📝Red White & Bloom acquires Platinum Vape for $35M (up to $60M w/ earn-out)

Cannabis brand with annualized revenue run-rate of $70M and 25%-30% EBITDA margins. Products include vapes, packaged flower, edibles and pre-rolls sold at 700+ retailers in CA, MI, and OK.

The Platinum Vape Family

Overview:

  • Discounted Multiple. Implies 0.50x (or 0.86x w/ earn-out) EV/Revenue run-rate and 1.67x - 2.00 EV/EBITDA (or 2.86x - 3.43x w/ earn-out), which seems like a big discount to what brands have typically been asking for..likely due to PV’s core product being in a competitive vape category where differentiation is tough

  • Brand. RWB seems to be taking an acquisitive / partnership approach to developing brands as the Company only developed its first in-house brand last July. Given that the Company will be using the High Times banner for its retail stores, it’s likely sunsetting its less-known brand, 1 Kure, in favor of PV

  • Synergies. Potential synergies estimated at 7%-10%

  • All-cash (and note) structure. $20M payable over next 6 months or so, remaining $15M paid in 3 years or so. The $35M consists of $7M in cash payable at closing, $13M in cash payable within 120 days of closing and $15M convertible note, only convertible after 12 months, payable on the third anniversary of closing. Additionally, the selling security holders of Platinum Vape will be entitled to receive up to a further $25M on the first anniversary of closing, contingent on Platinum Vape achieving certain financial milestones

Red White & Bloom (RWB) seems to have some big, big plans. The Company has raised ~$142M to date (equity and non-convertible debt) with ambitions to be a top 3 MSO (meaning it would have to bump two of Curaleaf, GTI, Crescco Labs, or Trulieve from the current list) after starting the Company in June 2018. The Company believes it is already a top 5 MSO based on 2020 EBITDA guidance. RWB is taking a home run approach as Chairman & CEO, Brad Rogers (former CannTrust President/COO) has stated “We take no small steps, we only enter large markets at large scale.” They’ve been able to raise $100M+ without warrants while acquiring companies at 0.3x - 0.5x sales.

The Company formed as a result of a business combination between Tidal Royalty and MichiCann Medical Inc. (d/b/a/ Red White & Bloom) back in April 2020 (announced February 2019), where Tidal Royalty shareholders would own 20% and MichiCann shareholders would own 80% of the combined Company. Tidal Royalty (Founded by Cronos Co-Founder Paul Rosen) previously pursued a royalty financing model (invested $12.5M in Diem Cannabis, $8M in AltMed, $13.5M to RWB post-merger announcement) before pivoting to pursue the MSO approach with MichiCann (RWB). MichiCann is a private cannabis investment company that holds an 8% senior secured convertible debenture and a put/call option to acquire all the issued and outstanding shares of its Michigan based Investee (and core revenue generator), OpCo, a private company incorporated under the laws of the State of Michigan.

RWB is currently active in MI, IL, and MA with target expansion to FL and CA (rationale behind High Times and Platinum Vape deals). The Company expects to operate 35 dispensaries (previously said they would have a minimum of 20 dispensaries by end of Q2 2019 🙄) by year-end. The Company has ~660 employees and $100M in retail run-rate revenue (expects $166M in 2020E revenue w/ $57.5M of EBITDA— PV certainly helps bridge that gap).

America's Cannabis | Red White & Bloom

RWB has advanced $75M+ to its Investee in Michigan. The Michigan Investee currently holds numerous licenses within Michigan covering the entire cannabis value chain. The Investee currently owns the assets of 18 dispensaries (referred to as provisioning centers in Michigan), with 10 of these operating dispensaries contributing ~$70M in LTM Revenue (Company estimates ~22% market share) which includes 115,000 unique patients/customers and 350,000+ annual transactions. The remaining 8 dispensaries are at various stages of development, and are expected to open this year. RWB’s Michigan Investee is vertically-integrated with two operational indoor cultivation facilities, an outdoor cultivation facility, and various additional cultivation and manufacturing locations planned.

Workers stake plants at the Red White and Bloom hemp growing facility in Granville, Illinois, on July 2, 2020.

The Company also has a sizable (temporary?) CBD play (Culture CBD) with its 3,600,000 sq ft (~80 acres) hemp greenhouse capable of producing 600,000 pounds of biomass annually in Granville, IL. The facility was acquired in June 2009 and previously served as a legacy flower business serving big box retailers with relationships and SOPs still in place. The Company is hoping to get licensing to produced Cannabis for up to 1,000,000 sq ft, which seems like a risky bet as Cultivation licenses in IL are currently limited to 10,000 sq ft with only 40 currently available. If successful (State regulators may create licenses for new full-scale recreational cultivators after July 1, 2021, based on supply/demand), it would likely put RWB into a top 3 MSO spot, as conversion to Cannabis cultivation should require minimal CapEx. So while it awaits THC-entry in IL, the Company has secured various distributors, purchase orders and supply/off-take agreements for whole and CBD distillate with an estimated value of $20M+.

RWB’s Massachusetts assets were developed initially by Tidal and now forms part of the assets of the Company - consisting of 3 Cannabis licenses (2 for cultivation, 1 for processing) and 2.8 acres of development land with plans for a 50,000 sq ft purpose-built facility. RWB is looking at a number of strategic options for these assets for 2020.

