Stem Holdings Announces Stock Purchase Agreement for US$10 Million Strategic Investment
BOCA RATON, Fla., December 23, 2019–(BUSINESS WIRE)–Stem Holdings, Inc. (OTCQB: STMH CSE: STEM) (the “Company” or “Stem”), a leading vertically-integrated cannabis and hemp company with state-of-the-art cultivation, processing, extraction, retail, and distribution operations, is pleased to announce that it has entered into a stock purchase agreement with Attollo Capital Holdings A, LLC (the “Purchaser”) pursuant to which Stem will issue 11,764,706 shares of preferred stock of the Company (the “Preferred Stock”) at a purchase price of US$0.85 per share of Preferred Stock (the “Original Issue Price”) for gross proceeds to the Company of approximately US$10,000,000 (the “Investment”).
Closing of the Investment is expected to occur immediately following satisfaction of customary closing conditions.
The Investment will allow Stem to accelerate currently identified opportunities and provides additional capital to pursue opportunities to execute the Company’s growth strategy. Initial use of funds is expected to include:
- Expansion into a limited supply, Massachusetts cannabis market. Stem will establish retail stores across the state and sell its owned and partner award-winning brands.
- Increase Nevada production capacity and distribution, including expanding cultivation for Travis x James cannabis flower and pre-rolls, and expanding production for its edibles line through its licensing partnership with Gron.
- Launch production and national distribution of customized medically-directed CBD products under the Apex licensing partnership, beginning with Hi-Tec® and Everyday California® brands.
We are pleased to enter into this agreement with Attollo Capital as their investment allows Stem to expand into Massachusetts, increase production capacity and distribution of our Travis x James brand in Nevada, launch Stem branded CBD stores and launch production and national distribution of medically-directed CBD products through our partnership with Apex Brands.
Adam Berk, Chief Executive Officer of Stem
Stem is in a position to deliver on our mission of creating world-class consumer products that promote well-being as we build and expand our portfolio of premium cannabis brands across our THC and CBD platforms. We are committed to building shareholder value by leveraging our expertise and scale to drive growth domestically and internationally.
“Stem is a unique and diversified company within the cannabis and CBD hemp space, and we are excited to make this equity investment to support the Company’s growth and expansion,” said Stuart Sugarman, Chief Executive Officer of Attollo Capital. “The landscape of the Cannabis Industry is in its infancy. The opportunities ahead to effect several industries are large. Stem led by Mr. Adam Berk is positioned to be one of the market leaders. We believe Stem has a very bright future for years to come.”
The Preferred Stock shall accrue dividends at an annual rate of 6% (the “Accruing Dividends”) and shall be payable in kind through the issuance of additional shares of Preferred Stock at the Original Issue Price.
Each share of Preferred Stock (including shares issued on account of Accruing Dividends) is convertible, at any time and at the option of the Purchaser, into one share of common stock of the Company (a “Common Share”), subject to certain customary adjustments (the “Conversion Rate”), prior to the fifth anniversary of the Closing Date (as defined herein). On the fifth anniversary of the Closing Date, each share of Preferred Stock shall be automatically converted into Common Shares at the Conversion Rate, without further action on the part of the Company or the Purchaser.
At any time after the first anniversary of the Closing Date, the Company shall have the right to redeem any and all shares of Preferred Stock for an amount equal to the Original Issue Price per share of Preferred Stock, plus any Accruing Dividends accrued but unpaid thereon.
The holder of the shares of Preferred Stock shall be entitled to cast that number of votes calculated as if the shares of Preferred Stock had been converted into Common Shares based on the Conversion Rate then in effect.
Upon closing of the Investment, the Purchaser and the Company will enter into an investor rights agreement pursuant to which: (i) the Purchaser will be entitled to designate one nominee for election to the board of directors of the Company at the next annual meeting of stockholders of the Company and two nominees for election to the board of directors of the Company at the annual meeting of stockholders of the Company to be held following the fiscal year ended September 30, 2020; (ii) the Purchaser will be granted a right of first offer to purchase additional issuances of preferred stock up to its pro rata share; and (iii) the Purchaser will be granted limited approval rights, including, in respect of the issuance of securities with rights superior or on parity with the shares of Preferred Stock, the payment of dividends on the Common Shares, any amendments to the Company’s documents and any proposed liquidation, dissolution, sale or merger of the Company.
About Stem Holdings Inc.
As a vertically-integrated cannabis company, Stem is as a pioneer in the industry with its state-of-the-art cultivation, processing, extraction, retail, and distribution operations. Stem owns cannabis facilities in California, Nevada, Oklahoma, and Oregon and hemp facilities in Pennsylvania and New York and also participates in a research project in collaboration with Cornell University. Utilizing proprietary, sustainable cultivation techniques, Stem develops exceptional products that are safe and consist of lab-tested cannabis and CBD. Stem’s owned and partner consumer brands are award-winning and nationally known including cultivators TJ’s Gardens® and Yerba Buena®; retail banners Stem and TJ’s; infused product manufacturers, CannavoreTM and Supernatural HoneyTM; and a new CBD company, Dose-ologyTM. Stem’s mission in supporting the health and happiness of people and the safety of our planet is evident through the Company’s continued recognition for its community involvement, employee diversification, and as a top place to work in cannabis, as well as dedication to environmental causes and outstanding leadership in the cannabis industry.
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