Under the agreement with Blue Zebra Community, Grown Rogue is acquiring operational control of certain cannabis licenses and related assets as part of its expansion into the Michigan cannabis market.
The deal is subject to pending municipal and state regulatory approval.
Grown Rogue Agreement with Blue Zeb
Under the agreement, Grown Rogue will acquire operational control of: two proposed provisioning centers (retail dispensaries) in Midtown Detroit and Hazel Park; a proposed 19,000-sq.-ft. indoor cultivation and processing facility in Detroit capable of producing 1,500,000 grams of dried cannabis flower annually; and an entity that has received multiple municipal cultivation licenses for a 28-acre parcel located in the northern portion of the lower Michigan peninsula.
Upon exercising the option by Grown Rogue, Blue Zebra is required to assign its rights and obligations to the company under a binding agreement Blue Zebra has with Helios Holdings, which provides the framework for the acquisition of the Michigan assets.
As part of its agreement with Blue Zebra, Grown Rogue will issue 2,212,876 common share purchase warrants to Blue Zebra with an exercise price of $0.44 per share.
The warrants expire on June 20, 2023.
As part of the deal, Grown Rogue has granted Blue Zebra a preemptive right to maintain ownership, should the warrants be exercised, of up to 5% of Grown Rogue’s common shares.
At the time Blue Zebra exercises its warrants to obtain 5% ownership in the company, Blue Zebra will have the right to nominate one member to Grown Rogue’s board who will be nominated by management at each annual shareholder meeting of Grown Rogue until such time the Blue Zebra’s ownership in Grown Rogue falls below 4.67%.
In addition, Grown Rogue has agreed to pay Blue Zebra between 5% and 7% of top line future revenues generated from its licensed operations in Michigan. Payment on these revenues will be in a combination of stock and cash.
Helios Agreement and New Company
Helios intends to contribute real property for a 19,000-sq-ft. proposed cultivation and processing facility to a newly-formed joint venture to be operated by Grown Rogue, upon receiving all necessary regulatory approvals.
Helios will contribute the remaining Michigan assets into one or more newly-formed operating company(s) (OpCo).
Grown Rogue will hold a 3.62% convertible debenture for the initial funding of OpCo, with a put/call option to acquire all the issued and outstanding shares of the OpCo.
Once licensed by the state, the 19,000-sq.-ft. facility will be the first cultivation and manufacturing center for OpCo. Initial plans for the facility will include the ability to produce 1,500,000 grams of cannabis flower per year with the construction of a perpetual harvest facility expected to open in the fourth quarter of 2019. The facility will also include extraction facilities where the OpCo will produce branded derivative products.
The interest in the 28-acre cultivation facility can include either indoor or greenhouse operations which are currently being evaluated. Construction and operation of the facility is expected in 2019 with an anticipated yearly yield of between 1,500,000 and 2,500,000 grams of annual cannabis production based on final design plans.
Both of OpCo’s proposed retail dispensaries are expected to be licensed and operational by the fourth quarter of this year. OpCo aims to further expand to 10 retail dispensaries and 50,000-sq.-ft. of cultivation facilities by the middle of 2020.
“With the second highest total number of medical cannabis card holders in the United States, Michigan’s legalization of cannabis for adult-use presents a very large cannabis market opportunity. Significant barriers to entry at the local level add meaningful value to the limited number of municipal licenses approved,” Grown Rogue CEO Obie Strickler said in prepared remarks.