Lowell Farms Inc. (the “Company”) (CSE: LOWL; OTCQX: LOWLF), a California-born innovator in cannabis cultivation and maker of the legendary brand Lowell Smokes, along with its subsidiary, Indus Holding Company (“Subco“), has issued an aggregate of $4.2 million of senior secured convertible debentures (“2022 Convertible Debentures“) of Subco, which are convertible, as more fully described below, into an aggregate of 18.2 million subordinate voting shares of the Company (“Subordinate Voting Shares“) with respect to principal and additional Subordinate Voting Shares upon conversion of accrued and unpaid interest. Investors in the 2022 Convertible Debentures received warrants of the Company (“2022 Warrants“) to purchase an aggregate of 18.2 million Subordinate Voting Shares and warrants of Subco (“Subco Warrants“) to purchase an aggregate of 27.3 million non-voting common shares (“Subco Shares“) of Subco. The Company has received investor commitments for the purchase of an additional $2.5 million in 2022 Convertible Debentures.
The 2022 Convertible Debentures are part of the same series of convertible debentures issued in connection with the Company’s and Subco’s April 2020 financing (“2020 Convertible Debentures“). Proceeds from the financing are contemplated to be used for working capital purposes, automation investments and expansion into new markets.
“We are grateful for investor support as a testimony to the strategy we have employed to differentiate ourselves,” said George Allen, Chairman of Lowell Farms. “This financing allows Lowell to bring capabilities to market that have been in development for years.”
Highlights of the Financing
The 2022 Convertible Debentures bear a fixed interest rate of 5.5% per annum and will mature on October 31, 2023. The amounts due under both the 2022 Convertible Indentures and the 2020 Convertible Debentures are secured on a pari passu basis by substantially all assets of the Company (other than the Company’s Salinas County processing facility).
The 2022 Convertible Debentures, including accrued and unpaid interest thereon, are convertible into Class C common shares of US Subco (“Class C Shares“) at the option of the holder at a conversion price of US$0.2313 (the “Conversion Price“). Each Class C Share is redeemable for one Subordinate Voting Share.
Each investor in the 2022 Convertible Debentures received, for no additional consideration, 2022 Warrants to purchase a number of Subordinate Voting Shares of the Company equal to the number of Class C Shares into which such investor’s 2022 Convertible Debenture is convertible. Each 2022 Warrant has an exercise price of US$0.2613 and a 42-month term from the date of issuance.
Each investor in the 2022 Convertible Debentures also received, for no additional consideration, Subco Warrants to purchase a number of Subco Shares equal to one-and one-half times the number of Class C Shares into which such investor’s 2022 Convertible Debenture is convertible. Each Subco Warrant has an exercise price of US$0.2613 and a 42-month term from the date of issuance. Under certain circumstances, investors will have the right to require the Company to repurchase their Subco Warrants and any Subco Shares issued upon exercise of Subco Warrants on a Subordinate Voting Share-equivalent basis.
As further consideration for their investments in the 2022 Convertible Debentures, the expiration date applicable to 2020 Warrants held by certain investors will be extended from October 13, 2023 to April 13, 2025 and may be further extended to February 19, 2026, if applicable regulatory approvals are sought and obtained.
The financing is considered a “related party transaction” pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) because certain directors of the Company participated in the financing. Pursuant to Sections 5.5(b) and 5.7(1)(a) of MI 61-101, the Company is exempt from the requirements to obtain a formal valuation and minority shareholder approval because the Subordinate Voting Shares trade on the CSE and the fair market value of insiders’ participation in the financing was below 25% of the Company’s market capitalization for purposes of MI 61-101.
More information about Lowell Farms Inc. brands can be found at lowellfarms.com.
