TRCE Terrace Global Inc

The Flowr Corporation (TSX.V: FLWR; OTC: FLWPF) (“Flowr” or the “Company”) is pleased to announce that the Company has entered into a definitive agreement (the “Definitive Agreement”) dated October 19, 2020 to acquire all of the issued and outstanding common shares in the capital of Terrace Global Inc. (TSX.V: TRCE) (“Terrace Global”), a multi-country operator (MCO) led by experienced cannabis entrepreneurs focused on the development and acquisition of international cannabis assets (the “Acquisition” or the “Transaction”). The all-share Acquisition is valued at approximately $63 million based on Flowr’s closing share price as of October 19, 2020. The Transaction provides the Company with additional capital to execute on its growth strategy, improves its overall financial position and seeks to merge together two teams of successful cannabis entrepreneurs. The Transaction is expected to close by the end of 2020.

Management Commentary

“We are extremely excited to deepen our existing relationship and partnership with Terrace Global into a full combination of the two companies. Together, we believe that we have a more robust financial profile which will give us sufficient access to liquidity to pursue our strategic objectives in Canada and internationally.” said Vinay Tolia, Flowr’s CEO. “The team at Terrace has a great deal of success in the Cannabis industry and we are very pleased to have them join the Flowr family in our mission to create one of the preeminent players in the industry for years to come.” added Mr. Tolia.

Strategic Rationale

The Company believes that wholly owning Terrace Global will create better operating efficiencies within its existing JV Partnership in its European business as Holigen continues to scale its operations. In addition, the Company has identified approximately $2 million in cost synergies from joining two public company’s infrastructures. On a pro forma basis, the Company will have more than $31 million of cash and marketable securities on its balance sheet, which will give it sufficient access to resources to continue to execute on its strategic plan and to capitalize on potential opportunities as they arise.

Transaction Highlights

• Robust Financial Position with Increased Cash and Reduced Indebtedness: Flowr and Terrace Global currently have more than $31 million in cash and marketable securities, which is expected be used to support brand building, outdoor grow operations, and pursue strategic opportunities and investments that maximize shareholder value.

• Strengthening Vertically Integrated Global Cannabis Company: Flowr is a leading global cannabis company with its distinct Flowr brand. This transaction strengthens Flowr’s international presence and improves access to multiple demographic segments.

• Alignment with Strong Management Team: Terrace Global was created by a group of pioneers in the cannabis sector who have decades of international experience in the cannabis market and include the founders of MedReleaf Corp., ICC Labs Inc. and Bedrocan Cannabis Corp. Both Flowr and Terrace Global have sector leading insider ownership. Terrace Global’s management team also has significant international cannabis experience having operated in Portugal, Uruguay and Spain as well as in the United States with Charlotte’s Web Holdings Inc. Terrace Global is expected to have three nominees on the reconstituted board of directors of Flowr.

• Terrace Shareholder Alignment with Flowr Shareholders: As part of the Transaction, all insiders of Flowr will be required to convert their debentures into Flowr Shares, representing a conversion of at least $11.9 million principal amount of debentures. Flowr will also use commercially reasonable efforts to secure the full conversion of all of the issued and outstanding convertible debentures in the aggregate principal amount of up to approximately $21.6 million.

• Concurrent Liability Management: As a condition precedent to the closing of the Transaction, Flowr will be required to negotiate further flexibility with its senior creditors. The net result is that at closing of the Transaction, Flowr will have reduced its overall indebtedness by at least $11.9 million.

• Improved Capital Markets Profile: Flowr is expected to be a leading licensed producer appealing to a broader shareholder base, with greater access to capital and improved trading liquidity.

• Accretive Synergies: The combined entity is estimated to realize annual synergies of approximately $2 million per year, allowing Flowr to operate more efficiently with a commitment to continued excellence.

The Transaction will be affected by way of a court approved plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”). Under the terms of the Transaction, each shareholder of Terrace Global (“Terrace Global Shareholder”) will receive 0.4973 of a Flowr Share per Terrace Global Share, which implies a price per Terrace Global Share of $0.22 based on the 30-day volume-weighted average price (“VWAP”) of the Flowr Shares and Terrace Global Shares on the TSX Venture Exchange (“TSXV”) as of October 19, 2020.

The Transaction is subject to the approval of the Ontario Superior Court of Justice (Commercial List) and the approval of two-thirds of the votes cast by Terrace Global Shareholders at a special meeting to be called of Terrace Global Shareholders to approve the Transaction (the “Terrace Global Special Meeting”).

To be effective, the Transaction must be approved by a resolution passed at the Terrace Global Special Meeting by not less than two-thirds (66 2/3%) of the votes validly cast by shareholders of Terrace Global, present in person or by proxy at the meeting, and if applicable, also by a simple majority of the votes validly cast by “minority” shareholders, present in person or by proxy at the meeting, being such shareholders as are required to be excluded in determining such “majority of the minority” approval pursuant to Multi-lateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.

All of the directors and senior officers of Terrace Global and other certain shareholders of the Company (who hold in the aggregate approximately 38% of the issued and outstanding Terrace Global Shares on a non-diluted basis) have entered into a support agreement with Flowr to, among other things, support the Transaction and vote their Terrace Global Shares in favour of the Transaction.

The Agreement provides that, under certain circumstances, where the Transaction is not completed because of the failure of Flowr to obtain certain approvals or consents, Flowr would be required to reimburse Terrace Global’s expenses up to $500,000.

The Board of Directors of the Combined Company will be comprised of 5 Flowr existing directors (including two directors that are independent), 3 nominees from Terrace Global and a new independent director mutually agreed to by Flowr and Terrace Global.

