The Parent Company Enters into Agreements to Expand Supply of High-Quality, California Grown Cannabis

Rhea-AI Summary

TPCO Holding Corp. (NEO: GRAM.U; OTCQX: GRAMF) announced a $50 million strategic investment in GH Group, Inc. as part of a merger with Mercer Park Brand, expected to close by Q3 2021. This investment will secure access to over 900,000 pounds of low-cost California-grown cannabis and enhance distribution for The Parent Company's brands. Additionally, TPCO has signed a $17 million agreement to acquire four acres of outdoor cannabis cultivation in Sonoma County, enhancing its supply chain and operational capacities.

Positive

• Secures over 900,000 pounds of low-cost cannabis for branded products.
• Enhances distribution through retail partnership with Glass House.
• Strategic investment expected to improve supply chain and margins.
• Acquisition of outdoor cultivation provides immediate cannabis supply.

Negative

• None.

TPCO Holding Corp. ("The Parent Company" or the “Company”) (NEO: GRAM.U) (OTCQX: GRAMF), today announced a $50 million strategic investment (the “Strategic Investment”) in GH Group, Inc. (“Glass House”) through a private placement offering by Mercer Park Brand Acquisition Corp. (NEO: BRND.A.U; OTCQX: MRCQF) (“Mercer Park Brand”), a special purpose acquisition company, which has entered into a definitive agreement to merge with Glass House. The Strategic Investment is expected to close concurrently with the closing of Mercer Park Brand’s qualifying transaction (the “Qualifying Transaction”). In connection with the Strategic Investment, The Parent Company has also entered into a non-binding letter of intent with Mercer Park Brand pursuant to which the parties have agreed to negotiate towards a long term cannabis biomass offtake agreement and a retail distribution agreement which would enable The Parent Company’s suite of branded products to be sold across all Glass House retail locations (the “Glass House Agreements”), each of which are expected to be entered into upon closing of the Qualifying Transaction. The Qualifying Transaction is expected to close by Q3 2021, subject to customary closing conditions and approvals.

Glass House currently has a California greenhouse cultivation footprint of over 500,000 ft², producing over 110,000 pounds of dry flower biomass per year, with a targeted long-term greenhouse footprint of 6 million ft². Glass House also currently operates four award-winning dispensaries in California, and recently announced two additional retail licenses in Santa Barbara county. Glass House has also entered into an agreement to merge with 17 in-process retail licenses from Element 7, which is expected to bring Glass House’s retail footprint to a total of 23 open locations by the end of the first half of 2022. The Parent Company’s retail partnership with Glass House will secure shelf space in all stores for its house of brands.

In addition, the Company announced today that it has signed a definitive binding agreement to acquire four acres of licensed high-quality outdoor cannabis cultivation located in Sonoma County, California from a consortium of experienced cannabis farmers, Mosaic.Ag an affiliate of Soma Rosa Farms, for a total consideration of up to $17 million in cash and common shares in the capital of the Company (the “Cultivation Acquisition”). The Cultivation Acquisition is expected to close in Q2 2022, subject to customary closing conditions and regulatory approvals. The Company has also entered into a cultivation and supply agreement pursuant to which the consortium of farms will continue to provide cultivation services and supply the Company with high-quality cannabis pursuant to the agreement upon the terms set forth therein. The Cultivation Acquisition will provide a turnkey operation and an immediate cannabis supply for use in the Company’s branded product lines. In addition to the synergies that are expected to generate sustained gross margin enhancement, the partnership also offers future expansion opportunities as consumer demand continues to grow.

“These partnerships are a fantastic opportunity to secure long-term access to over 900,000 pounds of high-quality, low-cost, California-grown cannabis for use across our expanding portfolio of branded products,” said Steve Allan, Chief Executive Officer of The Parent Company. “Our focus over the last 100 days has been to continue to scale up our supply chain. Our strategic investment accomplishes two important components, gaining access to Glass House’s greenhouse-grown cannabis at attractive pricing and expanding the distribution of our products to their network of retail stores.”

Mr. Allan added, “Our strategy for vertical integration in California required locking in long-term, low-cost cultivation to meet our demand for branded products in our wholesale and direct-to-consumer channels. With Glass House and Mosaic.Ag added onto to our existing large scale indoor grow, we will have successfully grown our cultivation foundation, setting us up to have a scale and margin advantage for years to come. Additionally, having a long-term retail partnership with Glass House is expected to continue to enable our brands to maximize consumer awareness and availability in California.”

Mercer Park Brand and Glass House Transaction Details

The Parent Company has entered into an agreement to acquire approximately 6.2% of subordinate voting shares of Mercer Park Brand upon closing of its Qualifying Transaction with Glass House, assuming there are no further redemptions associated with the Qualifying Transaction, for an aggregate purchase price of $50 million to be paid in cash. Closing of Mercer Park Brand’s Qualifying Transaction is expected to take place by Q3 2021, subject to customary closing conditions and approvals, including the approval of Mercer Park Brand’s shareholders. The closing of the Strategic Investment is conditional upon the negotiation and execution of the Glass House Agreements.

