Alimentation Couche-Tard (TSX: ATD.A ATD.B) and Fire and Flower Holdings Corp (TSXV: FAF) announced this morning that Couche-Tard will be strategically investing up to C$380 million into the cannabis retailer over the next several years.
While the investment is to occur in stages, upon final completion Couche-Tard will own up to 50.1% of Fire and Flower on a fully diluted basis. The company will take an initial 9.9% stake in the firm through the issuance of convertible debentures.
“This strategic investment by Couche-Tard, one of the world’s largest retailers, is transformative for Fire & Flower. .. The support of Couche-Tard’s world-class leadership team, coupled with their impressive international footprint which includes major markets such as the US, Mexico and Europe, provide us with outstanding opportunities for aggressive growth.”
Trevor Fencott, Fire & Flower’s Chief Executive Officer
The investment itself will come in the form of convertible debentures, followed by the issuance of three series of warrants. Upon full exercise, the debentures and warrants will provide over $380 million to Fire and Flower, while Couche-Tard will acquire 50.1% of the firm on a fully diluted basis. While the overall investment is slightly complicated, it can be broken down into a few steps as follows:
- Couche-Tard is to purchase $25,989,985.42 worth of convertible debentures of Fire and Flower Holdings, at a price of $1.07 per share, which represents a 9.9% stake in the firm. The debentures bear an interest rate of 8.0%, payable semi-annually. The maturity date is the later of June 21, 2021, and the date that is 90 days following the date certain existing debt of the Company is retired, converted or otherwise transferred. The maturity date may be accelerated to as early as December 31, 2020, provided Fire and Flower has opened 45 retail locations.
- Fire and Flower will then issue a series of three sets of warrants to Couche-Tard as follows:
- 30,634,322 series A common share purchase warrants, with a conversion price of $1.40 per warrant
- 56,126,890 series B common share purchase warrants, with a conversion price of $1.875 per warrant
- 110,703,925 series C common share purchase warrants, with a conversion price that is:
- The lesser of $6.00 per warrant
- The greater of (1) $2.00 per warrant and (2) the 20-day volume-weighted average price of the Common Shares on the last business day prior to the exercise of the Series C Warrants
- Upon conversion of the convertible debentures, Couche-Tard then must exercise the warrants in chronological order, with each conversion expected to consist of the following:
- Series A common share purchase warrants will convert so as that Couche-Tard owns 19.9% of Fire and Flower Holdings on a fully diluted basis
- Series B common share purchase warrants will convert so as that Couche-Tard owns 33.4% of Fire and Flower Holdings on a fully diluted basis
- Series C common share purchase warrants will convert so as that Couche-Tard owns 50.1% of Fire and Flower Holdings on a fully diluted basis
Furthermore, the expiry dates of the issued warrants will consist of the following.
- Series A Warrants are to have an expiry date which is 90 days following the earlier of: (i) the Maturity Date; and (ii) the later of: (A) December 31, 2020; and (B) the date on which the Company accelerates the Debentures
- Series B Warrants are to have an expiry date that is one year from the conversion of the Series A Warrants. The Series B Warrants expire in the instance of the Series A Warrants expiring.
- Series C Warrants have an expiry date that is the lessor of a) one year from the exercise of the Series B Warrants, and b) Four years from the closing of the transaction. The Series C Warrants are also to expire if either of the Series A or Series B Warrants expire.
As a part of the transaction, Couche-Tard will also be allowed to nominate one board member for election to the board of Fire and Flower Holdings. Current holders of Fire and Flower shares are expected to vote on the transaction prior to its execution. Upon approval and closing of the transaction, Fire and Flower Holdings will also be up listing to the Toronto Stock Exchange.
The strategic investment by Couche-Tard is expected to positively impact Fire and Flower Holdings. Couche-Tard currently has an international presence, consisting of over 16,000 retail locations globally in over 26 countries. Across all brands, Couche-Tard serves over 9 million customers per day. The firms knowledge will be leveraged by Fire and Flower to enable mass retail expansion locally and globally.
Fire and Flower Holdings is currently trading at $1.37, up 20.18% on the day.
Information for this briefing was found via Alimentation Couche-Tard and Fire and Flower Holdings. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
