DB Decibel Cannabis Company Inc

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW./

CALGARY, Alberta, Oct. 28, 2024 /CNW/ - Decibel Cannabis Company Inc. (the "Company" or "Decibel") (TSX-V:DB) (OTCQB:DBCCF), a market leader in premium cannabis and extract manufactured products, is pleased to announce that it has closed a transaction (the "Transaction") whereby it acquired AgMedica Bioscience Ltd. ("AgMedica"), a leader in international medical cannabis exports, pursuant to an assignment agreement dated October 28, 2024 entered into with Callisto Capital Corp. ("Callisto") in exchange for a $6.3 million unsecured convertible debenture (the "Convertible Debenture"). The conversion of the Convertible Debenture into common shares in the capital of the Company (each, a "Common Share") is contingent upon the Company obtaining each of the following: (i) the final approval of the TSX Venture Exchange (the "TSXV") in respect of the Transaction; and (ii), if applicable, the approval of the disinterested shareholders of the Company in accordance with the rules and policies of the TSXV, which approval, if required, is expected to be sought at the Company's upcoming annual and special meeting of shareholders to be held on December 10, 2024 as set forth herein (the "Meeting").

"I am excited to announce the acquisition of AgMedica. An euGMP certification is an international standard that Decibel has been contemplating for quite some time, this acquisition accelerates that timeline. 

The AgMedica facility becomes the cornerstone of our international strategy as it allows us to extend our products and brand to the rest of the world. Furthermore, this marks the first step of Decibel's new strategy as we execute on profitable growth opportunities enhanced by synergistic and accretive transactions," said Benjamin Sze, CEO.

Transaction Highlights

• AgMedica was acquired by the Company from Callisto pursuant to the assignment agreement whereby Callisto assigned all of its rights and obligations pursuant to a subscription agreement dated October 28, 2024 between, inter alia, Callisto, Atlas Global Brands Inc. ("Atlas") and AgMedica, in connection with an Approval and Reverse Vesting Order granted pursuant to Atlas' CCAA process involving Atlas and its subsidiaries (including AgMedica) in exchange for the Convertible Debenture.
• If the Convertible Debenture converts into Common Shares in accordance with its terms, Callisto may become a "Control Person" (as such term is defined in the rules and policies of the TSXV) of the Company.  The conversion price per Common Share under the Convertible Debenture is $0.055, which was determined based on the closing price of the Common Shares on the TSXV on October 25, 2024.  In the event the Control Person approval is not obtained, the Convertible Debenture will no longer be convertible, will begin accruing interest at a rate of 15% per annum, and the principal amount plus interest accrued thereon will be repayable on April 28, 2025. All of the directors and officers of the Company, together with certain shareholders of the Company, who collectively own approximately 20% of the outstanding Common Shares, have entered into voting and support agreements pursuant to which they have agreed to vote their Common Shares at the Meeting in favour of the conversion feature of the Convertible Debenture and the potential creation of Callisto as a Control Person.
• Decibel projects that AgMedica could contribute $30MM of net revenue and $4MM of EBITDA in 2025, totalling an anticipated $130MM of net revenue and $25MM of adjusted EBITDA¹ in 2025 on a pro-forma basis.
• The Company estimates a ~1.6x EBITDA multiple paid based on management's 2025 projections prior to further optimization and automation initiatives.
• The Transaction is expected to materially expand Decibel's international footprint with EU GMP certification that enables export of flower and a variety of extract products, with proven sales to 7 different countries including Australia, Denmark, Germany, Israel, Norway, Spain, and the United Kingdom.
• Adds EU GMP and IMC-GAP certified annual flower production of 5.1 metric tonnes per annum ("TPA"), when combined with Decibel's GACP facility, expands total TPA of exportable flower to more than 12.
• Decibel anticipates AgMedica to contribute free cash flow generation in 2025 with limited working capital requirements in the near term as a result of AgMedica being sold free and clear of certain historical liabilities.
• In connection with, and directly following completion of the Transaction, AgMedica entered into a 5 year industrial lease for the AgMedica facility in Chatham, Ontario, as well as a sale and leaseback agreement with Callisto pursuant to which certain equipment of AgMedica was transferred to Callisto and leased back to AgMedica for a nominal cost for the term of the AgMedica facility lease. AgMedica has the option to repurchase the equipment at the end of the term of the lease for a nominal value.
• In connection with the Transaction, Decibel also acquired GreenSeal Nursery Ltd., a licensed nursery that holds and maintains certain cannabis genetics.
• The Transaction is subject to the receipt of the final approval of the TSXV following the filing of all final documentation in accordance with the TSXV's conditional approval letter dated October 16, 2024.
• Further opportunities for growth as a result of the Transaction include but are not limited to:
• • Further potential growth in export extract products to meet growing consumer trends;
  • Support for Decibel's recent vape launches in Australia and United Kingdom markets and new product launches;
  • Flexibility to utilize Thunderchild or third-party good agricultural and collecting practice (GACP) production to supply certain international markets;
  • Potential to grow contract manufacturing operations to provide partners access to international markets;
  • EU GMP validation of bubble hash and edibles;
  • Expand AgMedica production by an additional 4.7 TPA with additional investment;
  • Improve AgMedica production yields which are below Decibel's current operated cultivation facilities; and
  • Optimization of production and automation to enhance profitability.

