Vext Science Announces Proposed Acquisition of Ohio Operations and Related Financing

Proposed acquisitions will create a fully vertically integrated entity in Ohio, with an operating Tier I cultivation facility, an operating manufacturing facility, and strategically located, fully operational retail storefronts in Columbus and Jackson.

Vext to offer the complete portfolio of Vapen branded products to consumers across the state of Ohio, the 7^th largest state by population in the U.S. with an attractive limited license structure.
Ohio’s state-sanctioned cannabis sales surpassed the $1 billion mark in 2022¹ and the state saw a 44% increase in the number of patients over the past 12 months,² with the potential for a future transition into an adult-use market.
Vext has obtained a commitment for a $10 million loan, expected to be used for construction and improvements associated with the acquired cultivation facility and for other general corporate purposes.

David Johns, current Managing Director of Appalachian Pharm Processing in Ohio, has been appointed to the Company’s Board of Directors.

VANCOUVER, BC, Dec. 15, 2022 /CNW/ – Vext Science, Inc. (“Vext” or the “Company“) (CSE: VEXT) (OTCQX: VEXTF) a cannabinoid brand leader based in Arizona, leveraging its core expertise in extraction, manufacturing, cultivation and marketing to build a profitable multi-state footprint, today announced that it has entered into definitive agreements (the “Purchase Agreements“) to acquire Appalachian Pharm Processing, LLC, an Ohio limited liability company, together with its subsidiaries and affiliated companies (collectively, “APP“) for total consideration of approximately $12.5 million, with $11 million paid in cash or promissory notes and $1.5 million, through the issuance of common shares of Vext (“Common Shares“), subject to certain customary adjustments (the “Proposed APP Acquisition“). The Proposed APP Acquisition is subject to regulatory approvals and other customary conditions precedent.

Concurrent with the Proposed APP Acquisition, Vext and APP have entered into a definitive agreement to acquire Buckeye Botanicals, LLC, an Ohio limited liability company operating a dispensary in Jackson, Ohio operating under the name Buckeye Botanicals (“Buckeye Botanicals“) (the “Proposed Jackson Acquisition“), giving Vext a second retail storefront in Ohio to further strengthen its vertical position in the state. A cash payment of approximately $6.9 million, subject to certain customary adjustments, will be made by Vext upon closing of the Proposed Jackson Acquisition. The Company has already received approval from the Ohio Board of Pharmacy to transfer ownership of the license, and to operate under the name Herbal Wellness Center. The Proposed Jackson Acquisition is subject to customary closing conditions precedent.

The Proposed APP Acquisition and the Proposed Jackson Acquisition (together the “Proposed Transactions“), are expected to close by the end of the second quarter of 2023. All currency references used in this news release are in U.S. currency unless otherwise noted.

Transaction Highlights

Completion of the Proposed Transactions is anticipated to result in a number of benefits to Vext, including but not limited to the following:

Gives Vext 100% ownership of a vertically integrated footprint in the attractive Ohio market which has consistently exceeded revenue forecasts and continues to see an increased number of registered patients. Management of Vext believes the state has the potential to become a very attractive adult-use state in the future.

Creates a larger, diversified entity with fully vertically-integrated cultivation, manufacturing and retail capabilities across two limited license states with significant potential.
Will enable the Company to introduce a broader range of Vapen products to the Ohio market at scale. The Company’s wholly-owned Vapen brand is consistently one of the top brands in the Arizona market.
Positions Vext as a preferred partner for out-of-market brands looking to establish a presence in Arizona and Ohio.

Financing

Ohio Loan

Concurrently with the execution of the Purchase Agreements, Vext entered into a loan agreement with an Ohio-based lender for an aggregate loan commitment of $10 million (the “Ohio Loan“). The Ohio Loan bears interest at an initial rate equal to the 5-year treasury rate + 5.00%, subject to a floor rate of 7.50%, and is secured against all of Vext’s assets in the State of Ohio (including the assets of APP) and certain assets in the State of Arizona. The proceeds of the Ohio Loan are expected to be used for construction and improvements associated with AP Product’s (as defined below), cultivation facility (and may be funded by Vext to AP Products pursuant to the RLOC (defined below)), and other general corporate purposes.

Rate Lock on Existing Credit Facility

As previously announced, Vext entered into an agreement with a California-based lender for a $22.2 million credit facility comprised of two term loans. Effective November 7, 2022, the Company amended its arrangement with the same lender to swap the floating interest rate on the first term loan at $17.185 million 20-year from WSJ Prime + 2.75%, with a floor price of 6.25%, to a fixed rate of 9.59%. The second term loan is a $5 million five-year second lien secured term loan and will continue bearing interest at WSJ Prime + 2.75%, with a floor price of 6.25%.

