Special purpose acquisition company (SPAC) Subversive Capital Acquisition Corp. (OTCQX: SBVCF) or SCAC entered into definitive agreements with global icon, entrepreneur and MONOGRAM founder, Shawn “JAY-Z” Carter, entertainment powerhouse Roc Nation, California cannabis company CMG Partners Inc. (Caliva) and Left Coast Ventures, Inc. to form TPCO Holding Corp. (The Parent Company). The deal is expected to close in January 2021.
Caliva and Left Coast Ventures expect combined pro forma revenues of $185 million in 2020 and $334 million in 2021. These acquisitions together constitute SCAC’s “qualifying transaction”. SCAC currently holds approximately $575 million in cash-in-trust, which would make The Parent Company one of the most well-capitalized cannabis companies in the United States assuming no redemptions.
Brand strategy and marketing playbook led by Shawn “JAY-Z” Carter and Roc Nation, will be leveraging the cultural influence of leading artists and entertainers to build the most valuable and scalable brand IP in cannabis. The Parent Company will become Roc Nation’s “Official Cannabis Partner”, Roc Nation will provide The Parent Company with special access and
rights with respect to Roc Nation’s roster of artists and athletes and Roc Nation will promote The Parent Company’s brand portfolio and provide various services.
Carter, who will become The Parent Company’s Chief Visionary Officer following the closing of the deal, said: “Although we know we can’t fully redeem the injustices created
by the ‘war on drugs’, we can help shape a brighter and inclusive future. The brands we build will pave a new path forward for a legacy rooted in equity, access, and justice. We’re creating
something people can trust and we’re investing in our future, our people, and our communities.”
SCAC has received private placement commitments of $36.5 million at a price of $10.00 per share issuable immediately prior to, and conditional on, completion of the Transaction (the “Private Placement”). Investors in the private placement commitments received to date include Fireman Capital Partners, Tuatara Capital, and Subversive Capital, the largest investors in Caliva and Left Coast Ventures, as well as Roc Nation artists Rihanna, Yo Gotti, and Meek Mill. The proceeds of the Private Placement are intended to be used in connection with the Transaction and to fund the growth of The Parent Company following the deal’s closing.
Caliva currently reaches over 50% of consumers in California through its existing platform for delivery. The Parent Company is expected to have the greatest consumer reach of any cannabis company in California reaching 75% of consumers in the state by the end of 2021 and almost 90% by the end of 2022 through scaling of its omnichannel platform.
Steve Allan, who will become The Parent Company’s CEO following the closing of the Transaction, said: “In addition to building the most influential portfolio of cannabis and hemp brands in the world, The Parent Company’s vertical operational platform has been designed for growth and future mergers and acquisitions, forging a path to redefine the cannabis industry in California.”
Social Equity Component
Led by Carter, The Parent Company will fund The Parent Company Social Equity Ventures with an initial target of $10 million and an annual contribution of at least 2% of its net income to invest in minority-owned and Black-owned cannabis businesses and contribute to the effort to rectify the wrongs of prohibition through initiatives that are working toward meaningful
change in the criminal justice system. These initiatives will include bail reform, industry vocational training, job placement, expungement clinics, and Social Equity application
Terms of the Deal
Caliva shareholders will receive aggregate consideration of approximately $282.9 million. Caliva shareholders will receive consideration in the form of newly issued common shares in the capital of SCAC, subject to exceptions for certain U.S. persons that will receive consideration in cash. Left Coast Ventures shareholders will receive aggregate consideration of approximately $142.2 million less the Sisu Consideration. Left Coast Venture shareholders will receive consideration in the form of newly issued SCAC Common Shares, subject to exceptions for certain U.S. persons that will receive consideration in cash. In connection with the consummation of the LCV Transaction, SCAC has also agreed to repay in full certain promissory notes of LCV for an aggregate amount equal to $15.0 million which LCV Note Repayment will adjust the consideration paid to Left Coast Ventures shareholders on closing. In addition, the Left Coast Venture shareholders may receive up to approximately 3.9 million additional SCAC Common Shares in the event the VWAP of SCAC Common Shares reaches $13.00, $17.00 and $21.00 within three years of closing (with one-third of such shares delivered at each such price threshold).
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