Q3 2024 Guidance

The Company is pleased to provide guidance on its expected Q3 2024 financial results: 

• Net Revenue is expected to be between $23 to $25 million; and
• Adjusted EBITDA² is expected to be between $4 to $6 million³.

This guidance is based on Decibel's new international exports within the quarter, sustained domestic sales, and new product launches. The Company expects to announce its Q3 2024 financial results on or about November 21, 2024.

Private Placement

In connection with the Transaction, the Company intends to complete a non-brokered private placement financing (the "Offering") of Common Shares for gross proceeds of between $3,000,000 to $3,500,000, or such other amount as may determined by the Company.  The terms of the Offering will be determined in the context of the market, which terms will be announced by the Company in a subsequent news release. 

Shareholder Meeting Update

The Company will hold the Meeting on December 10, 2024 such that, amongst other matters to be considered at the Meeting, shareholders may review, consider and approve a resolution to approve the conversion feature of the Convertible Debenture and the potential creation of Callisto as a Control Person. The Company previously extended its Meeting though an Order from the Court dated September 25, 2024.  Additional meeting materials will be provided in due course and will be available under the Company's profile at SEDAR+ (www.sedarplus.ca).

Link to Decibel's Updated Investor Presentation

www.decibelcc.com

About Decibel

Decibel is a consumer-focused cannabis company focused on delivering products that delight customers through a commitment to robust innovation and product quality. Leading brands General Admission, Qwest and Vox are among its portfolio sold both across Canada and beginning to extend towards new countries to create a global footprint. Decibel operates a processing and manufacturing facility in Calgary, Alberta and two cultivation facilities in Creston, British Columbia and Battleford, Saskatchewan.

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

Cautionary Statements

Forward-Looking Statements

This news release contains "forward-looking information" and "forward-looking statements" (collectively, "forward-looking statements") within the meaning of the applicable Canadian securities legislation. All statements, other than statements of historical fact, are forward-looking statements and are based on expectations, estimates and projections as at the date of this news release. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts", "estimates", "believes" or "intends" or variations of such words and phrases or stating that certain actions, events or results "may" or "could", "would", "might" or "will" be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements.

In this news release, forward-looking statements relate to, among other things, the conversion of the Convertible Debenture; Callisto becoming a "Control Person" of the Company; the Transaction accelerating Decibel's international footprint with EU GMP certification; the anticipated additional flower production volume and total exportable flower production volume; the Company growing in extract products; the Transaction supporting the Company's recent vape launches in Australia and United Kingdom markets and new product launches; the ability to use Thunderchild or third-party GACP production to supply international markets; the ability to grow CMO operations to provide partners access to international markets; EU GMP validation of bubble hash and edibles; the ability to improve AgMedica's production yields following the Transaction; ability to optimize production and automation to grow profit post Transaction; anticipated 2024 year to date results of AgMedica; anticipated net revenue and adjusted EBITDA contributions by AgMedica and anticipated 2025 pro forma net revenue and adjusted EBITDA; the ability of the Company to extend its products and brand to the rest of the world; AgMedica's ability to contribute free cash flow generation to the Company; the anticipated accretive aspects of the Transaction; the Company's Q3 2024 guidance; the timing, and certain anticipated business, of the Meeting; and Decibel's ability to delight customers through a commitment to robust innovation and product quality. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release. Except as required by law, the Company assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change.

Forward-looking statements and FOFI (as defined herein) are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements and FOFI. Such factors include, but are not limited to: risks relating to the final required approvals in relation to the Transaction, including those of the TSXV and shareholders of the Company, if applicable; risks related to the anticipated benefits of the Transaction and the ability of the Company to realize such anticipated benefits; risks related to the anticipated future growth opportunities available as a result of the Transaction and the ability of the Company to realize such anticipated future growth opportunities; risks relating to delays, regulatory changes and impacts, capital requirements, construction impacts, supply chain disruptions, the occurrence of plant pestilence, the ability to obtain and maintain licences to retail cannabis products; review of the Company's production facilities by Health Canada and maintenance of licences (including any amendments thereto) from Health Canada in respect thereof; future legislative and regulatory developments involving cannabis; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the labour market generally and the ability to access, hire and retain employees; general business, economic, competitive, political and social uncertainties; the satisfaction of conditions precedent under the Company's credit facilities; timing and completion of construction and expansion of the Company's production facilities and retail locations; and the delay or failure to receive board, regulatory or other approvals, including any approvals of the TSXV, as applicable, for any matters in relation to the Company's ongoing operations.  Many of these risks and uncertainties and additional risk factors are described in the Company's management's discussion and analysis for the three and six months ended June 30, 2024 and 2023, which are available under the Company's profile at www.sedarplus.ca.