Ohio Footprint Highlights

Upon closing of the Proposed Transactions, Vext is expected to gain strategic access to the rapidly growing Ohio medical cannabis market through ownership of:

An operating Tier 1 cultivation facility in Jackson, Ohio, with an initial cultivation area of up to 25,000 square feet with the potential to expand up to 50,000 square feet. As recently announced, the Company, in association with APP, has received all necessary approvals and is fully-funded to build-out this cultivation space. Vext has been advised by APP that first harvest in this facility is expected to be achieved by the first quarter of 2023.

APP currently has a fully operational manufacturing facility in Jackson, Ohio, adequate to meet the Company’s needs for the foreseeable future.
A cannabis dispensary in Columbus, Ohio which has been operating under the name Strawberry Fields since March 2021. The Company intends to apply to the Ohio Board of Pharmacy for an ownership transfer in January 2023.
A cannabis dispensary in Jackson, Ohio, which has been operating under the name Buckeye Botanicals. The Company has already received approval from the Ohio Board of Pharmacy to transfer ownership of the license and to operate the dispensary as Herbal Wellness Center, aligned with the Company’s Arizona retail branding.

Management Commentary and Board Update

Commenting on the Proposed Transactions, Eric Offenberger, CEO of Vext noted, “We have consistently viewed Ohio as the focus for the next leg of Vext’s growth. Ohio is a large, growing medical market with the potential to move to adult use, and its highly regulated, vertical market structure makes the state very attractive from a long-term return on capital perspective. While the overall macro backdrop will remain challenging for many operators, Vext’s track record of constantly innovating and offering a broad range of value-priced products has made Vapen one of Arizona’s top brands. These acquisitions will enable us to continue translating this success over to the Ohio market through the addition of a fully operational vertical footprint with plenty of room to scale. With an unwavering focus on delivering profitability and cash flow, Vext has the foundation to grow in this environment both organically and through highly selective, accretive M&A, with an eye to driving returns and shareholder value. David and his team are strong operators with a long history in the Ohio market, and I would like to welcome them to the team.”

David Johns, Managing Director of Appalachian Pharm Processing commented, “Ohio’s medical cannabis market continues to expand and mature. The state has already exceeded revenue projections in 2022¹ and given its potential adult-use upside, we believe it has the capacity to become one of the most attractive markets in the country. The combination of our established cultivation, manufacturing and retail presence with Vext’s experience as a profitable operator and the strength of the Vapen brands that are already available on 95% of dispensary shelves in Ohio, will enable us to establish a firm foothold in this high growth market, while being well positioned to take advantage of any regulatory developments as Ohio moves closer to adult-use. Vext has been a great partner from the beginning of our relationship, and I know I speak on behalf of our entire team when I say that we are looking forward to growing this platform together into one of the most successful operators in the Ohio market.”

The Company also announced today that the Board has accepted the resignation of Mr. David Eaton from the Board effective December 15, 2022 and after the Company’s Annual General Meeting. In conjunction with Mr. Eaton’s departure, Mr. David Johns has been appointed to the Board, effective December 15, 2022. Mr. Johns has demonstrated experience in the services and IT industry and sits on the boards of several companies. He is currently the Managing Director of APP in Ohio, which produces THC and CBD infused medical marijuana products for patients across the state.

Eric Offenberger, CEO of Vext commented, “As we take this step to consolidate vertical operations in Ohio, I would like to thank David Eaton for his leadership and advice over the years and welcome David Johns to the Board. With his extensive leadership and technical experience, as well as his expertise leading APP in Ohio, David Johns is an outstanding addition to the Vext team and Board.”

Biography – David Johns

Prior to joining APP, David was the SVP and CIO at Ascena Retail Group Inc, where he successfully implemented large-scale IT transformation and project efforts. Previously, David led the Global Information Technology, Global Business Shared Services and Corporate Services Sourcing functions at Owens Corning, a Fortune 500 company specializing in building materials and composite systems. He joined Owens Corning in 1994, and in this latest role as SVP and CIO, David had oversight for all Owens Corning business shared service centers, manufacturing technology, project portfolio management, sourcing and information systems. Prior to his experience at Owens Corning, David held technology positions with Honeywell, Inc. and Time Warner. In both of these roles, he orchestrated major computer systems development and management activities at both the division and corporate levels. David holds a Bachelor of Science in Computer Science Engineering from The Ohio State University and a Master of Business Administration from the University of Dayton. David was a scholarship athlete while at The Ohio State University. He was inducted into the CIO Hall of Fame in 2009 and…