers’ Pension Fund, to invest $25 million into WeedMD

Joint management to host a conference call on November 29, 2019 at 1PM Eastern Time

Toronto, Canada, November 29, 2019 – WeedMD Inc. (TSX-V:WMD) (OTCQX:WDDMF) (FSE:4WE) (“WeedMD” or the “Company”), a federally-licensed producer and distributor of medical-grade cannabis, is pleased to announce that it has entered into a definitive agreement dated November 29, 2019 to acquire Starseed Holdings Inc. (“Starseed”), a medically-focused, federally-licensed cannabis company providing cannabis to insured patients with coverage under their benefit plans (the “Acquisition”). The arms-length all-share Acquisition is valued at approximately $78 million, and Starseed’s strategic investor, the Labourers’ Pension Fund of Central and Eastern Canada (“LPF”), will make a concurrent $25 million equity investment directly into WeedMD (the “Strategic Investment” and collectively the “Transaction”). The Transaction bolsters the Company’s leadership position in the medical cannabis market through Starseed’s exclusive distribution and patient channels, provides important growth capital and fortifies WeedMD’s balance sheet.

The Acquisition creates a unique, high-margin sales channel for WeedMD’s low-cost, high- quality production, creating a vertically-integrated company that can execute across the entire value chain. Starseed has launched an industry-first partnership with Canada’s largest construction union, the Laborers’ International Union of North America (“LiUNA”), to provide medical cannabis as a fully-covered drug benefit for its more than 100,000 members and retirees in addition to their respective dependents.

“We believe that there are three pillars to long-term success in the cannabis space: quality production, unique distribution, and a strong balance sheet,” said Keith Merker, CEO of WeedMD. “This acquisition allows WeedMD to increase its distribution capabilities, maximize margins and access growth capital through a strategic investor.”

Angelo Tsebelis, President of Starseed, commented, “At Starseed, we have focused on building a unique sales platform that largely mirrors the pharmacy distribution model. Simply put, by making cannabis a paid benefit we have removed many of the barriers to mass market uptake of medical cannabis. Coupled with WeedMD’s high-quality cultivation assets and processing capabilities, we are well-positioned for accelerated future growth.”

LPF’s Strategic Investment bolsters the combined company’s financial position, bringing WeedMD’s pro forma cash balance to approximately $56 million (as at September 30, 2019 and including the $25 million Strategic Investment). Upon completion of the Transaction, existing WeedMD shareholders will own 55% of the newly-formed company while Starseed shareholders, including LPF, will own 45% (see Transaction Summary below for details).

Benefits to WeedMD Shareholders:

  • Combining Complementary Operations Across the Value Chain: WeedMD is matching its low-cost production platform with Starseed’s high-margin sales channels to generate substantive margins. WeedMD’s production capacity creates ample supply for Starseed’s rapidly-growing patient base, currently at approximately 6,500 patients. Starseed is currently operating at a medical revenue run rate of approximately $10 million per year. WeedMD’s cultivation platform will also enable Starseed to scale the distribution of products in the adult-use market under its Saturday brand.
  • Enhanced Processing and Distribution Capabilities: Wholly-owned by WeedMD, CX Industries is expected to reach a processing and extraction capacity of 200,000 kgs by year-end 2020, providing Canada and international markets with new and innovative consumption methods. By leveraging Starseed’s packaging and distribution capabilities at its fully-licensed Bowmanville facility, the Company has the necessary infrastructure to meet emerging industry demand, including expected growth in the retail environment in 2020.
  • Significant and Immediate Cost and Revenue Synergies: Starseed’s cost of goods sold is expected to decrease significantly by transitioning from wholesale-purchased product to internally-produced WeedMD supply, creating an immediate production cost synergy. Furthermore, the Company has targeted SG&A savings of up to $10 million per year by end of 2020. On the revenue side, WeedMD expects to benefit from Starseed’s industry-leading average annual patient spend, which is approximately three times WeedMD’s predominantly business-to-business wholesale unit pricing, which creates a material, recurring, low-turnover revenue opportunity.
  • Cornerstone Investor Fortifies Balance Sheet for Long-Term: Through its $25 million Strategic Investment into WeedMD, LPF is a supportive strategic investor. Upon completion of the Transaction, LPF will own approximately 29% of the pro forma company on a fully-diluted, in-the-money basis. LPF is one of the fastest growing pension funds in Canada.
  • Broadens An Already Strong Management Team: Starseed’s management team brings extensive retail, medical, marketing, and financial expertise and experience, as well as strong industry and client relationships. These strengths are complementary to WeedMD’s cultivation and product-focused skillsets.