With respect to forward-looking statements and FOFI contained in this news release, Decibel has made assumptions regarding, but not limited to: the anticipated benefits of the Transaction; the anticipated synergies and growth opportunities available upon closing the Transaction; growth of the brand and recognition in Canada will lead to growth internationally; demand for Decibel's products; streamlining of operations and a transition towards automation will improve Decibel's balance sheet; Decibel's ability to enter new markets and industry verticals; Decibel's ability to attract, develop and retain key personnel; Decibel's ability to raise additional capital and to execute on its expansion plans; the timelines for new product launches, Decibel's ability to continue investing in infrastructure and implement scalable controls, systems and processes to support its growth; the impact of competition; the changes and trends in Decibel's industry or the global economy; the Company's ability to generate sufficient cash flow from operations and obtain financing, if needed, on acceptable terms or at all; the general economic, financial market, regulatory and political conditions in which the Company operates; the ability of the Company to ship its products and maintain supply chain stability; consumer interest in the Company's products; anticipated and unanticipated costs; government regulation of the Company's activities and products; the timely receipt of any required regulatory approvals; the Company's ability to conduct operations in a safe, efficient and effective manner; the Company's construction plans and timeframe for completion of such plans; and the changes in laws, rules, regulations, and global standards.

Any financial outlook or future oriented financial information (in each case "FOFI") contained in this news release regarding the Company's prospective financial position, including, but not limited to net revenue and adjusted EBITDA projections relating to AgMedica's operations, net revenue and adjusted EBITDA projections relating to the Company on a pro-forma basis in 2025 and the information provided under the Q3 2024 Guidance heading in this news release, is based on reasonable assumptions about future events, including those described above, based on an assessment by management of Company of the relevant information that is currently available. The actual results will likely vary from the amounts set forth herein and such variations may be material.

Readers are cautioned that the foregoing list of assumptions and risk factors is not exhaustive. The forward-looking statements and FOFI contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements and FOFI included in this news release are made as of the date hereof and Decibel does not undertake any obligation to publicly update such forward-looking statements and/or FOFI to reflect new information, subsequent events, developments or otherwise unless so required by applicable securities laws.

PRELIMINARY FINANCIAL INFORMATION

The Company's expectations for its Q3 net revenue and adjusted EBITDA (see "Cautionary Statement Regarding Certain Non-GAAP Measures" below) are based on, among other things, the Company's anticipated financial results for the three and nine month periods ended September 30, 2024. The Company's anticipated financial results are unaudited and preliminary estimates that: (i) represent the most current information available to management as of the date of this news release; (ii) are subject to completion of interim review procedures that could result in significant changes to the estimated amounts; and (iii) do not present all information necessary for an understanding of the Company's financial condition as of, and the Company's results of operations for, such periods. The anticipated financial results are subject to the same limitations and risks as discussed under "Forward-Looking Statements" above. Accordingly, the Company's anticipated financial results for such periods may change upon the completion and approval of the financial statements for such periods and the changes could be material.

CAUTIONARY STATEMENT REGARDING CERTAIN NON-GAAP MEASURES

This news release contains certain financial performance measures, namely adjusted EBITDA, that are not recognized or defined under IFRS (termed "Non-GAAP Measures"). As a result, this data may not be comparable to data presented by other licenced producers and cannabis companies. For an explanation of these measures to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, refer to the discussion below. The Company believes that these Non-GAAP Measures are useful indicators of operating performance and are specifically used by management to assess the financial and operational performance of the Company. Accordingly, these Non-GAAP Measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Adjusted EBITDA is a Non-GAAP Measure that is calculated as net income (loss) and comprehensive income (loss) excluding unrealized gain on changes in fair value of biological assets, change in fair value of biological assets realized through inventory sold, depreciation and amortization expense, share-based compensation, other income, finance costs, foreign exchange loss, non-cash production costs and severance payments. Non-cash production costs relate to amortization expense allocations included in production costs. This Non-GAAP Measure should be considered together with other financial information prepared in accordance with IFRS to enable investors to evaluate the Decibel's operating results, underlying performance and prospects in a manner similar to Decibel's management.  Adjusted EBITDA is intended to provide a proxy for the Company's operating cash flow and is widely used by industry analysts to compare Decibel to its competitors and derive expectations of future financial performance of the Company. Adjusted EBITDA increases comparability between comparative companies by eliminating variability resulting from differences in capital structures, management decisions related to resource allocation, and the impact of fair value adjustments on biological assets, inventory, and financial instruments, which may be volatile on a period to period basis.

^{____________________________
1} Adjusted EBITDA is a non-GAAP financial measure.  Refer to "Cautionary Statement Regarding Certain Non-GAAP Measures" at the end of this news release for further details.  Adjusted EBITDA for the year ended December 31, 2023 was $25.9 million.
² Adjusted EBITDA is a non-GAAP financial measure.  Refer to "Cautionary Statement Regarding Certain Non-GAAP Measures" at the end of this news release for further details.
³ Adjusted EBITDA for the third quarter of 2023 was $6.7 million.

SOURCE Decibel Cannabis Company Inc.