High Tide Inc. (“High Tide” or the “Company”) (Nasdaq: HITI) (TSXV: HITI) (FSE: 2LYA), a leading retail-focused cannabis company with bricks-and-mortar as well as global e-commerce assets, is pleased to announce that it has entered into a non-binding letter of intent with Connect First Credit Union Ltd. (“connectFirst”) for CAD$30 million in credit facilities over an initial 5-year term (the “Proposed Credit Facilities”). The Company intends to use the Proposed Credit Facilities to replace the Company’s existing credit facility (the “Existing Facility”) with its current bank lender as disclosed in its press release dated October 18, 2021. The Proposed Credit Facilities are comprised of CAD$15 million of term debt (the “Term Debt”), and a mergers and acquisitions revolving master line of CAD$15 million (the “M&A Master Line”). The Company expects to repay its Existing Facility with its current bank lender and repaying other existing debt upon securing the Proposed Credit Facilities with connectFirst, with the remaining proceeds from the Term Debt proceeds going to fund continued organic growth and general working capital requirements.
“While in the past it has not been our practice to announce letters of intent, we want to share this very important development with the market, which has been in the works for quite some time. I am very pleased to announce that we have entered into a letter of intent and have begun due diligence for the $30 million Proposed Credit Facilities with connectFirst. Our business is on a strong footing, having generated positive cash flow from operations last quarter before changes in working capital. Our retail stores continue to outperform the market, increasing market share every month since we launched our innovative discount club model in October 2021, and our execution has not gone unnoticed by top tier lenders,” said Raj Grover, President and Chief Executive Officer of High Tide. “Upon closing the Proposed Credit Facilities, we will effectively be replacing our Existing Facility with a larger, less restrictive line – providing a boost to our balance sheet without diluting our existing shareholders. The initial $15 million of Term Debt will help clean up our short-term debt and provide funds for working capital and capital expenditure, and the $15 million revolving M&A Master Line will provide dry powder for acquisitions. We are in discussions with many groups, in various countries, and focused on different parts of the ecosystem which would be complementary to High Tide. These acquisition targets have demonstrated a willingness to take a position in our Company through share-based transactions. However, we anticipate that having a line set aside for acquisitions should help us be able to close more accretive transactions faster, while reducing dilution for our existing shareholders,” added Mr. Grover.
PROPOSED CREDIT FACILITIES
- CAD$15 Million Term Debt: The Term Debt will be accessible on request by High Tide. The Term Debt will be interest only for 12 months followed by blended principal and interest payments.
- M&A Master Line for Future Growth: The Proposed Credit Facilities include the CAD$15 million revolving M&A Master Line to support future mergers and acquisitions initiatives. The M&A Master Line will have a 5-year term on each draw down, with blended principal and interest payments beginning on each draw down.
- Low Interest Rate: High Tide continues to receive industry leading interest rates that reflect the strength of its business. The interest rate under the Proposed Credit Facilities is a 5-year fixed rate of 5.19% per annum for the Term Debt and connectFirst prime + 2.50% per annum for the M&A Master Line.
- Financial Covenants: The Proposed Credit Facilities will have a quarterly tested financial covenant, a debt to equity ratio of less than 2:1. Additionally, the Proposed Credit Facilities will have one annually tested covenant, a debt service coverage ratio of not less than 1.25:1, a monthly current ratio covenant of not less than 1.25:1, and an annually tested covenant, a funded debt to EBITDA ratio of not more than 4:1 beginning with the fiscal year ending October 31, 2022. High Tide’s 12-month forecast projects it to be comfortably in compliance with all financial covenants.
The Company expects to close on the Proposed Credit Facilities during the first half of June 2022, subject to certain pre-disbursement conditions and satisfaction of other customary conditions precedent. While the parties are in due diligence, no assurances can be given related to the closing of the Proposed Credit Facilities.
