Vext Science, Inc. (“VEXT” or the “Company”) (CSE: VEXT) (OTCQX: VEXTF) a cannabinoid brand leader based in Arizona, leveraging its core expertise in extraction, manufacturing, cultivation and marketing to build a profitable multi-state footprint, announced today that it has entered into a letter of intent (the “LOI”) that will enable it to establish a retail presence in the state of Ohio, through a joint venture with an Ohio limited liability company (the “JV Co.”). The JV Co. has acquired an exclusive option to acquire all of the ownership interest of an Ohio entity (the “Option”) holding a provisional cannabis dispensary license (the “Provisional License”). VEXT intends to acquire a 50% economic interest in the JV Co. through an Ohio subsidiary.
Eric Offenberger, CEO of VEXT commented, “The Vapen brand has been available to patients in Ohio since 2020 and based on that success we are excited to enter into this LOI to move toward establishing a retail footprint in the state. As a limited-license state with a large population and growing medical market, Ohio has the return on capital characteristics we look for, and we expect it to become an important cannabis market as it continues to develop. As a company, we are following a differentiated approach to expansion outside of our home market of Arizona, with a focus on partnering with existing entities in limited-license states and bringing the power of our award-winning Vapen brand and manufacturing expertise to the table. We are currently active in six states outside of Arizona and expect these relationships to progressively add to our results and generate value as we continue to focus on profitable growth.”
Ohio has a population of approximately 11.7 million residents1. Medical cannabis sales began in 2019 and are expected to reach approximately US$325 million in 20212. Of 60 dispensary licenses granted, 51 are currently operational.
Letter of Intent
The LOI contemplates a subsidiary of VEXT acquiring a 50% economic interest (48% voting interest) (the “Equity Interests”) in the JV Co., which has signed various agreements to acquire 100% of the membership interests of the Ohioentity holding the Provisional License (the “License Co.”). The contemplated change in ownership is subject to approval by the State of Ohio’s Board of Pharmacy (the “Board”) and cannot occur until License Co. has received a certificate of operation and been operational for 12 months.
As a part of the transaction with JV Co., a subsidiary of VEXT will enter into a loan agreement with JV. Co. with a contingent option to convert into the Equity Interests upon approval by the Board of the License Co. change in ownership. Under the loan terms, VEXT will loan US$4 million to the JV Co. (the “Secured Loan”), which will be secured against all of JV Co.’s assets, JV Co.’s right to collection of certain payments under its agreements with License Co., and such other security as the parties may agree. VEXT has already funded a total of US$2.3 million against the Secured Loan through various promissory notes.
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| 1 U.S. Census Bureau – July 1, 2019 |
| 2 Marijuana Business Daily – average of sales range provided |
JV Co. will apply the Secured Loan to first pay off certain loans made to JV Co. by the members of the JV Co. (the “Member Loans”), to the extent that JV Co. used the Member Loans to acquire the Option, and with remaining amounts (if any) to apply to the working capital of JV Co. VEXT will have the option to convert the Secured Loan into the Equity Interests at the time the Board approves of JV Co. acquiring 100% of the membership interests of the License Co. If the Board does not approve of the change in ownership (or, if JV Co.’s transaction with License Co. is terminated for any reason), then JV. Co. will be required to pay back certain portions of the Secured Loan as agreed upon in the Definitive Agreements (as defined below).
In addition to the Secured Loan, VEXT will contribute and provide certain knowledge and expertise (collectively, the “Operational Experience”) to assist JV Co. in meeting its responsibilities under JV. Co’s transaction with License Co. VEXT will also be providing Operational Experience towards the operations of License Co. following approval by the Board of the contemplated change in ownership.
For purposes of consummating the contemplated transaction, VEXT and JV Co. are required under the terms of the LOI to negotiate in good faith and enter into the following agreements within thirty (30) days after signing: (i) a Loan Agreement that will consolidate the various notes comprising the Secured Loan (i.e., the US$2.3 million) into a single Secured Loan; (ii) an Amended and Restated Operating Agreement for JV Co. to be effective if, and when, VEXT becomes a member of JV Co.; and (iii) a Services Agreement between VEXT’s subsidiary and JV Co. concerning the Operational Experience to be contributed by VEXT (collectively, the “Definitive Agreements”).