Concurrent Liability Management

As noted above, the Transaction is conditional upon customary conditions precedent of transactions of this nature including: (i) the amendment of the existing indenture governing the 10% subordinated secured debentures issued by Flowr in the aggregate principal amount of approximately $21.6 million to enable the early conversion of approximately $11.9 million debentures held by insiders of Flowr; and (ii) certain amendments to the senior secured credit facility from a syndicate of lenders led by ATB Financial.

Closing and Closing Conditions

The Transaction remains subject to certain other closing conditions including the receipt of certain approvals and the satisfaction of certain customary closing conditions, including approval by the TSX Venture Exchange. The parties do not anticipate requiring an approval of shareholders of Flowr to complete the Transaction.

The Board of Directors of Flowr (the “Board”) has unanimously approved the Transaction. The approval by the Board is supported by an independent fairness opinion from ATB Capital Markets Inc. It is currently expected that, subject to receipt of all regulatory, court, shareholder and other approvals, and the satisfaction or waiver of all conditions, the Transaction is expected to be completed in the fourth quarter of 2020.

Advisors and Counsel

ATB Capital Markets Inc. is acting as the exclusive financial advisor to Flowr and has provided an independent Fairness Opinion to the Flowr Board. Fasken Martineau DuMoulin LLP is acting as legal counsel to Flowr.

Hyperion Capital Inc. is acting as the exclusive financial advisor to Terrace Global. Wildeboer Dellelce LLP is acting as legal counsel to Terrace Global. Norton Rose Fulbright Canada LLP is acting as legal counsel to the board of directors of Terrace Global.

About The Flowr Corporation

The Flowr Corporation is a Toronto-headquartered cannabis company with operations in Canada, Europe, and Australia.  Its Canadian operating campus, located in Kelowna, BC, includes a purpose-built, GMP-designed indoor cultivation facility; an outdoor and greenhouse cultivation site; and a state-of-the-art R&D facility.  From this campus, Flowr produces recreational and medicinal products.  Internationally, Flowr intends to service the global medical cannabis market through its subsidiary Holigen, which has a license for cannabis cultivation in Portugal and operates GMP licensed facilities in both Portugal and Australia.

Flowr aims to support improving outcomes through responsible cannabis use and, as an established expert in cannabis cultivation, strives to be the brand of choice for consumers and patients seeking the highest-quality craftsmanship and product consistency across a portfolio of differentiated cannabis products.  

For more information, please visit flowrcorp.com or follow Flowr on Twitter: @FlowrCanada and LinkedIn: The Flowr Corporation.

About Terrace Global

Terrace Global is a Canadian company focused on the development and acquisition of international cannabis assets. Its single-minded goal is to unlock value in new jurisdictions. Terrace was created by a group of pioneers in the cannabis space who have come together to build a best in class portfolio of assets, across international markets. With decades of cross-continent relationships, the Terrace team is uniquely positioned to unlock value in new jurisdictions like no one else can. For more information about Terrace Global, please visit terraceglobal.ca.

On behalf of The Flowr Corporation:Vinay ToliaCEO and Director

CONTACT INFORMATION:

INVESTORS & MEDIA:Thierry ElmalehHead of Capital Markets(877) 356-9726 ext. 1528thierry@flowr.ca

Forward-Looking Information and Statements

This press release contains “forward-looking information” within the meaning of Canadian securities laws, which may include but is not limited to: statements made in respect of the expected effects of the Transaction on Flowr’s balance sheet, the expected accretive synergies to be realized as a result of the Combined Company; the expected value creation in respect of Flowr’s operations in the E.U as a result of the Transaction; statements made under the section “Transaction Highlights”, the expected amendments of the Flowr debentures and conversion thereof and statements made in respect of the Board composition. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “is expected”, “expects”, “scheduled”, “intends”, “contemplates”, “anticipates”, “believes”, “proposes” or variations (including negative and grammatical variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Such information and statements are based on the current expectations of Flowr’s management and are based on assumptions and subject to risks and uncertainties. Although Flowr’s management believes that the assumptions underlying such information and statements are reasonable, they may prove to be incorrect. The forward-looking events and circumstances discussed in this press release may not occur by certain specified dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting Flowr, including risks relating to: completion of the Transaction; receipt of court approval; receipt of Terrace Global Shareholder approval and other regulatory approvals including minority approval, if any, in respect of the Transaction; amendments of the Flowr debentures including conversion thereof; the satisfaction of customary closing conditions and conditions precedent set out in the Definitive Agreement; construction and development of the Company’s cultivation and production facilities; general economic and stock market conditions; adverse industry events; loss of markets; future legislative and regulatory developments in Canada and elsewhere; the cannabis industry in Canada generally; the ability of Flowr to implement its business strategies; Flowr’s inability to produce or sell premium quality cannabis, risks and uncertainties detailed from time to time in Flowr’s filings with the Canadian Securities Administrators; the Company’s inability to raise capital or have the liquidity to operate or advance its strategic initiatives and many other factors beyond the control of Flowr.

Although Flowr has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information or statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking information or statement can be guaranteed. Except as required by applicable securities laws, forward-looking information and statements speak only as of the date on which they are made and Flowr undertakes no obligation to publicly update or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise. When considering such forward-looking information and statements, readers should keep in mind the risk factors and other cautionary statements in Flowr’s Annual Information Form dated April 29, 2020 (the “AIF”) and filed with the applicable securities regulatory authorities in Canada. The risk factors and other factors noted in the AIF could cause actual events or results to differ materially from those described in any forward-looking information or statements.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.