Vertical Integration and Retail Cannabis Sales
Certain provincial markets across Canada have allowed for licensed retail sale of cannabis products by private retailers. Management believes that there are a number of benefits to pursuing a vertical integration strategy into retail sales including:
- Control over a direct to consumer sales force and product distribution;
- Control over direct to consumer branding and marketing initiatives;
- Capturing additional revenues and gross margin from retail sales; and
- Direct feedback from consumers regarding product trends, marketing strategies, etc.
Management intends to build a network of dozens of "Delta 9 Cannabis Store" branded retail stores over the coming years in markets which allow for private retail sales.
On February 16, 2018, the Government of Manitoba announced that it conditionally awarded a consortium comprised of the Company and Canopy Growth the opportunity to become licensed to legally retail recreational use cannabis in the province of Manitoba. The issuance of the Manitoba retail licence (the "Retail Licence") was conditional on 10007705 entering into an agreement with the Government of Manitoba to establish and operate retail cannabis stores and satisfying a series of other conditions as part of the retail licensing process, all of which conditions have been satisfied.
The Retail Licence is held by 10007705, a company incorporated under laws of the province of Manitoba on December 14, 2017, equally owned by the Company and Canopy Growth. The Retail Licence allows each of the Company and Canopy Growth to licence individual retail store locations to sell recreational cannabis, which are independently owned, operated, and branded by subsidiaries of the Company and Canopy Growth, respectively.
On September 27, 2019, the Company opened its fourth retail cannabis store located in the City Center Mall in Thompson, Manitoba. As at December 31, 2019, the Company, through its partially-owned subsidiary Delta 9 Lifestyle, operated four retail stores that sell recreational cannabis under the trade name "Delta 9 Cannabis Store", with two in Winnipeg, one in Brandon, and one in Thompson, Manitoba. These retail stores are some of the largest volume retail cannabis stores across Canada.
On September 19, 2019, the Company, through its wholly-owned subsidiary Delta 9 Cannabis Store, entered into a binding letter of intent to enter into a definitive agreement (the "Modern Leaf Agreement") to acquire from Modern Leaf Group Inc. ("Modern Leaf") all or substantially all of Modern Leaf's assets located in the Province of Alberta relating to two proposed retail cannabis stores (the "Modern Leaf Transaction"). On November 21, 2019, the Company entered into the Modern Leaf Agreement.
The purchase price for the Modern Leaf Transaction is $1,300,000, subject to customary adjustments and other adjustments. $1,000,000 of the purchase price of the Modern Leaf Transaction will be satisfied through the issuance of 1,250,000 Common Shares at a price per Common Share of $0.80 based on the closing market price of the Common Shares on the TSX on September 19, 2019. $150,000 of the purchase price of the Modern Leaf Transaction was paid as a deposit that is non-refundable except where the Modern Leaf Transaction does not proceed due to the occurrence of certain events, or the discovery or disclosure of certain information. If the Modern Leaf Transaction proceeds, the deposit will be applied against the purchase price for the Modern Leaf Transaction, and the $150,000 balance of such purchase price will be satisfied in cash on the closing date of the Modern Leaf Transaction.
The Modern Leaf Transaction and the Modern Leaf Agreement are subject to, among other conditions: (i) the obtaining of all required third party and governmental consents, authorizations and licenses required in connection with the Modern Leaf Transaction and the operation of the proposed Alberta cannabis stores following the Modern Leaf Transaction, including, without limitation, all consents, authorizations and licenses required to be issued by AGLC; and (ii) the approval of the TSX. Subject to a satisfactory due diligence investigation, management of the Company anticipates the closing of the Modern Leaf Transaction to occur on or around March 30, 2020.
The Company plans to open and operate up to an additional 12 retail outlet stores in jurisdictions which allow for privatized cannabis retail over the next 24 months.
Management is actively pursuing retail expansion opportunities in all Canadian provinces which allow for privatized retail cannabis sales and will continue to expand on its vertical integration into the retail segment.
St. Vital, Winnipeg
A 3,500 Square Foot store located across from one of Winnipeg’s busiest malls. This location is the biggest store in southern Winnipeg, with accessibility to the surrounding neighbourhoods and the University of Manitoba.
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Obsorne Village, Winnipeg
A 2,500 square foot flagship store located in the iconic Osborne Village neighbourhood, with the highest population density and foot traffic in the city. Surrounded by restaurants, bars and boutique shopping, this location adds to the character of the area.View Store Menu
A 4,500 square foot super store located in Brandon, Manitoba’s largest shopping centre. This store serves all of Brandon and its numerous neighbouring municipalities.View Store Menu
A 2,500 square foot store in located in the largest mall in Thompson, Manitoba. With access from both inside the mall and from the outside, we can stay open later than the mall to better serve our customers.View Store Menu