This morning, Dixie Brands (CSE: DIXI.u) announced that it will be completing a reverse takeover transaction with that of BR Brands, a cannabis house of brands predominantly based in the Californian market. The transaction, which is currently a binding term sheet, will see the two firms merge with the transaction anticipated to complete by the third quarter.
The merger will see the two brands come together, with Dixie having an implied valuation of $43.2 million. Currently outstanding senior secured debt is expected to convert to subordinate voting shares of the combined entity. As a result, the new company is anticipated to consist of 80% BR Brands shareholders, while 20% of the resulting entity will consist of current Dixie shareholders. A 1 for 10 share consolidation will then take effect to reduce the outstanding share count of the resulting issuer.
As part of the agreement, Dixie will also receive $1.0 million in prepaid fees from that of BR Brands for the manufacturing, licensing and strategic distribution of Dixie brands within various regions that BR operates until the closure of the merger agreement.
Should the transaction not occur, Dixie Brands will be required to pay break-up fees of $6.5 million to that of BR Brands, reimburse the firm for reasonable fees associated with the transaction, while the prepaid fee from BR Brands will be converted to equity in Dixie.
Under the terms of the merger agreement, current Dixie CEO Chuck Smith will remain the CEO of the newly formed company, while the current chairman of BR Brands, Andrew Schweibold, will become the chairman of the resulting firm. BR Brands is expected to nominate three members to the board, while Dixie will nominate two.
The challenges of the current cannabis related capital markets have guided Dixie to look for a strategic partner in order to solidify a platform we can leverage for long-term, stable growth for our shareholders. This strategic combination brings two of the most trusted and iconic brands together on one of the broadest manufacturing and distribution platforms in the industry. We are very pleased with the fundamentals of the deal as they will strengthen our balance sheet by decreasing debt, improving our cash position, and providing opportunities to enhance revenue growth and capture greater margin.Chuck Smith, President and CEO of Dixie
Additionally, Dixie CFO Greg Robbins has resigned from the company effectively immediately, although the firm states it is unrelated to the proposed transaction.
Dixie Brands last traded at US$0.135 on the CSE.
Information for this briefing was found via Sedar and Dixie Brands. 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.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.