RIV Capital to acquire New York-based Etain, names new CEO to lead entry and expansion in U.S. cannabis market

  • Transformative transaction will include one of only 10 vertically integrated licences in New York and four active dispensaries with plans to bolster operations in advance of adult-use market

  • Names Mark Sims, former SVP of Strategy and M&A for the Scotts Miracle-Gro Company, as President and CEO

  • The Hawthorne Collective to advance an additional US$25 million to RIV Capital concurrently with transaction, deepening relationship and adding to RIV Capital’s balance sheet

TORONTO — March 30, 2022 — RIV Capital, Inc. (CSE: RIV) (OTC: CNPOF) (“RIV Capital”) today announced a definitive agreement to acquire ownership and control of Etain LLC and Etain IP LLC, owners and operators of legally licensed cannabis cultivation and retail dispensaries in the state of New York.

RIV Capital will acquire ownership and control of the Etain companies for approximately US$247 million, payable through a combination of cash and newly issued Class A common shares of RIV Capital, subject to, among other things, receipt of all required regulatory approvals, including from the New York Cannabis Control Board and the New York State Office of Cannabis Management.

RIV Capital also announced today that its Board of Directors has named Mark Sims as President and CEO of RIV Capital, to lead the company’s formal entry into the U.S. market and expansion into licensed adult-use operations in New York. Mr. Sims is a current director of RIV Capital, a role he will retain, and most recently was Senior Vice President of Strategy and M&A for The Scotts Miracle-Gro Company (NYSE: SMG) (“ScottsMiracle-Gro”), where he also previously served as its CIO and head of business transformation. He replaces Narbé Alexandrian, who departs RIV Capital to pursue other opportunities.

“On behalf of the entire Board of Directors, I would like to congratulate Mark on this appointment. Mark has deep experience in successfully building out teams and infrastructure in complex businesses and has extensive M&A experience from his prior roles at Scotts Miracle-Gro. We are confident that Mark has the operational and leadership chops to lead our transformational pivot into the U.S. and drive the next chapter of growth for RIV Capital,” said Asha Daniere, Chair of RIV Capital’s Board of Directors. “I also want to thank Narbé for his valuable contributions to RIV Capital, which allowed the company to reach this critical turning point in its journey, and wish him ongoing success in his future endeavours.”

“The pending acquisition of the Etain business is the first step in the execution of the RIV Capital strategy, shifting from an investor in the cannabis value chain to a full-fledged operator of licensed cannabis cultivation and dispensary facilities in the U.S.,” Mr. Sims said. “By capitalizing on growth opportunities in New York’s emerging market and building upon Etain’s foundation in the medical space, we intend to accelerate our strategy and continue to deliver value for shareholders.”

“I am excited for the future of RIV Capital and our mission of providing the highest-quality products for consumers. Our plan is to grow the Etain brand while creating a platform to bring successful, authentic West Coast brands to New York,” Mr. Sims continued. “We are thrilled to make New York the foundational cornerstone of our platform, and believe that its outsized cultural influence, limited licence program, and pending implementation of adult-use sales make it a uniquely attractive state.”

Etain, the New York cannabis market’s only women-owned and -operated business, is one of the state’s original five medical cannabis licence recipients and one of only 10 approved vertically integrated operators. Etain was founded by members of the Peckham family in Chestertown, N.Y., where the business is undergoing significant expansion of growing and manufacturing space. Etain has four operating dispensaries, including its Manhattan flagship store and locations in Kingston, Syracuse and Westchester.

Etain COO, Hillary Peckham said, “This agreement marks the most significant transaction for a women-owned business in cannabis history. While the Peckham family will be stepping back from control of the company, we will be actively partnered with RIV Capital on preserving the ethos of the Etain brand and utilizing our combined efforts to continually find and make new spaces for women in cannabis. RIV Capital clearly recognized the potential for women-led brands to flourish in the cannabis industry, and we are proud that our work at Etain has led us to this point in time.”