A summary of the amalgamated entity can be found on the WeedMD.com website or by clicking here.

Transaction Summary

Upon closing of the Acquisition, WeedMD will issue 71.8 million shares to Starseed shareholders, which will result in a pro forma ownership at close equal to: 62% (WeedMD), 18% (Starseed shareholders, excluding LPF), and 19.9% (LFP), on a fully-diluted, in-the-money basis. The Acquisition values Starseed at approximately $78 million based on the 15-day WeedMD volume-weighted average share price of $1.08 (“WeedMD VWAP”) ended November 27, 2019.

LPF has entered into a subscription agreement related to the Strategic Investment pursuant to which it has purchased subscription receipts (the “Subscription Receipts”) for aggregate gross proceeds of $25,000,000. The issue price of each Subscription Receipt shall be at a price equal to the greater of: (i) $1.0832, or (ii) the minimum price permitted by the rules of the TSX Venture Exchange. Upon WeedMD obtaining shareholder approval for the Strategic Investment, each Subscription Receipt shall be automatically exchanged for one WeedMD common share. Upon the exchange of the Subscription Receipts, pro forma ownership in the Company will be equal to: 55% (WeedMD), 16% (Starseed shareholders, excluding LPF), and 29% (LFP), on a fully-diluted, in-the-money basis.

The pro forma company’s board of directors will be comprised of four representatives from WeedMD and three representatives from Starseed. In addition, certain members of Starseed’s management will join the management team of the combined entity.

No WeedMD shareholder approval is anticipated in connection with the Acquisition. However, the Acquisition and Strategic Investment are subject to regulatory approvals, as well as other customary closing conditions.

The Acquisition is expected to close in December 2019. There will be a special meeting of WeedMD shareholder’s related to the Strategic Investment, which is expected to occur in February 2020.

WeedMD Approval and Recommendation

WeedMD’s Board of Directors (the “WeedMD Board”) has unanimously approved the Acquisition and Strategic Investment, determining that the Transaction is in the best interests of WeedMD and its shareholders. The WeedMD Board also received a verbal fairness opinion (the “Fairness Opinion”) provided by INFOR Financial Inc. that, subject to the assumptions, qualifications and limitations contained in the Fairness Opinion, the consideration being paid to Starseed pursuant to the Acquisition and the concurrent Strategic Investment, is fair, from a financial point of view, to WeedMD.

Starseed Approval and Recommendation

The Starseed Board of Directors (the “Starseed Board”) has unanimously approved the Acquisition, determining that the Acquisition is in the best interests of Starseed and its shareholders.

Certain Starseed shareholders, including LPF, who collectively beneficially own, or exercise control or direction over, approximately 68% of the outstanding Starseed shares (“Starseed Shares”), have entered into voting support agreements pursuant to which each has agreed to vote their Starseed Shares in favour of the Acquisition and all other matters in favour of the Acquisition.

Summary of Starseed Financial Information

Nine Months Ended September 30, 2019

Total Revenue $4,799,576
Cost of Goods Sold $7,335,923
Operating loss ($15,908,447)
Total Assets $51,303,709
Total Liabilities $5,913,949

Advisors and Counsel

Stoic Advisory Inc. is acting as the exclusive financial advisor to WeedMD. INFOR Financial Inc. is acting as financial advisor to the WeedMD Board and provided an independent Fairness Opinion to the WeedMD Board. Torkin Manes LLP is acting as legal counsel to WeedMD.

Canaccord Genuity Corp. is acting as the exclusive financial advisor to Starseed. Dentons Canada LLP is acting as legal counsel to Starseed. NATIONAL Public Relations is acting as communications advisor.

About WeedMD Inc.

WeedMD Inc. is the publicly-traded parent company of WeedMD Rx Inc., a federally-licensed producer of cannabis products for both the medical and adult-use markets. The Company owns and operates a 158-acre state-of-the-art greenhouse, outdoor and processing facility located in Strathroy, Ontario. WeedMD also operates CX Industries Inc., a wholly-owned subsidiary of WeedMD Inc. CX Industries operates out of the Company’s fully-licensed 26,000 sq. ft. Aylmer, Ontario production facility which specializes in cannabis extraction and processing. WeedMD has a multi-channeled distribution strategy that includes selling directly to medical patients, strategic relationships across the seniors’ market and supply agreements with Shoppers Drug Mart as well as six provincial distribution agencies where WeedMD’s adult-use brand Color Cannabis is sold.

