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Aurora Cannabis Inc. (TSX:ACB) (OTC:ACBFF) (FRA:21P) and Hempco Food and Fiber Inc. (TSXV:HEMP) announced today that the companies have agreed to amended terms regarding Aurora's previously announced "strategic investment" in Hempco. Hempco is one of the world's largest producers of industrial hemp products, manufacturing three primary hemp-based product lines; packaged food products, hemp fiber and nutraceuticals.
Amended Deal Terms & Details
Subject to requisite regulatory approvals, Aurora will make a strategic investment in Hempco for an ownership stake of up to 19.9% (fully diluted).
Aurora has agreed to purchase 10,558,676 units of Hempco at $0.3075 CAD per unit for total gross proceeds of $3.2 million CAD. Each unit consists of one common share of Hempco and one warrant. Each warrant gives Aurora the right to purchase one additional share of Hempco at a price of $0.41 CAD for up to two years after the transaction's closing date. The warrants are subject to accelerated expiry in the event that Hempco shares trade at or above a volume weighted average price of $0.65 for 30-days.
Upon Hempco shareholder approval as well as the negotiation and execution of an option agreement, Aurora will be granted an option to acquire certain shares from Hempco's majority owners. Upon exercising the option, Aurora's total ownership interest in Hempco would increase to 50.1% on a fully diluted basis. In the event Aurora chooses to exercise the option, shares would be acquired in tranches, the pricing of which is contingent on the completion of certain performance milestones at Hempco.
Aurora has agreed to advance $1.5 million CAD to Hempco at a rate of 10% per year. In the event that Hempco shareholders do not approve the option within 60 days of the advance, Aurora will not be required to proceed with the investment and the advance along with accrued interest will become repayable to Aurora.
If regulations change (in Canada) to allow CBD to be extracted from hemp, Aurora has the right of first refusal to purchase all of the industrial hemp flowers and leaves that Hempco can acquire for extraction of CBD. Material that Aurora doesn't purchase can be sold to a third party, but Hempco is not permitted to extract CBD from this material itself (unless authorized by Aurora.)
Hempco's current CEO, Charles Holmes will resign as CEO when a successor has been selected by Hempco's board of directors and approved by Aurora.
As long as Aurora maintains a 10% ownership interest in Hempco, Aurora has the right to participate in future financings of Hempco to allow them to maintain their ownership interest as well as the right to appoint two members to Hempco's Board of Directors.
Aurora Cannabis' CEO, Terry Booth
"Having successfully completed due diligence, we have decided to progress with our strategic investment in Hempco, thereby gaining access to a rapidly growing health supplement market, as well as securing considerable quantities of low-cost raw material for the potential future production of CBD extracts. The diversification that our investment in and collaboration with Hempco brings to Aurora further strengthens our position as innovation leader in the industry, and we look forward to executing on our partnership with Hempco."
Hempco's CEO, Charles Holmes
"This transaction will greatly accelerate our commercial development, enabling us to aggressively pursue growth in the hemp-based dietary supplements industry, and become a meaningful supplier to Aurora of CBD-containing raw material. I look forward to working with the Aurora team in taking Hempco to the next level in its development."
In midday trading Monday, shares of both companies are roughly flat on the day. Year-to-date, shares of Aurora Cannabis are up roughly 18%. Hempco Food and Fiber shares are down roughly 42% year-to-date.
Learn more about Aurora Cannabis by checking out the company's marijuana stock profile in our Canadian L.P. database. We're working on a marijuana stock profile for Hempco Food and Fiber, so be sure to check back soon and subscribe to our free email newsletter to find out when it becomes available.
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