In addition, The Parent Company has entered into a non-binding letter of intent with Glass House pursuant to which the parties have agreed to negotiate a 10-year, comprising almost half-a-million pounds of cannabis biomass, offtake agreement and a nearly $25 million retail partnership agreement over six years that enables The Parent Company’s suite of branded products to be sold across all Glass House retail locations. While the Company expects to continue its diligence and negotiations in respect of the Glass House Agreements, there can be no assurance that the Company’s diligence and negotiations with respect to the Glass House Agreements will result in definitive agreements or as to what the terms or timing of any such definitive agreements will be. If the parties are successful in negotiating definitive agreements, it is expected that the Glass House Agreements will be entered into upon closing of the Qualifying Transaction.

Mosaic.Ag Transaction Details

The Parent Company has agreed to four acres of licensed high-quality outdoor cultivation from a consortium of experienced cannabis farms affiliated with Mosaic.Ag, for a total consideration of up to $17 million, paid in a combination of cash and common shares of The Parent Company. Upon execution of the definitive agreement (the effective date), the Company advanced approximately $6 million in cash to the sellers, less a mutually agreed upon holdback amount, which amount will be repaid to the Company if the Acquisition does not close. On closing, the Company will pay to the sellers $2.5 million in common shares of the Company at a price per share based on the volume weighted average price (“VWAP”) of the Company’s common shares for the ten consecutive trading days immediately prior to the closing date. An additional share consideration of up to $8.5 million in aggregate may be paid to the sellers based on the sellers achieving certain specified revenue and profitability targets. The additional share consideration will be priced at the VWAP of The Parent Company’s common shares for the ten consecutive trading days immediately prior to the effective date.

About The Parent Company:

The Parent Company (TPCO Holding Corp.) (NEO: GRAM.U) (OTCQX: GRAMF) is California's leading vertically integrated cannabis company combining best-in-class operations with leading voices in popular culture and social impact. The Parent Company brings together global icon and entrepreneur Shawn "JAY-Z" Carter, entertainment powerhouse ROC NATION, California's leading direct-to-consumer platform CALIVA, and leading cannabis and hemp manufacturer, LEFT COAST VENTURES, forms a cannabis industry leader for the post-prohibition era. Chief Visionary Officer Shawn "JAY-Z" Carter, one of the most recognized and celebrated entrepreneurs of our time, guides The Parent Company's brand strategy in partnership with Roc Nation, the world's preeminent entertainment company with a roster of culture-making artists, athletes, and influencers. The brands we build together will pave a new path forward for a legacy rooted in equity, access, and justice.

For the latest news, activities, and media coverage, please visit www.theparent.co or connect with us on LinkedIn and Twitter.

Forward Looking Statements

This press release may contain forward-looking information within the meaning of applicable securities legislation which reflects The Parent Company’s current expectations regarding future events. The words “will”, “expects”, “intends” and similar expressions are often intended to identify forward looking information, although not all forward-looking information contains these identifying words.

Specific forward-looking information contained in this press release includes, but is not limited to, statements concerning the Strategic Investment and the expected impact and timing thereof, the negotiation and execution of the Glass House Agreements, closing of the Qualifying Transaction, the Cultivation Acquisition and the expected impact and timing thereof, and The Parent Company’s future financial performance and execute on its growth and consolidation strategy. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond The Parent Company’s control, which could cause actual results and events to differ materially from those that are disclosed in or implied by such forward looking information. Such risks and uncertainties include, but are not limited to: changes in general economic, business and political conditions, changes in applicable laws, the U.S. and Canadian regulatory landscapes and enforcement related to cannabis, changes in public opinion and perception of the cannabis industry, reliance on the expertise and judgment of senior management, as well as the factors discussed under the heading “Risk Factors” in The Parent Company’s Annual Information Form dated March 25, 2021, which is available on SEDAR at www.sedar.com. The Parent Company undertakes no obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.

Caution Regarding Cannabis Operations in the United States

Investors should note that there are significant legal restrictions and regulations that govern the cannabis industry in the United States. Cannabis remains a Schedule I drug under the U.S. Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable U.S. federal money laundering legislation.

While the approach to enforcement of such laws by the federal government in the United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve The Parent Company of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against the Company. The enforcement of federal laws in the United States is a significant risk to the business of The Parent Company and any proceedings brought against the Company thereunder may adversely affect the Company’s operations and financial performance.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210517005563/en/

FAQ

What is the strategic investment by TPCO Holding Corp. in GH Group, Inc.?

TPCO Holding Corp. announced a $50 million strategic investment in GH Group, Inc. through a merger with Mercer Park Brand, expected to close by Q3 2021.

How will TPCO's investment impact its product distribution?

The investment will enable The Parent Company to expand the distribution of its branded products across all Glass House retail locations.

What are the details of the acquisition of outdoor cannabis cultivation by TPCO?

TPCO has signed a definitive agreement to acquire four acres of licensed outdoor cannabis cultivation in Sonoma County for up to $17 million.

When is the expected closing date for the strategic investment and acquisition?

Both the strategic investment and the acquisition are expected to close by Q2 2022, subject to customary conditions and approvals.

What are the expected benefits of the Glass House partnership for TPCO?

The partnership is expected to provide TPCO with long-term access to cannabis supply, improve margins, and enhance consumer awareness of its brands.