About Starseed Holdings Inc.

Starseed Holdings Inc., through its wholly-owned subsidiary Starseed Medicinal Inc., is a license holder under the Cannabis Act. With a unique customer-centric approach to safe and responsible onboarding and use of medical cannabis, Starseed is a leading company in Canada to sell medical cannabis to captive customer groups through drug benefit plans. Through an industry-first, exclusive partnership with LiUNA, the largest construction union in Canada, along with other employers and union groups. In the adult-use market, Starseed sells its product in four provinces, including Ontario, Alberta, Saskatchewan and British Columbia under its Saturday brand.

Non-GAAP Measures

To supplement the financial measures prepared in accordance with Canadian generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures, including Adjusted EBITDA (non-GAAP). The Company believes that these non-GAAP measures, when presented in conjunction with comparable GAAP measures, provide useful information about the Company’s operating results and liquidity and enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business.

However, these measures are not prepared in accordance with GAAP nor do they have any standardized meaning under GAAP. In addition, other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to such similarly titled non-GAAP measures. We caution investors not to place undue reliance on such non-GAAP measures, but instead to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation. They should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

As indicated above, for guidance purposes, the Company does not provide reconciliations of projected Adjusted EBITDA (non-GAAP) to projected GAAP net income (loss), due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations.

Conference Call with Joint Management:

On November 29, 2019, joint management will be available for analyst and media questions following opening remarks by Keith Merker, CEO of WeedMD and Nichola Thompson, CFO of WeedMD – who will provide an overview WeedMD’s Q3 2019 financial results.

They will be joined by Angelo Tsebelis, President of Starseed to provide an overview of the Transaction.

Date: Friday, November 29, 2019
Time: 1 p.m. Eastern Time
Dial-in Number: Canada/USA: 1-800-319-4610. International Toll: 1-604-638-5340
Participants, please dial in and ask to join the WeedMD call.
Replay Dial-in: Canada/USA: 1-800-319-6413. International Toll: 1-604-638-9010
Replay Access Code: 3858
Replay will be available after 12:00 p.m. Eastern Time, until December 29, 2019.

For Investor Inquiries:

James Williams
Director, Capital Markets
Email: investor@weedmd.com

Daniel Weinerman
Director, Investor Relations
Email: dweinerman@national.ca

For Media Enquiries:

Marianella delaBarrera
VP, Communications & Corporate Affairs
Tel: 416-897-6644
Email: marianella@weedmd.com

Aubin Havill
Marketing Manager
Tel: 1-844-756-7333
Email: aubin.havill@starseed.com

To learn more, visit us at www.weedmd.com

Forward Looking Information

This press release contains “forward-looking information” within the meaning of applicable Canadian securities legislation which are based upon WeedMD’s current internal expectations, estimates, projections, assumptions and beliefs and views of future events. Forward-looking information can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may”, “would” or “will” happen, or by discussions of strategy.

The forward-looking information in this news release is based upon the expectations, estimates, projections, assumptions and views of future events which management believes to be reasonable in the circumstances. Forward-looking information includes estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of fact. Forward-looking information in this news release include, but are not limited to, statements with respect to internal expectations, expectations with respect to actual production volumes, expectations for future growing capacity and the completion of any capital project or expansions. Forward-looking information necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; loss of markets; future legislative and regulatory developments; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the cannabis industry in Canada generally; the ability of WeedMD to implement its business strategies; competition; crop failure; and other risks.

Any forward-looking information speaks only as of the date on which it is made, and, except as required by law, WeedMD does not undertake any obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for WeedMD to predict all such factors. When considering this forward-looking information, readers should keep in mind the risk factors and other cautionary statements in WeedMD’s Annual Information Form dated June 21, 2019 (the “AIF”) and other disclosure documents of WeedMD filed with the applicable Canadian securities regulatory authorities on SEDAR at www.sedar.com. The risk factors and other factors noted in the AIF and other disclosure documents could cause actual events or results to differ materially from those described in any forward-looking information.




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