Harborside – Canadian Reverse Merger
Harborside – Canadian Reverse Merger – One of the more interesting aspects of legalization is being able to cover the growing cannabis industry. Under prohibition, if Johnny Dimebag down the street was having a good year or recently invested in new top-of-the-line grow lights, they wouldn’t be discussing it on CNBC. But this is a different era, and stories about the explosion of the legal cannabis industry seem to grow more numerous by the day.
Add to the list of companies making major moves in terms of expansion the legendary name of Harborside. They recently announced a reverse merger with Canadian-based Lineage Grow Company.
Harborside is not the first United States-based company to use a reverse merger to take advantage of the more advanced Canadian markets, and they won’t be the last. “US-based cannabis companies are increasingly taking advantage of the robust Canadian capital markets,” Nanette Heide, co-chair of the private equity practice at Duane Morris LLP and the attorney who represented Harborside in the deal, told The Marijuana Times. “The transactions are somewhat complex in structure, but executed well can provide ready access to capital for growth and expansion.”
With the move, Harborside looks to expand and keep pace with the more aggressive companies in the cannabis space. ““[This] marks a major milestone in a strategy designed to fuel Harborside’s planned expansion,” said Andrew Berman, Chief Executive Officer of Harborside. “I am excited to announce this proposed merger with Lineage, which will enable us to move through 2019 with more assets and the resources we need to quickly expand our retail platform, drive revenue, and continue to deliver trust, choice and value to our patients and customers. This combination with Lineage will significantly bolster our retail program and vertically-integrated, California-centric business model, and will position Harborside for growth and tremendously exciting times for the company, our staff and the industry.”
Some lament the forces of “big business” entering the legal cannabis market; they long for the days of hippie communes and mom and pop grow. It would be great if cannabis stayed at the level of farmer’s markets and campfire smoke sessions, but a real industry – one that can serve the needs of tens of millions of people – can only grow into its potential with the arrival of massive amounts of capital investment.
A Bit of Background on Canadian Reverse Mergers
Companies wishing to access the Canadian capital markets by listing on the Toronto Stock Exchange (TSX) or the TSX Venture Exchange (TSX-V) may become listed through a number of methods including a traditional initial public offering (IPO), through a special purpose acquisition vehicle (SPAC) or by completing a reverse take-over (RTO) of an existing listed issuer. Generally, an RTO is a transaction whereby a company which is publicly listed on a stock exchange (Public Co.), but which has few if any assets, acquires all of the securities of a private company which has substantial assets and/or operations (Private Co.), resulting in Private Co. indirectly “going public.” Public Co. acquires the securities of Private Co. by issuing to Private Co.’s shareholders a significant number of shares in Public Co. (equivalent in value to the assets or operations of Private Co.).
Typically, the result of an RTO is a change of control in the ownership of Public Co. and in many cases, the former shareholders of Private Co. hold a large majority of the shares of Public Co. which remains listed on a stock exchange and which now also has assets and/or operations.
The IPO process in Canada is time consuming, uncertain and relies on public market conditions. An RTO structure is often used where a traditional IPO is not feasible or practical. An RTO does not necessarily include an equity financing component, so it is often used where the principal goal of the transaction is liquidity for shareholders from the stock exchange listing, versus an IPO where capital raising from the public is generally the principal goal. For example, during times of volatility in stock markets an IPO may be difficult to successfully conclude and risky if market conditions change and the offering cannot be completed.
In such circumstances a company can instead acquire a stock market listing, liquidity for its shares and access to the public capital markets, by completing an RTO involving a company which is already listed on an exchange. An RTO transaction is generally shorter in duration to complete and is more cost efficient from a professional fees basis than an IPO.
Harborside – Canadian Reverse Merger