The Company commenced trading on the CSE (RWB) and on the OTC (TDRYD) on June 5th.


Press Release:

Red White & Bloom Brands Inc. (CSE: RWB and OTC: RWBYF) (“RWB” or the “Company”) is pleased to announce that it has signed a binding letter of intent (the “LOI”) to acquire a group of California-based companies operating under the name Platinum Vape(Platinum Vape” or “Platinum”) with an expected closing in the current quarter.

The acquisition of Platinum Vape is the first acquisition by RWB since going public and also marks RWB’s entry into California, furthering the Company’s strategic plan of expansion. Platinum Vape are purveyors of a full product line of premium cannabis products sold at over 700 retailers throughout Michigan, California and Oklahoma boasting an 84% rating (4.2/5) on WeedMaps.com.

Platinum was started 9 years ago by father and son duo, George and Cody Sadler. Fresh out of college, Cody convinced his Father to embark on what has become a storied journey ever since. Based on the principles of quality, hard work and customer service, they grew the business with no outside investors into one of the most successful and storied brands in the space today. With the success came numerous media stories and appearances with some of the most notable pieces being:

Brad Rogers, Chairman & CEO of RWB, commented: “George and Cody, the founders and operators of Platinum Vape, are visionaries in the cannabis market and have done an incredible job in building the pre-eminent vape company in the United States through commitment to quality, education, and the communities they serve. One of the things that struck me is the balance they have achieved in running a profitable successful business, which will add tremendously to RWB's top and bottom lines, while maintaining their commitment to supporting social issues, both financially and through awareness with the REACT program they established. As part of the RWB family, I look forward to supporting the growth of Platinum and the tradition of excellence established by Platinum and the incredible people that have made them a success.”

George and Cody Sadler, Founders of Platinum Vape, commented: “We at Platinum Vape are excited to have done such an amazing deal to integrate PV into the RWB family.  Cody and I have been building the business for nine years so far and feel that RWB is the best place to continue not only the growth of PV for us, but for our family as well. We couldn’t be happier with our decision.”

The Platinum Vape Family

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/07c21646-2843-4260-ae35-919f7c089c93

Vape Cartridges

Platinum Vape offers a wide range of disposable and reusable vape cartridges as well as pods in a variety of strain-specific flavors and effects.

Chocolates

Platinum Vape’s cannabis-infused chocolates are carefully crafted, palate driven creations that check all the right boxes. By combining the skills of a sophisticated chocolatier with seasoned cannabis experts, they were able to create a multi-faceted high that satisfies both your experience and your taste buds.

Gummies

Platinum Vape’s Gummy Coins are not your average infused treat. Meticulously crafted on candy traditions of its German origins, each uniquely flavored gummy provides a delightfully chewy experience. Their reusable tins are filled with 20 Gummy Coins that contain 5mg THC, thus promoting convenience and portability.

Packaged Flower and Pre-rolls

Platinum Vape’s indoor grown cannabis flower is cultivated to an unprecedented level of perfection. Their farming partners are masters at their craft to ensure cannabis flower that is unprocessed, pesticide-free, and lab tested. The traditions of growing, cutting, drying and curing are never rushed resulting in optimal consistency and high-potency cannabis. Available in both jars and pre-rolls, we categorize our strains under three effects: Indica, Sativa and Hybrid.

In the Community

Platinum uses its products to support a variety of social causes. Its REACT vape line uses the same cartridges and oils as its Platinum Vape products, but a portion of the proceeds goes to different charities. Thus far, the company has worked with organizations that support animal rescue, breast cancer awareness, suicide prevention, veterans, children’s hospitals, world hunger and LGBTQ pride.

Terms of the Transaction

Under the terms of the LOI, RWB and the securityholders of Platinum Vape will enter into a definitive agreement (the “Definitive Agreement”) pursuant to which RWB will acquire all of the ownership interests in Platinum Vape and Platinum Vape will become a wholly owned subsidiary of RWB in exchange for a total cash payment of US$35 million, consisting of US$7 million in cash payable at closing, a further US$13 million in cash payable within 120 days of closing and a US$15 million convertible note, only convertible after 12 months, payable on the third anniversary of closing. Additionally, the selling securityholders of Platinum Vape will be entitled to receive up to a further US$25 million on the first anniversary of closing, contingent on Platinum Vape achieving certain financial milestones.

Entering into the Definitive Agreement and closing of the transaction are conditional on satisfactory due diligence as well as other conditions customary in transactions of this nature, including receipt of regulatory approvals. The Company expects to sign the Definitive Agreement in August and close the transaction in September of 2020.

About Red White & Bloom Brands Inc.

The Company is positioning itself to be one of the top three multi-state cannabis operators active in the U.S. legal cannabis and hemp sector. RWB is predominately focusing its investments on the major US markets, including Michigan, Illinois, Massachusetts, California, and Florida with respect to cannabis, and the US and internationally for hemp-based CBD products.

About Platinum Vape

Platinum Vape is a conglomeration of cannabis companies with a passion to perfect an oil that is powerful, consistent, and desirable. It all begins with selecting the finest plants for extraction. Platinum Vape’s farming partners are masters at their craft, ensuring a pesticide-free, high-potency cannabis flower. With its core values of honesty and transparency, Platinum Vape takes pride in bringing their superior range of products to its family of consumers in Michigan, Oklahoma and California.