To strengthen and expand the company’s presence in New York, RIV Capital plans to invest additional capital and resources into four new dispensaries, and to support the construction of a new state-of-the-art flagship indoor cultivation facility, tailored to specifically address the premium New York market.

Transaction Terms

Under the terms of the transaction, RIV Capital will pay approximately US$212 million in cash, subject to customary adjustments, and approximately US$35 million by the issuance of Class A common shares in RIV Capital. The value of the 26,365,419 RIV Capital shares that will be issued is based on the five-day volume-weighted average price of such shares on the Canadian Securities Exchange as of the last trading day prior to today’s announcement. The acquisition is structured to close in two stages — the initial closing is expected to occur in the second calendar quarter of 2022 and, subject to receipt of the relevant approvals by the New York state regulators, the final closing is expected to occur in the second half of 2022. Approximately 80% of the purchase price will be payable upon the initial closing, with the remainder payable upon the final closing. Following closing, the former owners of Etain are expected to hold approximately 16% of the issued and outstanding Class A common shares of RIV Capital.

In connection with the acquisition, RIV Capital and the former owners of Etain will enter into an investor rights agreement providing such former owners with, among other things, registration and information rights. In addition, no later than RIV Capital’s upcoming annual general meeting of shareholders, expected to be held in the third calendar quarter of 2022, the former owners of Etain will be entitled to require that RIV Capital nominate a proposed member to the RIV Capital Board of Directors, expected to be Amy Peckham, Etain’s CEO. Such former owners of Etain will also be entitled to designate one observer to the Board of Directors under the terms of the investor rights agreement.

To finance the cash portion of the consideration payable pursuant to the transaction, RIV Capital will utilize the US$150 million proceeds received from The Hawthorne Collective, Inc. (“The Hawthorne Collective”), a wholly owned subsidiary of Scotts Miracle-Gro, pursuant to its convertible note investment in RIV Capital announced in August 2021. Furthermore, to provide RIV Capital with additional financing support for the acquisition, The Hawthorne Collective has agreed to advance RIV Capital US$25 million at the time of the initial closing pursuant to rights existing under The Hawthorne Collective’s previous convertible note investment in RIV Capital, to be evidenced by a newly issued convertible note with a conversion price of C$1.65 per Class A common share of RIV Capital. The Hawthorne Collective has advised RIV Capital that it also intends to provide RIV Capital with additional funding of US$40 million, at a future date that is anticipated to be on or around the time of the final closing of the acquisition, via a subscription for an additional convertible note, also pursuant to The Hawthorne Collective’s rights under its existing convertible note investment. Accordingly, RIV Capital anticipates that the entire cash consideration payable pursuant to the transaction will be financed from proceeds received from The Hawthorne Collective. RIV Capital and The Hawthorne Collective have also agreed to amend their existing investor rights and strategic opportunities agreement to permit an increase in the size of RIV Capital’s Board of Directors from seven to nine members in order to accommodate the Etain director nomination right. In connection with such increase, when the Etain nominee is added to the RIV Capital Board of Directors, The Hawthorne Collective will also be entitled to nominate a fourth individual to the Board of Directors, in addition to its current three nominees.

“We’re fully supportive of RIV Capital’s strategy and plans to grow Etain,” said Hawthorne Collective President Chris Hagedorn. “This is a significant step forward for both. Just as importantly, it will establish an important foundation upon which The Hawthorne Collective and, therefore, ScottsMiracle-Gro, can participate in the larger marketplace as the legal and regulatory environment evolves.”

Dickinson Wright PLLC, Paul Hastings LLP, and Blake, Cassels & Graydon LLP served as legal counsel to RIV Capital. Moelis & Company LLC served as exclusive financial advisor and DLA Piper, LLP served as legal counsel to Etain, LLC and Etain IP, LLC.

An audio-only recording of RIV Capital’s conference call regarding this announcement will be available on the Company’s website at www.rivcapital.com/investors.

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